State General Fund Revenues Continue Growth in May

June 18, 2018

Governor Ralph Northam announced last week that state General Fund (GF) revenues grew by 1.4 percent in May relative to the same period last year, and revenues continue to outpace the annual forecast on a fiscal year-to-date basis. Secretary of Finance Aubrey Layne’s revenue report notes that individual income tax withholding, a mainstay of GF revenue collections, turned in a strong performance in May, growing 12.6 percent; on a fiscal year-to-date basis, withholding collections have grown 5.1 percent, comfortably ahead of the annual estimate of 3.5 percent growth. Individual income tax nonwithholding payments were down in May, but typically these receipts must be analyzed in tandem with April collections; viewed together, collections were up more than 12 percent from the same period last year, and on a fiscal year-to-date basis, nonwithholding is up 15 percent relative to the same time period a year ago. This revenue source has been volatile in the past, and Secretary Layne notes that many individual income tax refunds may be due to “high net worth taxpayers” who have not yet filed 2017 state tax returns. Sales tax collections (reflecting April sales) grew by 0.8 percent in May – a slackening relative to stronger collections in April – but are still tracking the annual estimate of 3 percent growth on a fiscal year-to-date basis.

In accordance with budget language enacted earlier this month, FY 2018 surplus revenues will be deposited into the new Revenue Reserve Fund (after other requirements, such as deposits to the Water Quality Improvement Fund, are met) in order to strengthen the state’s financial position in the event of an economic downturn or other financial stressor. Media reports have indicated that Standard and Poor’s, which had placed a negative outlook on Virginia’s AAA bond rating in April 2017 due to concerns about the state’s low revenue reserves relative to its AAA-rated peers, has revised its outlook to “stable” and reaffirmed the AAA rating. Moody’s Investors Service has similarly reaffirmed the state’s rating and stable outlook.

The Governor is expected to report on June revenues as part of his address to the “money committees” in August. Secretary Layne’s memorandum is available here.

VACo Contact: Katie Boyle

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