Good news, bad news: Virginia revenues up, but $236.5M below forecast
Virginia ended fiscal year 2020 with a deficit of approximately $236.5 million in general fund revenue collections. This is actually better news than had been expected.
While the shortfall was expected due to the impacts of COVID-19 on the state’s economy and budget, it is smaller than anticipated, and overall, revenues increased 2.0 percent over fiscal year 2019.
“COVID-19 has created both a health crisis and an economic crisis, and we have to box in this virus before we can fully address its fiscal impacts,” Gov. Ralph Northam said. “While I am pleased that our revenue shortfall is less than initially expected, we know this pandemic will continue to negatively affect our state’s finances as long as this virus is with us. We must all keep taking steps to protect public health so we can continue our economic recovery and ensure the Commonwealth remains on strong financial footing.”
Total revenue collections rose by 2.0 percent in fiscal year 2020, behind the forecast of 3.1 percent growth. The main drivers of the revenue shortfall were payroll withholding and sales taxes—these two sources contributed $351.5 million to the deficit.
Nonwithholding income tax payments—mainly from 2019 tax returns—were on target and income tax refunds contributed positively to the bottom line revenues by $146.3 million. Total revenues were $3.1 billion in June, a 26.7 percent increase, as the due date for payments from individuals and corporations was extended to June 1.
“While this is good news as it relates to the final fiscal year 2020 projected shortfall, I am concerned that payroll withholding fell 2 percent and retail sales declined by 7 percent for the months of April, May, and June contributing to a $496.5 million shortfall in the fourth quarter,” said Secretary of Finance Aubrey Layne. “We were helped by prior year income tax payments and current year payroll withholding and sales tax revenues not falling as much as initially anticipated. But the fact remains, the Commonwealth has had a significant contraction in jobs and those effects on payroll withholding and the ability for consumers to spend is an obvious concern going forward into fiscal year 2021 for the state budget.”
In reviewing the State Comptroller’s report on the preliminary revenue shortfall (attached), the Commonwealth will conduct an interim forecasting process with an updated economic and revenue outlook for fiscal years 2021 and 2022.
These forecasts will be released on August 18 at the Joint Money Committee meeting.