Governor Ralph Northam announced this week that the fourth quarter of state revenue collections is off to a strong start, with General Fund (GF) revenues demonstrating growth in the state’s major revenue sources in April. Total GF revenues grew 27.4 percent in April, and on a fiscal year-to-date basis, revenues have grown 6.2 percent, edging ahead of the annual forecast of 5.9 percent growth. Although April collections need to be considered in tandem with May receipts due to the timing of payments for individual income tax non-withholding, the Governor expressed optimism in his announcement of April collections that the state would meet the annual forecast, which is necessary in order for the state to issue the full individual income tax refunds envisioned in the Appropriations Act. Secretary of Finance Aubrey Layne expressed similar confidence in an article in the Richmond Times-Dispatch. As part of the discussions during the 2019 General Assembly about how the state should address the effect of the federal Tax Cuts and Jobs Act of 2017 on state income taxpayers, the state budget provides for individual income tax refunds of up to $110 for single filers and $220 for married filers, due to be distributed in October 2019; these amounts will be pro-rated if FY 2019 revenues do not meet the forecast.
Individual income tax withholding grew by 7.4 percent in April, and year-to-date growth of 3.7 percent is close to the forecast of 3.8 percent. Individual income tax nonwithholding is up substantially relative to last April, but year-to-date growth of 6.7 percent is below the forecast of 15.2 percent growth; however, May receipts will provide a clearer picture of the performance of this revenue source. Similarly, although fewer individual income tax refunds have been issued thus far this year than the same period last year, Secretary Layne’s memo cautions that there is “significant uncertainty” surrounding refunds this year due to the delay in refund processing while the legislature negotiated changes to Virginia’s tax code spurred by the 2017 changes in federal law. Sales tax collections rebounded in April after a disappointing March, growing by 2.9 percent, and fiscal year-to-date growth of 3.4 percent remains close to the annual forecast of 3.7 percent growth.
In the same Richmond Times-Dispatch article, Secretary Layne suggested that major additional revenue growth is not expected in the next biennium. Unemployment remains low in Virginia; according to the Virginia Employment Commission, Virginia’s seasonally-adjusted unemployment rate remained at 2.9 percent in March, below the national rate of 3.8 percent (which has subsequently declined to 3.6 percent). Between February and March, seasonally-adjusted nonfarm employment grew by 0.2 percent in Virginia (8,000 jobs), and was up by 0.9 percent relative to March 2018 (35,500 jobs). At the national level, April’s jobs report from the Bureau of Labor Statistics reflected nonfarm payroll employment growth of 263,000 jobs, building on March growth of 189,000 jobs. However, uncertainty remains regarding the potential effects of increases in tariffs on goods imported from China, as well as how Congress will address the federal debt ceiling, which was reached in March.
Secretary Layne is scheduled to brief the House Appropriations Committee next week. His revenue memorandum is available at this link.
VACo Contact: Katie Boyle