Governor Northam announced on July 9 that Virginia’s FY 2020 shortfall was smaller than originally anticipated, with a General Fund (GF) deficit of approximately $236.5 million rather than the $1 billion that was initially feared earlier in the year. Revenue collections grew by 2 percent relative to FY 2019, but trailed the projections of 3.1 percent growth. While individual income tax nonwithholding collections met the forecast of a 4.3 percent decline, payroll withholding and sales tax collections, which jointly represent the lion’s share of state GF revenues, failed to meet expectations, falling 2 percent and 7 percent in the fourth quarter, respectively. In an article in the Richmond Times-Dispatch, Secretary of Finance Aubrey Layne indicated that he expects a revenue shortfall of $1 billion in FY 2021 and an additional $1 billion in FY 2022.
The Governor will present a full review of FY 2020 revenue collections during his presentation to the “money committees” on August 18. At this meeting, the Governor is also expected to release a revenue reforecast, which will be informed by the discussions of the Joint Advisory Board of Economists, which is scheduled to meet July 20, and the Governor’s Advisory Committee on Revenue Estimates, which will meet August 3. An improvement in the state’s finances may allow for the Administration and the legislature to revisit the $2.4 billion in proposed new spending that was “unallotted,” or paused, during the April reconvened session and potentially restore some priority spending items.
Although the pandemic’s impact to Virginia’s FY 2020 budget may have been cushioned by the strong performance of its major revenue sources earlier in the year, considerable uncertainty remains about the national economic picture. Reopening of businesses has generated job growth; the Bureau of Labor Statistics (BLS) reported July 2 that total nonfarm payroll employment grew by 4.8 million jobs in June, and unemployment fell from 13.3 percent to 11.1 percent. However, 17.8 million Americans were unemployed in June; BLS notes, “the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February.” In a June report, Moody’s Analytics argued for $500 billion in additional aid to state and local governments over the next two fiscal years in order to avoid “major damage” to the national economy. This analysis reflects the expected “drag” on the national economy of state and local revenue loss and Medicaid spending growth, and does not factor in a potential “second wave” of infections, which Moody’s predicts could cause a combined state and local budget shock (revenue losses and Medicaid spending increases) of $750 billion over two years.
VACo Contact: Katie Boyle