Governor Northam announced last week that state General Fund (GF) revenues continued to demonstrate “solid growth” in October. Total GF collections increased by 9.6 percent in October, and on a fiscal year-to-date basis, total revenue collections have grown by 8.5 percent, comfortably ahead of the forecast of 1.2 percent growth. Individual income tax withholding collections have increased by 5.7 percent on a fiscal year-to-date basis, outpacing the forecast of 4.2 percent growth; this continued steady growth is welcome given that withholding collections narrowly missed their forecast in FY 2019. Nonwithholding collections continue to outperform the annual estimate, with collections up 20.7 percent on a fiscal year-to-date basis; however, October is not a significant month for nonwithholding collections, and Secretary of Finance Aubrey Layne strongly cautioned both House Appropriations and Senate Finance during his presentations in October that there is significant uncertainty about how nonwithholding collections will perform during the all-important final quarter of FY 2020. Sales tax collections in October, reflecting September sales, also continued to perform well, growing by 8 percent on a fiscal year-to-date basis.
Governor Northam followed the positive revenue report with an additional piece of good economic news for the Commonwealth on November 19, announcing that Virginia’s seasonally-adjusted unemployment rate has dropped to 2.6 percent. The Bureau of Labor Statistics estimates that between October 2018 and October 2019, total seasonally-adjusted nonfarm employment increased by 0.7 percent statewide, reflecting a gain of 29,600 jobs, with increases in employment in nine of the state’s ten metropolitan areas.
This week the “money committees” are holding their annual retreats, which provide an opportunity for members to receive briefings on general economic conditions and topics that are expected to play major roles in budget deliberations in the upcoming legislative session. Members of the House Appropriations and House Finance Committees met November 19 and 20, and the Senate Finance Committee will hold its retreat later this week. House Appropriations staff, although expressing similar concerns about the uncertainty surrounding individual income tax nonwithholding collections, expect FY 2020 GF revenue growth of 3 percent; under these projections, the state would conclude FY 2020 with $428 million in additional revenues to address approximately $90 million in agency-identified needs. Due to continued uncertainty about the possibility of an economic slowdown in the near future, staff recommends depositing any surplus FY 2020 revenues not otherwise required for the current fiscal year into the state’s cash reserves. (The budget outlook presentation may be found at this link.)
Appropriations staff expect similarly modest but steady growth in GF revenues in the upcoming biennium, projecting growth of 3.1 percent in FY 2021 and 3.4 percent in FY 2022. Mandatory spending items identified by staff total $2.15 billion over the biennium and include expected commitments such as growth in the Medicaid forecast, growth in the Children’s Services Act, rebenchmarking of the Standards of Quality, funding of Medicaid waivers associated with the state’s settlement with the Department of Justice, and costs associated with inmate medical care. High-priority spending items identified include funding for Commonwealth’s Attorneys’ staff, election security positions at the Department of Elections, additional deputy court clerks, broadband investments, workforce development, and potential deposits to the Water Quality Improvement Fund; this list totals $662 million over the biennium.
The Joint Advisory Board of Economists (JABE) met on October 17, and the Governor’s Advisory Council on Revenue Estimates (GACRE) will meet November 25; these recommendations will be factored into the revised revenue forecasts that will be presented to the money committees on December 17 along with the Governor’s proposed biennium budget.
VACo Contact: Katie Boyle