Secretary of Finance Stephen Cummings briefed members of the House Appropriations and Senate Finance and Appropriations Committees on September 17 on state revenues and the economic outlook. He characterized August as a “quiet” month for state revenues, as the bulk of August revenues consist of income tax withholding and sales tax collections; September collections, which include estimated nonwithholding payments, are often viewed as a more significant indicator of revenue trends.
Revenues performed well in August, increasing by 2 percent for the month relative to last year. On a fiscal year-to-date basis, general fund revenues increased by 8 percent, outpacing the forecast by $205.7 million. However, as the Secretary pointed out in his presentations, the forecast was adopted as part of the May 2024 budget and largely reflects the economic assumptions of the fall 2023 forecasting process, which included an expected mild recession.
Virginia’s economy has outperformed the forecast’s expectations, and continues to experience low unemployment at 2.7 percent, substantially below the national rate of 4.2 percent. At the national level, inflation has moderated and the Federal Reserve’s Federal Open Market Committee cut the target federal funds rate by 50 basis points on September 18; while an interest rate cut was widely expected, some observers had predicted a smaller reduction. In the Committee’s September 18 statement, members explained that they have “gained greater confidence that inflation is moving sustainably toward 2 percent, and [the Committee] judges that the risks to achieving its employment and inflation goals are roughly in balance.” Speaking at the press conference after the rate reduction was announced, Federal Reserve Chair Jerome Powell characterized the national economy as “in good shape,” adding, “It’s growing at a solid pace, inflation is coming down, the labor market is in a strong place, we want to keep it there.”
The state budget process is well underway, with state agency budget requests due by September 20. The Joint Advisory Board of Economists will meet on October 8, and the Governor’s Advisory Council on Revenue Estimates will meet on November 25 to revise the revenue forecast in advance of the Governor’s December 18 presentation of his proposed budget amendments to the money committees.
In addition to the revenue report, the Senate Finance and Appropriations Committee received briefings from the state Department of Accounts and the Department of Education on the status of American Rescue Plan Act dollars provided to Virginia. Virginia received approximately $4.3 billion in State and Local Fiscal Recovery Fund dollars, of which approximately $3.9 billion has been obligated and $2.6 billion has been spent. Approximately $441 million remains unobligated as of June 30. Language in the 2024 Appropriation Act sets out a process for reallocation of dollars that would otherwise be unobligated prior to the December 31 federal deadline, with the first $3 million directed to the Virginia Tourism Authority, the next $170 million directed to the Child Care Subsidy Program, and any remaining funds used to support the Enhanced Nutrient Removal Certainty Program. Virginia ranks 15th among states in budgeting its allocation, 18th in obligating its funds, and 19th in expending funds.
Virginia also received three rounds of Elementary and Secondary School Emergency Relief (ESSER) Funds to support school divisions, with a set-aside allowed for the state; the first two rounds of funding have been closed, and school divisions’ deadline to obligate funds from the third round (ESSER III) is September 30. The Department of Education’s deadline to draw down grant funds from the United States Department of Education to reimburse school divisions for expenditures associated with these obligations is January 28, 2025; however, states may request approval for a delay in liquidating funds, and VDOE is submitting such a request.
The House Appropriations Committee also received an update on early childhood care and education from the Department of Education and a report on the Disability Law Center’s investigation into the tragic death of Irvo Otieno. These presentations will be posted at this link.
Following the Committees’ morning meetings, a joint workgroup on historic horse racing, which is composed of members from both House Appropriations and Senate Finance and Appropriations, held its first meeting. This workgroup was created by language in the budget and directed to address trends in pari-mutuel pools generated by historic horse racing and the distribution of this revenue to localities. The staff presentation on the current distribution of historic horse racing revenues may be found at this link, and a presentation by New Kent County Administrator Rodney Hathaway on the County’s support for live horse racing may be found at this link.
VACo Contact: Katie Boyle