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Money Committee Retreats Offer Preview of Top 2019 Issues; State General Fund Revenues Continue Growth in October

Both the House Appropriations and Senate Finance Committees held their annual pre-Session retreats last week, discussing the state of the national economy, revenue projections for the remainder of the biennium, major budget pressures, and priority spending items. Staff to both committees expect additional revenues to flow into Virginia’s coffers in the remainder of FY 2019 and in FY 2020, but legislators will have to contend with several major claims on those revenues, notably an unexpected adjustment to the Medicaid forecast, as well as a variety of priority spending items identified by the committees. Legislators also must grapple with whether to revise Virginia’s tax code to address changes in federal tax policy incorporated in last year’s Tax Cuts and Jobs Act, and how to amend Virginia’s sales and use tax statutes in light of the U.S. Supreme Court’s decision in the South Dakota v. Wayfair, Inc. case.

House Appropriations staff project an additional $602.1 million in General Fund (GF) revenues above the forecast contained in the 2018 Appropriations Act, based on continued strength in the main sources of GF revenues: withholding and nonwithholding income taxes and sales taxes. Senate Finance staff also expect growth in excess of the 2018 forecast, estimating an additional $727.8 million in GF collections over the course of the biennium. These projected additional revenues do not include the effect of federal tax policy changes. Governor Northam provided more good news when he reported on November 14 that October, although not a significant month for revenue collections, continued the trend of growth in major revenue sources. On a fiscal year-to-date basis, GF revenues are up 4.5 percent, bolstered by continued strength in individual income tax collections (both withholding and nonwithholding). Sales tax collections fell by 1.7 percent, but remain ahead of the forecast on a fiscal year-to-date basis.

Staff to both committees identified a series of major funding commitments that will need to be addressed in the 2019 session, including the revised Medicaid forecast, which will require an additional $462.5 million over the biennium; expected increases in inmate medical costs; economic development incentives; and state costs for the response to Hurricane Florence. Additional priorities discussed by House Appropriations include shoring up Virginia’s cash reserves and a number of items of interest to local governments, such as funding the statutory ratio of 1 sheriff’s deputy per 1500 people in localities where the sheriff is responsible for law enforcement, funding 25 percent of positions required by the Compensation Board staffing standards but not currently funded, providing additional support for the Virginia Telecommunication Initiative, and supporting operations at state parks. Senate Finance’s priority list also includes school safety initiatives, higher education programs such as the New Economy Workforce Credential Grant program, and a potential reinsurance program to help bring down the cost of health insurance purchased through the individual market. Both committees received an update from Stephen Moret, President and CEO of the Virginia Economic Development Partnership, on Virginia’s selection for half of Amazon’s HQ2 project, which is expected to generate substantial tax revenue for the state but also entails funding commitments.

Presentations from House Appropriations are available at this link; presentations from Senate Finance are available at this link. The Governor’s Advisory Council on Revenue Estimates will meet on November 19; the Governor will present his budget, which will include any adjustments to the official revenue forecast, to the money committees on December 18.

VACo Contact: Katie Boyle

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