Virginia finishes fiscal year with record-breaking $2.6B surplus

You would never have guessed this a year ago – that at the end of a fiscal year that took place largely in a pandemic, the Commonwealth would run a $2.6 billion budget surplus.

For all the criticism you want to throw at Gov. Ralph Northam, much respect.

“We have effectively managed Virginia’s finances through the pandemic, and now we are seeing the results—record-breaking revenue gains, a recovery that has outpaced the nation, and recognition as the best place to do business,” Northam said. “Fueled by a surging economy, federal American Rescue Plan funds, and the largest surplus in Virginia history, we have significant resources available to make transformational investments in this Commonwealth. I look forward to working with the General Assembly in the fall to seize this opportunity so we can build a brighter future for all Virginians.”

It is indeed the largest budget surplus in the Commonwealth’s history, and represented total revenue collection growth of 14.5 percent, more than five times the forecast growth of 2.7 percent.

“We expected a strong revenue performance and this surplus is even larger than initially anticipated,” said Secretary of Finance Joe Flores. “We are encouraged that for the fiscal year, payroll withholding and retail sales taxes increased by 6.4 percent, signifying that Virginia’s underlying economic foundation is strong.”

Inside the Numbers

• Total general fund revenue collections, excluding transfers, exceeded the official forecast (Chapter 552) by $2.6 billion (11.7 percent variance) in fiscal year 2021.
• The 30-year average general fund revenue forecast variance is 1.6 percent.
• Payroll withholding and sales tax collections, 80 percent of total revenues, and the best indicator of current economic activity in the Commonwealth, finished $560.2 million or 3.3 percent ahead of the forecast.
• Payroll withholding grew by 4.7 percent, exceeding the forecast of 2.7 percent growth.
• Sales tax collections increased 12.4 percent as compared to the annual forecast of 4.7 percent. Brick and mortar store sales increased 7.6 percent and internet sales increased 32.3 percent.
• Fourth quarter results show that payroll withholding and sales tax grew 12.5 percent.
• Nonwithholding income tax collections finished the year ahead of expectations, up 37.1 percent. This was mainly due to a 68.0 percent increase in final payments to the Department of Taxation. Estimated payments increased 19.8 percent.
• Individual income tax refunds were a positive to the forecast as the average check size did not increase. Tax refunds were $339.4 million below expectations, a positive to the bottom line.
• Corporate income tax collections increased 49.8 percent for the year, ahead of the annual forecast of 27.4 percent. A preliminary analysis of the data reveal a broad based increase from larger corporations based on economic related growth.

Story by Chris Graham