Governor Announces Mid-Session Revenue Reduction of $140 Million Due to Weak January and Year-To-Date Revenue Collections; Offers Budget Actions to Cover Reduced Revenue Growth
RICHMOND- Today, Governor Terry McAuliffe briefed House and Senate budget committee leaders on the preliminary mid-session revenue reforecast numbers. This review involves an analysis of two elements: updated economic information and actual revenue collections for the first seven months of the current fiscal year, which started July 1, 2013. The Governor offered several budget solutions to cover the reduced revenue growth that was projected.
“Although our underlying economic forecast has not changed, it is clear that the current revenue receipts warrant caution,” said Governor McAuliffe. “In order to remain prudent, we must adjust our revenue estimates downward, which will help reduce future risks. After consulting with my economic team, it is my recommendation that we reduce the general fund revenue estimates for fiscal year 2014 by $125 million and the general fund revenue estimate for fiscal year 2015 by $15 million.”
Total general fund revenue collections fell 5.9 percent in January with declines in all major sources except corporate income tax. On a year-to-date basis, total revenue collections fell 0.5 percent through January, lagging the annual forecast of 1.7 percent growth. Total revenues are tracking behind the forecast due to declines in individual withholding, and non-withholding, and recordation taxes. In January, receipts for individual non-withholding declined by 25.3 percent and withholding (the State’s largest general fund revenue source) declined by 1.9 percent. Recordation tax collections declined by 33.3 percent in January.
These results are important as January is a significant month for revenue collections from individual estimated payments, sales taxes on December sales and corporate income taxes from large retailers. This combined with an analysis of the underlying economic fundamentals in the economy and revenue models forms the basis for the annual mid-session revenue reforecast presented to the 2014 General Assembly. Since December 16, the economic fundamentals on which the December forecast is based have not changed and continue to point to modest economic growth.
However, through January, fiscal-year-to-date revenue collections have declined by 0.5% -- or 2.2% below the annual December estimate of a 1.7% increase. The revenue sources that have underperformed the most have been individual non-withholding and the corporate income taxes – both very volatile sources of revenue. Given the performance to date in all sources, combined with the difficulty in forecasting individual non-withholding receipts in April and May, the Governor is recommending that the prudent step is to reduce the December forecast by $125.0 million in FY 2014 and $15.0 million in FY 2015. General fund revenues are now expected to increase 1.0 percent in FY 2014 as compared to the 1.7 percent increase in the December forecast.
Given the timing of this mid-session reforecast, which occurs just in advance of the House and Senate money committees reporting out their respective versions of the budget on Sunday, the Governor further offered select budgetary actions to address the change in revenues.
“It is my sincere hope that these budget actions will help the House and Senate in their respective budget deliberations in light of the timing of the lower revenue forecast I am recommending today,” said Governor McAuliffe.
There were eight budget adjustments that Governor McAuliffe proposed to address the lower revenue projections (see attachment). None of these adjustments impact core services or entitlements.
These adjustments include:
o The elimination of the FY 2016 estimated payment to the revenue stabilization fund,
o Use of additional Lottery revenues,
o Capturing uncommitted balances across the budget, and
o Reducing the unappropriated balance from $51 million to $11 million.
The FY 2016 payment into the revenue stabilization fund is based upon revenue growth in FY 2014. Since the majority of the revenue decline, $125 million, is applied to FY 2014, the entire required deposit of $59.9 million in FY 2016 is eliminated and no longer needed.
While general fund revenues are being adjusted downward in FY 2014, Lottery revenues are expected to exceed the previous forecast by $15.5 million. The Chairman of the Lottery Board notified the Governor in writing this week that due to low prize payouts and significant sales through the first half of the fiscal year, largely associated with a very high Mega-millions jackpot, the net proceeds available for public education are projected to increase by $15.5 million. This additional Lottery revenue can be used to offset general fund expenses in public education with no reduction in services.
In addition to the excess lottery balances, the Governor has also identified balances in the Literary Fund that may be used to offset general fund teacher retirement costs, balances from unclaimed accounts previously held by a former state agency that may now be deposited to the general fund, and appropriation balances in other programs that are not going to be needed.
The other program balances that will not be needed and whose appropriations can now be reverted or deposited to the general fund including the Federal Action Contingency Trust (FACT) fund, some economic development fund balances, and some pilot education program balances.
Finally, the remainder of the gap will be closed by reducing the unappropriated balance by approximately $40 million, from $51 million as it was in the introduced budget to $11 million. The large unappropriated balance was intended to offset potential revenue losses so this adjustment is in line with its intended purpose.