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State General Fund Revenues Continue to Exceed Expectations in May

Earlier this week, Governor Youngkin released the most recent monthly report from Secretary of Finance Stephen Cummings on state General Fund revenues, which continued to perform well in May, led by a strong showing in individual income tax collections.  Total General Fund revenues were up by 14.2 percent in May; on a fiscal year-to-date basis, General Fund revenues have increased by 5.9 percent ($1.48 billion), and are ahead of the revised forecast included in the budgets approved last month by $1.09 billion.

Individual income tax withholding collections increased by 20.9 percent in May (year-over-year), and have grown by 5.5 percent fiscal year-to-date, outpacing the forecast by $152.9 million.  Individual income tax nonwithholding, typically one of the more volatile sources of state revenue, was up by 5.1 percent in May; although collections are down by 2.7 percent for the year, nonwithholding collections are outperforming the forecast by $575.8 million on a fiscal year-to-date basis.  Sales tax collections, the other major source of state General Fund collections, are up by 2.6 percent in May; revenues are down by 0.7 percent on a fiscal year-to-date basis, but are also ahead of projections, outpacing the forecast by $162.1 million.  Corporate income tax collections continued to underperform in May, declining by 92.5 percent, but Secretary Cummings’s memorandum notes that this drop is “mainly attributable to the timing of the issuance of corporate income tax refunds.”  On a fiscal year-to-date basis, collections in this source are down by 4.7 percent, and are lagging the forecast by $191.3 million.

In summarizing his outlook, Secretary Cummings wrote, “Revenue growth has exceeded expectations throughout FY 2024, supported by stronger than expected economic fundamentals which gives us confidence in the near term.  However, the path of future economic growth and resulting revenue collections will depend in large part on inflation and the Fed’s efforts to bring it under control.”  He pointed out that the Federal Reserve’s Federal Open Market Committee left interest rates unchanged at its meeting last week and has signaled one possible rate cut before the end of the year.  Federal Reserve Chairman Jerome Powell explained the Committee’s approach in his post-meeting press conference by noting that there has been “modest further progress toward our inflation objective [of 2 percent],” but that the Committee was not yet confident that inflation is moving “sustainably” toward the 2 percent target.

The next revenue report from the state is expected at the August meeting of the “money committees,” which typically includes a review of the recently-concluded fiscal year and traditionally marks a pivot toward budget development for the upcoming General Assembly session.  This meeting is scheduled for August 21.

VACo Contact:  Katie Boyle

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