Secretary of Finance Stephen E. Cummings reported positive news on state General Fund revenue collections in the first two months of FY 2024 in his presentation to the Senate Finance and Appropriations Committee on September 19, although he continued to advise caution in the face of ongoing economic uncertainty. General Fund revenues are up by 0.9 percent on a fiscal year-to-date basis, $204.8 million ahead of the forecasted 5.5 percent decline, although almost half of that additional revenue is attributable to interest income that must be distributed to nongeneral fund accounts quarterly. Collections in the state’s main General Fund revenue sources – individual income tax withholding and sales and use taxes — were generally in line with the forecast or slightly ahead of the forecast. Withholding collections were flat on a fiscal year-to-date basis relative to the prior year, and $23.5 million ahead of the forecast. Sales tax collections were 4.4 percent higher on a fiscal year-to-date basis, running ahead of the forecasted 6.7 percent decline. Secretary Cummings noted that although the average rate of employment growth in Virginia has slowed to 2 percent, unemployment is low (2.5 percent on a seasonally-adjusted basis, well below the national rate of 3.5 percent), and Virginia’s labor force participation rate of 66.7 percent is higher than the nation’s (which stands at 62.8 percent). A recent announcement from the Governor pointed out that Virginia’s labor force participation rate is the highest since 2012.
Secretary Cummings noted that the forecast in the recently-approved budget revisions (enacted as Chapter 1) was “intentionally conservative,” pointing to several areas of uncertainty that warrant caution: tightening in consumer credit, a softening labor market, concerns about the health of China’s economy, and the possibility of a federal government shutdown, as well as continued high inflation, rising oil prices, and increases in health care costs. August is traditionally not a significant month for state revenue collections, while September collections include estimated payments for nonwithholding and corporate payments, helping to provide a clearer picture of state finances.
A similar approach of watchful waiting was on display later in the week at the September 19-20 meeting of the Federal Reserve’s Federal Open Market Committee, which opted to maintain current interest rates. Federal Reserve Chair Jerome Powell explained at his post-meeting press conference that although inflation is still above the Federal Reserve’s longer-run goal of 2 percent, the full effects of previous rate hikes have not been fully realized, and the Committee planned to proceed carefully to monitor the evolving economic outlook in determining its future course of action. Economic projections by Committee members indicate that the median projection for core PCE inflation (personal consumption expenditures excluding food and energy) is 3.7 percent this year (a decline from the 3.9 percent projected at the June meeting), reaching the 2 percent target in 2026. The median projection by Committee members is for interest rates to remain at higher levels for a longer duration than was projected in June.
Although the revisions to Virginia’s current biennium budget were enacted last week with the Governor’s approval of the budget bill on September 14, concluding a months-long negotiation, the process of developing the Governor’s budget for the next biennium is already underway. State agencies must submit requests for consideration for inclusion in the Governor’s proposal by September 29. The Joint Advisory Board of Economists will meet October 11; the Governor’s Advisory Council on Revenue Estimates has already met once (on August 7) and will meet again on November 20 in advance of the Governor presenting his proposed budget to the “money committees” on December 20, which will include a revised forecast for FY 2024 and forecasts for FY 2025 and FY 2026.
VACo Contact: Katie Boyle