Governor Northam announced last week that the state appears to have closed FY 2018 with a significant General Fund (GF) revenue surplus, based on preliminary figures. According to the Governor’s statement, the surplus is estimated at $551.9 million, representing 6.3 percent growth relative to the previous year, and is largely attributable to growth in individual income tax withholding and nonwithholding payments. Payroll withholding revenues grew by 5.4 percent, comfortably ahead of the forecast of 3.5 percent growth, and nonwithholding revenue far outpaced the forecast of 4.3 percent growth, increasing by 15.1 percent. Sales tax collections grew by 3.1 percent, slightly above forecasted growth of 3 percent.
In a Richmond Times-Dispatch article, Secretary of Finance Aubrey Layne suggested that the increase in income tax withholding may reflect long-term economic growth, while some of the large increase in income tax nonwithholding, traditionally a volatile revenue source, may be subject to refunds later this year, as some taxpayers have made estimated payments but not yet filed returns. A portion of the growth in income tax withholding may also be attributable to a quirk of the calendar this year, as businesses may have made deposits at the end of June rather than the first week of July to accommodate the Independence Day holiday falling on a Wednesday. July 2018 revenues will need to be assessed in concert with June 2018 revenues to determine if some of the additional June collections reflected a shift from one month to another.
In accordance with statutory and budget language passed earlier this year, the surplus will be deposited into the new Revenue Reserve Fund, after any required deposits to the Revenue Stabilization Fund and the Water Quality Improvement Fund. The new cash reserve was created in part to alleviate concerns expressed by Standard and Poor’s last year that Virginia’s reserves were insufficient to weather potential future economic downturns.
The Governor will present more detailed information to the “money committees” on August 17.
VACo Contact: Katie Boyle