State General Fund revenues demonstrated continued strength in September, a significant month for revenue collections and a key data point in the development of revenue forecasts for the upcoming biennium budget. In presentations to the House Appropriations and Senate Finance and Appropriations Committees this week, Secretary of Finance K. Joseph Flores characterized the economy as continuing to progress despite “potholes” associated with the delta variant of the COVID-19 virus and supply chain disruptions.
Total state General Fund revenues increased by 18.4 percent in September, and have grown by 10.6 percent on a fiscal year-to-date basis, in contrast to a forecasted 8 percent decline. Income and sales and use tax collections – described by Secretary Flores as the “bread and butter” of General Fund revenues – continued to demonstrate strong growth, with individual income tax withholding up 9.7 percent on a fiscal year-to-date basis, well ahead of the forecast of 1.7 percent growth. Nonwithholding collections grew by 25.2 percent in September (when the first estimated payments for FY 2022 were due); Secretary Flores noted that this growth was attributable to a strong stock market and larger numbers of taxpayers making estimated payments. On a fiscal year-to-date basis, collections have declined by 12.2 percent, although the forecast projected a steeper drop of 25.4 percent. This revenue source has historically been volatile, and in recent years the bulk of non-withholding collections have been concentrated in the last quarter of the fiscal year. Overall, net individual income tax collections are up 7.6 percent on a fiscal year-to-date basis, in contrast to a forecasted 7.6 percent decline; however, when adjusting for anomalies in the timing of filing and processing returns last year, these revenue collections have grown by 15 percent on a year-to-date basis.
Sales and use tax collections, reflecting August sales, have grown by 16.7 percent on a fiscal year-to-date basis, well ahead of the forecasted 4.2 percent decline. Secretary Flores noted that rising prices generated by inflation are likely a factor in these collections. Recordation tax collections turned in the strongest July-September quarterly performance since July-September 2006, reflecting a robust housing market, as well as refinancings spurred by low interest rates.
The development of the 2022-2024 biennium budget is well underway. State agencies’ deadline to submit budget requests was October 1, and the Governor met with the Joint Advisory Board of Economists (JABE) October 13. Secretary Flores reported to the money committees that there was consensus among JABE members that economic growth would likely slow in the remaining months of calendar year 2021, with growth picking up in the beginning of calendar year 2022. The “money committees” will hold their annual retreats in mid-November to discuss economic trends and priority issues for the upcoming session. The Governor’s Advisory Council on Revenue Estimates will meet November 22, and the Governor will present his proposed biennium budget, as well as amendments to the FY 2022 budget, on December 16. Secretary Flores’s presentation is available at this link and the revenue report is available at this link.
In addition to the revenue update from Secretary Flores, the Senate Finance and Appropriations Committee received a briefing from Virginia Lottery Executive Director Kevin Hall at its October 19 meeting. Mr. Hall reported that FY 2021 represented the Lottery’s most successful year ever, with record-breaking growth in sales and profits for K-12. The Lottery reported $3.3 billion in sales and $765 million in profits for K-12, a 30 percent increase from the previous year. Mr. Hall also provided an update on sports betting in the Commonwealth, which was recently legalized. Ten operators are currently licensed, with five additional applicants under review; from January to August 2021, the state collected $11 million in tax revenue from the 15 percent excise tax on adjusted gross revenues of permit holders, of which most ($10.8 million) was directed to the General Fund, with a small set-aside to the Department of Behavioral Health and Developmental Services for the Problem Gambling Treatment and Support Fund as required by statute.
VACo Contact: Katie Boyle