State Seal

COMMONWEALTH of VIRGINIA

Office of the Governor

Jody M. Wagner
Secretary of Finance

P.O. Box 1475
Richmond, Virginia 23218

October 12, 2007

 

MEMORANDUM

TO:                  The Honorable Timothy M. Kaine

THROUGH:     The Honorable Wayne M. Turnage

FROM:            Jody M. Wagner         

SUBJECT:       September Revenue Data

September completes the first quarter of the fiscal year and is a significant month for revenue collections. Estimated payments from individuals, corporations, and insurance premiums are all due in September, along with regular monthly collections in withholding, sales, and other sources.

Total general fund revenue collections for the first quarter of fiscal year 2008 were close to the annual forecast. Revenues grew 4.0 percent in September compared to September 2006. On a year-to-date basis, revenues grew 3.6 percent over the same period last year, slightly ahead of the annual forecast of 3.0 percent. Sluggish growth in individual withholding is being offset by continued strength in nonwithholding collections and a substantial drop in refunds. Collections of corporate income tax and sales and use tax are close to their annual forecasts.

National Economic Indicators

Recent indicators suggest the national economy slowed over the summer as effects from the slowdown in the housing market continued to drag on growth. Turmoil in the subprime mortgage market escalated in August, deepening the uncertainty concerning the future path of the economy. 

Virginia Economy

In Virginia, payroll employment grew 1.7 percent in August. Jobs grew by 1.6 percent in Hampton Roads, 1.5 percent in Northern Virginia, 1.3 percent in Richmond-Petersburg, and 2.4 percent in the western MSAs. The unemployment rate was flat at 3.1 percent in August.

The Virginia leading index fell 0.2 percent in August, the second decline in nine months. A substantial drop in building permits and falling auto registrations offset an improvement in initial claims for unemployment. The regional indices increased in five of the state’s eleven metropolitan areas in August. The indices in Blacksburg, Lynchburg, Charlottesville, Harrisonburg, and Danville increased for the month. Northern Virginia, Hampton Roads, Richmond, Bristol, and Winchester experienced slight declines, while Roanoke was unchanged.

September Revenue Collections

Total general fund revenue collections for the first quarter of fiscal year 2008 were close to the annual forecast. Revenues grew 4.0 percent in September compared to September 2006. On a year-to-date basis, revenues grew 3.6 percent over the same period last year, slightly ahead of the annual forecast of 3.0 percent. Growth in individual withholding remains sluggish, while nonwithholding collections continue to exceed expectations. Collections of corporate income tax and sales and use tax are close to their annual forecasts.

Individual Income Tax Withholding (57% of general fund revenues):  With one less deposit day than September of last year, collections of payroll withholding taxes grew 4.8 percent in September.  Year-to-date withholding growth is 4.7 percent, lagging the projected annual growth rate of 6.0 percent. 

Individual Income Tax Nonwithholding (19% of general fund revenues):  The first estimated payment of fiscal year 2008 was due in September. Collections of nonwithholding were $24.4 million ahead of September 2006, an 8.1 percent increase.  Year-to-date, collections in this source are 10.7 percent above the same period last year, ahead of the estimate of a 6.6 percent increase. 

Individual Income Tax Refunds:  Individual refunds were down 44.2 percent in September and 24.1 percent for the quarter.  Through September, $83.6 million have been refunded compared with $110.2 million in the same period last year. 

Summary of Net Individual Income Tax (65% of general fund revenues):  Year-to-date net individual income tax growth is 7.1 percent, ahead of the projected annual growth rate of 5.4 percent. 

Sales Tax (20% of general fund revenues):  Collections of sales and use taxes, reflecting August sales, grew 3.5 percent in September.  On a year-to-date basis, collections of sales and use taxes have increased 3.1 percent, close to the estimate of a 2.8 percent increase.  This is the slowest first quarter increase in sales tax collections in five years as the slowdown in the housing industry and higher energy prices continue to dampen overall demand.

Corporate Income Tax (5% of general fund revenues):  The first estimated payment of fiscal year 2008 was due in September.  Collections in corporate income taxes fell 8.9 percent in September.  On a year-to-date basis, corporate income tax collections have fallen 13.5 percent from the first quarter of last year, close to expectations of an 18.4 percent decline.  Lower corporate payments and a substantial increase in refund activity both contributed to the decline.

Wills, Suits, Deeds, Contracts (3% of general fund revenues):  Wills, suits, deeds, and contracts – mainly recordation tax collections – fell 21.3 percent in September as the housing market continued to slow.  First quarter collections in this source declined 13.3 percent from last year, compared with the estimate of a 9.0 percent annual decline.

Other Revenue Sources

The following list provides data on September collections for other revenue sources:     

  Year-to-Date Annual Estimate
Insurance Premiums Taxes (2% GF revenues) 15.8% 2.9%
ABC Taxes (1.0% GF revenues) -5.7% 0.7%
Interest Income (0.9% GF revenues)* 9.5% -2.4%

*General fund interest earnings reflect the first quarter’s interest earnings from nongeneral fund balances. That will be transferred to those nongeneral fund accounts in October.

All Other Revenue:  Receipts in All Other Revenue fell 15.4 percent in September – $34.1 million compared with $40.3 million in September of last year. The decline was broad based across minor sources, with the largest negative contribution from inheritance, gift, and estate taxes. For the fiscal year-to-date, collections of All Other Revenue are 11.5 percent below the same period in fiscal year 2007, lagging the annual estimate of 8.7 percent growth.

Lottery Revenues:  Net income totaled $36.2 million in September or $1.6 million more than last year. September was 4.7 percent ahead of September of last year as a decline in expenses offset a small decline in sales. Year-to-date, net income is up 22.8 percent as compared to the annual forecast of a 7.3 percent decline. Comparisons to last year are affected because products currently offered (Fast Play Bingo, additional daily games’ drawings) were not offered or included in sales and net income results from last year. In addition, jackpot sales were significantly depressed last year because of unusually low advertised jackpots.

Summary

Total general fund revenue collections for the first quarter of fiscal year 2008 were close to the annual forecast. Revenues grew 4.0 percent in September compared to September 2006. On a year-to-date basis, revenues grew 3.6 percent over the same period last year, slightly ahead of the annual forecast of 3.0 percent. Growth in individual withholding remains sluggish, while nonwithholding collections continue to exceed expectations. Collections of corporate income tax and sales and use tax are close to their annual forecasts.

The fall revenue forecasting process has begun. The Governor’s Advisory Board of Economists will meet October 17 to assess the outlook for the Virginia economy over the current and next biennium. The economic outlook recommended by the Board will drive the preliminary revenue forecast developed by the Department of Taxation. The Governor’s Advisory Council on Revenue Estimates, comprised of business and legislative leaders, will meet in November to consider this preliminary revenue forecast. This forecast will serve as the basis for the final forecast to be released in December with the Executive Budget.



September 2007 Revenue Report (PDF format, 194 k)