Fiscal Year 2016 General Fund Revenue Collections Increase 1.7% But Fall $266.3 Million Short of Forecast
~Payroll Withholding and Sales Tax Collections Account for the Shortfall~
RICHMOND – The Commonwealth of Virginia closed fiscal year 2016, which ended on June 30, with positive general fund revenue growth over last year. This year’s $18.0 billion in revenue collections set a new record for annual gross receipts, but fell short of the official budgetary forecast for the year. Preliminary figures indicate that the state concluded fiscal year 2016 with 1.7 percent growth in general fund revenue collections, excluding transfers, but faces an approximate $266.3 million shortfall from the official forecast. Total general fund revenues were forecast to increase 3.2 percent in fiscal year 2016. This represents a 1.5 percent forecast variance from the official budget estimate, with payroll withholding and sales tax receipts falling short of expectations. The final fiscal year 2016 tally, including transfers, will not be available until August 26th when it will be released to a Joint Legislative Money Committee meeting.
As required by law, the State Comptroller submitted a report to the Governor today on the preliminary results of revenue collections for fiscal year 2016. The data indicate that total individual income, corporate income and sales tax collections were 1.8 percent below the official budget estimates for the year. Since this shortfall is more than 1.0 percent below the official budget estimate for these sources, a re-estimate of general fund revenues is required per the Code of Virginia to be completed by September 1. Language in the Appropriation Act also requires that pay increases for state and state-supported local employees, slated for December 1, cannot move forward pending budgetary actions to address the shortfall.
Upon receipt of the Comptroller’s findings, Governor McAuliffe stated, “Although these results indicate that our economy continues to grow in the wake of the recession and sequestration, they also underscore the necessity of continuing our work to diversify the Virginia economy and create more and better paying jobs in the state. We are having significant success bringing more than 135,000 net new jobs to the Commonwealth that are helping to buoy our revenue collections, but we have more work to do to build the new Virginia economy that will result in greater opportunity and budgetary certainty in the future. The bipartisan budget that we worked with the General Assembly to pass, which invests in many the priorities we need to stimulate that growth, will serve as a good foundation for the work we will do together to meet these challenges and continue our upward economic trajectory.”
The Governor further added, “For the last couple of months, we have communicated our concern that revenue collections were tracking under forecast to the General Assembly and to the public, and our administration has proactively planned to respond to such a scenario. We urged state agencies to conserve resources in order to help offset a future shortfall, and we tentatively scheduled meetings of the Joint Advisory Board of Economists on July 15th and the Governor’s Advisory Council on Revenues Estimates on August 15th. These meetings will now take place, as both Boards fulfill their roles to assist us in developing a revised general fund revenue forecast for the new biennium. The revised forecast will be prepared by September 1, in accordance with existing law.”
Analysis of Fiscal Year 2016 Revenues
Based on Preliminary Data
- Total general fund revenue collections, excluding transfers, were short of the official forecast by $266.3 million (1.5 percent variance) in fiscal year 2016.
- The 25 year average general fund revenue forecast variance is plus or minus 1.5 percent.
- Payroll withholding and sales tax collections, 85 percent of total revenues, and the best indicator of current economic activity in the Commonwealth, finished 2.0 percent below forecast.
- Estimates for these two sources are directly tied to the economic outlook developed during the fall forecasting process, and specifically, the outlook for jobs and wage income in the Commonwealth.
- Payroll withholding growth of only 2.4% seems to have been affected by the addition of jobs in lower wage categories and increases in part-time employment.
- Most likely, a very wet spring was also a factor that contributed to lower sales tax growth of 1.9 percent, as home construction and home furnishing and fixtures are a significant portion of taxable retail sales.
- The outcome for sales tax collections is most also likely influenced by the growth of internet sales.