Virginia just ended the last fiscal year with a $132 million surplus and leading state lawmakers already are calling to put all of the money into a new savings account.
Gov. Terry McAuliffe announced Wednesday that the state had set a record for monthly revenue by collecting $2.2 billion in June, the last month of the fiscal year, and claimed progress in offsetting federal policies that he said “have hampered our commonwealth’s economy and impacted revenue collections.”
“Since I took office, we have worked feverishly to break that cycle by diversifying our economy and laying a foundation for long-term economic growth,” said McAuliffe, a Democrat who leaves office in January. “Those efforts are paying off, but at a time when Washington is more broken than ever, we cannot afford to let up now.”
Republican leaders in the House of Delegates quickly claimed credit for the surplus, which House Speaker William J. Howell, R-Stafford, called “the result of the Republican-led General Assembly’s responsible, conservative budgeting.”
House Majority Leader M. Kirkland Cox, R-Colonial Heights, and House Appropriations Chairman S. Chris Jones, R-Suffolk, went further and called for the entire surplus to be deposited in a new reserve account rather than the 50 percent required by the budget that took effect July 1.
“That 50 percent threshold is the floor of what should be considered for the reserve, and I hope the General Assembly will consider investing all of the surplus in the reserve fund,” Cox said in a statement.
Jones endorsed the majority leader’s proposal to “set aside the entirety of this surplus for the cash reserve fund to guard against economic uncertainty.”
“This fund, in addition to continued investment in the rainy day fund, will improve our posture with bond rating agencies and protect our prestigious triple-A bond rating,” the chairman said.
The surplus is good news for a state that has weathered two revenue shortfalls — in which tax collections fell below the amounts projected in the two-year budget — and continues to face uncertainty about potential cuts in federal spending in the fall that could harm Virginia’s military-dependent economy.
S&P Global Ratings, one of the country’s three major bond-rating agencies, raised concerns in late April about the state’s reliance on its revenue stabilization fund, the so-called rainy day fund, to offset revenue shortfalls that emerged at the end of the fiscal year in 2016 and 2014.
The rating agency maintained Virginia’s top triple-A bond rating but changed the outlook from stable to negative, in part because of the slow recovery of the state’s economy from recession and its vulnerability to further cuts in federal spending.
McAuliffe said the surplus is proof of the state’s “prudent fiscal management” by revising the revenue outlook last year after revenue fell short by an initial estimate of $1.5 billion for fiscal 2016 and the following two-year budget.
The governor is likely to confirm the surplus and address how to use it when he speaks to the House Appropriations and Senate Finance committees in August. The unofficial estimate released Wednesday showed that total revenues had grown by 3.6 percent, compared with a forecast of 2.9 percent.
The biggest source of revenue in the fiscal year was state income taxes withheld from paychecks, which accounts for almost two-thirds of revenue for the general fund that pays for core government services, such as education, health care and law enforcement. Those collections grew 5.2 percent in the fiscal year, compared with a budget forecast of 3.6 percent, which amounted to a $182 million gain.
Corporate income taxes also increased by 8.1 percent compared with the forecast of 3.8-percent growth for an increase of $32 million for the year.
But those gains were partly offset by lagging collections of sales taxes, which were almost 1 percent less than forecast for a shortfall of about $29 million, and estimated income tax payments, driven by capital gains on investment, that also came in about $30 million less than projected.
The state also fell short in collections of taxes on court recording of deeds, wills and lawsuits and insurance premiums while paying out more in income tax refunds than expected.
Secretary of Finance Richard D. “Ric” Brown said the shortfall in projected income non-withholding taxes reflects uncertainty by investors over federal tax policies on investment gains.
Sales tax collections show both continued weakness in consumer purchasing, as well as the increase in online sales that aren’t taxed like those made in so-called “bricks-and-mortar” retail businesses.
“Online sales, they’re increasing and big box stores are disappearing,” Brown said.