Secretary of Finance Aubrey L. Layne, Jr., briefed members of the Senate Finance and Appropriations Committee on state revenue collections on September 15. While September collections (which will include estimated income tax payments for individuals and corporations, and August sales taxes) will provide a clearer picture of General Fund revenues, Secretary Layne suggested that revenue trends through August appear to support the revised revenue forecast in the Governor’s budget proposal that was presented to the legislature in August.
Total General Fund (GF) revenues decreased by 0.2 percent in August (in part reflecting one less deposit day), but have increased by 11.6 percent on a fiscal year-to-date basis. A large portion of this growth is attributable to nonwithholding collections affected by adjusted tax deadlines. Individual income tax withholding collections decreased by 4 percent in August, and have declined by 1.9 percent on a year-to-date basis, trailing the forecast of 2.4 percent growth; by contrast, sales tax collections have outperformed expectations, increasing by 15 percent on a fiscal year-to-date basis, instead of the forecasted 9.7 percent decline. According to Secretary Layne, all of the growth in this revenue source is attributable to online sales, while traditional brick-and-mortar retailers continue to struggle. Growth in sales taxes may also reflect a temporary boost in consumption underpinned by federal stimulus spending, which may not be extended in the near future. Continued low interest rates have bolstered the real estate market, which is reflected in an increase of 31.3 percent in recordation tax collections in August.
The Administration is preparing for an updated revenue reforecast, which will be incorporated in the Governor’s budget when it is presented December 16 for consideration by the 2021 General Assembly. The reforecast will be developed in consultation with the Joint Advisory Board of Economists, which will meet November 4, and the Governor’s Advisory Council on Revenue Estimates, which will meet November 23. Secretary Layne told committee members that although considerable uncertainty remains about the course of the economic recovery, it is likely that the December reforecast will not differ significantly from the August forecast – a sobering note of caution with respect to potential restorations of spending items that were included in the budget passed by the legislature in March but unallotted in April.
Secretary Layne also provided an update on use of the Coronavirus Relief Fund, outlining previously committed uses and proposals that are under review. The Administration is considering using funds for additional testing and contact tracing, as well as support for state hospitals, which have struggled to manage already-high census numbers during the pandemic. He also mentioned a recent proposal to use $200 million for K-12 needs, such as testing, PPE, and support for remote instruction, and assured committee members that the state will find uses for its share of the funds rather than returning unspent dollars to the federal government; bolstering the Unemployment Insurance Trust Fund would be one possibility. He noted that localities have used their allocations for similar priorities to those of the state, such as public health, public safety, K-12, and PPE, and suggested that distributing funds to localities has allowed the federal funding to be targeted to meet community needs and has proven to be an efficient way to make use of these resources.
Secretary Layne’s presentation may be found at this link.
VACo Contact: Katie Boyle