Governor Spanberger addressed a joint session of the legislature’s “money committees” on Wednesday, August 19, reporting that general fund revenues grew $2.1 billion over the previous year, exceeding the forecast by $938.8 million. The Governor attributed this strong performance to careful budgeting, a robust stock market, and continued resilience in income tax withholding collections despite job losses. However, the Governor cautioned that actions at the federal level have injected uncertainty into budget planning in addition to shifting certain costs to the state budget.
In taking stock of her tenure in office thus far, the Governor referenced a conversation with the Secretary of Labor, who drew an analogy with higher education in describing the Administration as having finished its first semester of freshman year, with seven semesters ahead. She highlighted her legislative initiatives in health care, energy, and housing, and noted that members of her Cabinet had dedicated significant time to public outreach, through listening tours and other forms of public engagement. She signaled her commitment to ongoing work to improve residents’ experience when interacting with government, including a focus on modernizing state government technology.
Secretary of Finance Mark Sickles provided additional details on FY 2026 revenues and several economic data points that will likely inform forecasting for future years. The state’s main sources of General Fund revenue – individual income taxes and sales and use taxes – continued to perform well, with net individual income tax collections and sales and use tax collections outperforming the forecast by 3.6 percent and 3.2 percent, respectively. However, a majority of the overperformance in overall state General Fund collections was attributable to growth in individual income tax nonwithholding collections and the issuance of fewer income tax refunds than anticipated – two elements that have traditionally been volatile and challenging to forecast. Although the state lost 43,600 jobs over the fiscal year, and job losses were concentrated in professional and business services and federal employment – two areas of traditional strength for Virginia — average wage growth of 3.3 percent helped to mitigate these losses. Secretary Sickles also noted that some job losses may reflect employees retiring earlier than planned; since retirees pay income taxes on much of their retirement income, this trend may also counterbalance the effect of job losses on state income tax collections. Sales and use tax collections demonstrated strong growth of 6.5 percent, with approximately 4.4 percentage points attributable to personal consumption; Secretary Sickles noted that the declining personal savings rate is a concerning trend, as it may reflect individuals dipping into savings or reducing their saving in order to maintain their current standard of living.
The 2026-2028 biennium budget enacted in late June assumes total General Fund revenue growth of 4.1 percent in FY 2027 (2.3 percent excluding the expected $600 million per year from the temporary tax on data center electricity consumption imposed in the budget). July revenues provided a strong start to the fiscal year, with 7.8 percent growth year-over-year, although a large portion of this variance was attributed to corporate income taxes and sales and use taxes; corporate income tax collections tend to vary in July, and July sales and use tax collections reflected several unusually large payments, so no broad conclusions should be drawn from July collections.
The process of developing the Governor’s proposed amendments to the 2026-2028 biennium budget is underway, with state agency requests due in mid-September. As part of the budget development process, the Joint Advisory Board of Economists will meet in October to review economic assumptions, followed by the Governor’s Advisory Council on Revenue Estimates, which will meet in November to assist in developing the revenue forecast that will be embedded in the Governor’s budget proposal. The Governor will present her proposed amendments to the money committees on December 17.
VACo Contact: Katie Boyle