Governor Ralph Northam announced last week that state General Fund revenues experienced a significant increase in February, but remain below the annual forecast on a fiscal year-to-date basis; the Administration expects stronger growth later in the fiscal year. The spike in revenues in February, representing growth of 26.6 percent, is largely attributed to slower-than-normal issuance of income tax refunds; the Department of Taxation was unable to process tax returns until the General Assembly acted on tax conformity legislation to align Virginia’s tax code with the federal Internal Revenue Code. State legislation largely conforming to provisions of the federal Tax Cuts and Jobs Act was enacted in mid-February and signed by the Governor on February 15. Secretary of Finance Aubrey Layne’s February Revenue Report memorandum notes, “March should provide a better assessment of refund activity as the backlog of returns is processed.”
On a fiscal year-to-date basis, revenue collections grew 3.5 percent, lagging the annual forecast of 5.9 percent growth. Individual income tax collections grew by 3.1 percent on a year-to-date basis, also behind the forecast of 6.7 percent growth for this revenue source. Continued strength in sales and use tax collections is a positive indicator; February collections grew 4.2 percent, and are outpacing the annual estimate of 3.7 percent growth with year-to-date growth of 4.1 percent.
In another positive sign, Virginia’s unemployment rate remains low, with January’s seasonally-adjusted unemployment rate at 2.8 percent for the sixth month in a row. The Virginia Employment Commission (VEC) notes that Virginia’s seasonally-adjusted unemployment rate remains below the national level, which was 4 percent in January; the VEC also points out that between January 2018 and January 2019, the state’s seasonally-adjusted total nonfarm employment increased by 1.1 percent (or 44,100 jobs), with the largest gains in the professional and business services sector, followed by leisure and hospitality. Between January 2018 and January 2019, all metropolitan areas experienced some job growth, with the largest gains in Northern Virginia, followed by the Richmond area.
The national economic picture is difficult to decipher. The February jobs report was disappointing, with only 20,000 nonfarm payroll jobs added, following a strong January report showing the addition of 311,000 jobs. In its 10-year economic forecast released in January, the Congressional Budget Office projects real Gross Domestic Product (GDP) growth of 2.3 percent in 2019, a slowing of growth relative to the 3.1 percent growth experienced in 2018, and average annual growth of 1.7 percent from 2020 to 2023. The Federal Reserve’s Federal Open Market Committee also projected 2.3 percent growth in real GDP in 2019 at its December meeting, slowing to 2 percent growth in 2020. By contrast, the Trump Administration’s economic forecast, included in the Economic Report of the President released on March 19, projects real GDP growth of 3.2 percent in 2019 and 3.1 percent in 2020. The Federal Open Market Committee is meeting again this week and is expected to take a measured approach to interest rate increases this year in light of concerns about slowing global growth.
VACo Contact: Katie Boyle