On May 14, Governor Northam released an update on state General Fund revenues through April 2020, and Secretary of Finance Aubrey Layne briefed the House Appropriations and Senate Finance and Appropriations Committees on May 18 and 19, respectively. As expected, state revenues declined significantly in April; however, a large portion of the reduction is attributable to the Governor’s decision to delay individual and corporate income tax payment deadlines until June 1, 2020. A clearer picture of the state’s economic condition is expected to emerge at the end of the fiscal year, although uncertainty remains about the degree to which consumer confidence – a key element of economic recovery — will rebound in the near term.
Total General Fund (GF) revenues declined by 26.2 percent in April; on a fiscal year-to-date basis, revenues increased by 1.4 percent, lagging the forecast of 3.1 percent growth. Withholding collections grew by 4.2 percent in April, but Secretary Layne pointed out that this growth is likely attributable to two additional deposit days falling in April, and collections in this source will need to be analyzed in tandem with May figures; he estimated that collections would have declined by 5 to 6 percent in April if not for the additional deposit days. On a fiscal year-to-date basis, individual income tax withholding collections are on pace with the forecast of 4.7 percent annual growth, buoyed by a strong performance prior to the pandemic. Sales tax collections in April (reflecting March sales), declined by 0.4 percent, but are also meeting the annual forecast on a fiscal year-to-date basis due to robust collections prior to March. Secretary Layne’s presentation notes that increased sales at grocery stores, large retailers, and ABC stores averted otherwise greater losses in this revenue source. Declines in individual income tax non-withholding – a drop of 61.8 percent in April and 19.3 percent on a year-to-date basis – account for the majority of the April reductions, but some of these losses will likely be recouped in the coming weeks as payments are made in advance of the deferred June 1 deadline.
Secretary Layne informed both “money committees” that the projections for revenue losses of $1 billion for FY 2020 appear to be sound based on collections thus far. He suggested that a revenue reforecast for the upcoming biennium could be developed in the next 60-70 days, as by that time there would be data points that could be used in forecasting, cautioning that attempting to develop a forecast now would require the state to assume a worst-case scenario and budget very conservatively. He pointed to several factors that have cushioned the economic shock of the pandemic in Virginia: a strong federal employment and federal contracting presence, a large technology sector with jobs that can be performed remotely, actions by the Federal Reserve to hold interest rates at low levels and engage in extensive lending, and the relief packages enacted by Congress that, among other provisions, injected money into the state’s economy by providing direct assistance to individuals and businesses.
Secretary Layne also provided updates on allocations of federal funding to the state in the four stimulus bills enacted by Congress to date. Virginia has received, or is expected to receive, approximately $6.1 billion thus far through more than 60 funding streams, many of which reflect supplemental appropriations to existing funding formulas and are required to be used for certain specified purposes (such as funding for child care, Head Start, or elections administration). Of particular interest to local governments and of most flexible use to the state is the $3.1 billion allocation of Coronavirus Relief Fund dollars, which may not be used to replace lost revenue, but may be used to cover certain expenditures related to the pandemic response. Secretary Layne’s presentation includes a breakdown of federal stimulus funding provided to the state thus far, as well as a listing of Coronavirus Relief Fund dollars planned to be distributed to cities and counties in early June.
VACo Contact: Katie Boyle