Governor Northam announced on July 14 that Virginia’s FY 2021 General Fund surplus is estimated at $2.6 billion, based on preliminary figures. While a complete analysis will be released on August 18, when the Governor speaks to the “money committees,” initial data released by the Administration indicates that Virginia’s core revenue sources, income tax withholding and sales and use taxes, turned in solid performances, growing by 4.7 percent and 12.4 percent, respectively. Payroll withholding was projected to grow by 2.7 percent and 4.7 percent growth was projected for sales taxes. The Governor pointed out that both brick and mortar retail and online sales experienced growth (7.6 percent and 32.3 percent, respectively).
The special session that will convene August 2 is not expected to address the FY 2021 surplus, focusing instead on directing the use of federal relief funds provided to the state through the American Rescue Plan Act (ARPA) and judicial appointments. The Governor will have an opportunity to propose uses for the budget surplus funds in his outgoing budget, which will be presented to the money committees in December. Constitutional and statutory obligations will require a significant portion of the surplus to be deposited in the Revenue Stabilization Fund and the Water Quality Improvement Fund.
Later in the week, the Virginia Employment Commission (VEC) announced that the state’s seasonally-adjusted unemployment rate declined by 0.2 percentage point in June, and now stands at 4.3 percent. Relative to June 2020, total nonfarm jobs grew by an estimated 190,400, representing a 5.1 percent increase, with the largest job gains in the leisure and hospitality and trade and transportation sectors. While unemployment rates have not returned to pre-pandemic levels (Virginia’s seasonally-adjusted unemployment rate was 2.6 percent in February 2020), the June unemployment rate is 4.5 percentage points lower than a year ago, and Virginia continues to outperform the national rate, which is 5.9 percent. A few days after the VEC report, the Virginia Lottery announced more good news, reporting record-setting profits of $765 million for FY 2021, $57 million above projections. Senate Finance and Appropriations Committee Chair Janet Howell pointed out in an article in the Richmond Times-Dispatch that additional lottery revenues, which support K-12 education, will assist in funding the costs associated with rebenchmarking the Standards of Quality in the upcoming biennium.
While the state’s bottom line appears to be healthy, some concern remains at the national level about rising inflation. The Consumer Price Index increased by 5.4 percent in June relative to the previous year, driven largely by used car prices, according to the Federal Reserve. In prepared remarks to Congressional committees, Federal Reserve Chair Jerome Powell said, “Inflation has increased notably and will likely remain elevated in coming months before moderating,” but attributed the increase to supply constraints and pent-up demand for services, as well as “base effect” distortions created by comparing current prices with those that were unusually low last year as a result of the pandemic.
VACo Contact: Katie Boyle