Governor Terry McAuliffe announced today that the Commonwealth of Virginia reached the end of fiscal year 2017 with a revenue surplus of $132 million.
Total revenue collections rose by 3.6 percent in fiscal year 2017, ahead of the revenue forecast of 2.9 percent growth. The main drivers of the revenue increase were growth in payroll withholding and corporate income tax collections.
“Following a record-breaking $2.2 billion in revenue collections for the month of June, I am pleased to announce that preliminary figures indicate a surplus of $132 million from general fund revenue collections in fiscal year 2017,” said Governor McAuliffe. “Over the past few years, sequestration and federal dysfunction 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. Those efforts are paying off, but at a time when Washington is more broken than ever, we cannot afford to let up now.”
Provisions in the Virginia Constitution, the Appropriations Act, and the Code of Virginia specify how most of the fiscal year 2017 additional resources must be assigned. Most of the surplus must be held in a reserve as an insurance policy against future economic uncertainty and the potential for a downturn in the Virginia economy. The final fiscal year 2017 data including the surplus, transfers, and balance numbers will not be available until the August 21st Joint Money Committee meeting.
Analysis of Fiscal Year 2017 Revenues
Based on Preliminary Data
- Total general fund revenue collections, excluding transfers, exceeded the official budget forecast by $132 million (+0.7 percent variance) in fiscal year 2017.
- The fiscal year 2017 revenue surplus is largely due to stronger payroll withholding with corporate income tax collections also making a contribution.
- Payroll withholding and sales tax collections, 85 percent of total revenues, and the best indicator of current economic activity in the Commonwealth, finished $152.4 million or 1.1 percent ahead of forecast.
o 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.
o Payroll withholding growth of 5.2% was well ahead of the forecast of 3.6 percent growth.
o Growth in sales tax collections continue to disappoint. Sales tax collections increased 1.9 percent as compared to the annual forecast of 2.8 percent.
- Corporate income tax collections increased 8.1 percent for the year, ahead of the annual forecast of 3.8 percent due to continued strength in estimated payments.
- Nonwithholding income tax collections finished the year slightly below expectations, a 1.7% decline as opposed to the official forecast of a 0.7% decline. The slowdown in this source can likely be tied to investor uncertainty surrounding future changes in the tax code.
- The fiscal year 2017 revenue surplus is also indicative of the Commonwealth’s prudent fiscal management which includes a consensus economic and revenue forecasting process agreed upon by both the Joint Advisory Board of Economists (JABE) and the business leaders and General Assembly members which make up the Governor’s Advisory Council on Revenue Estimates (GACRE).
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