Governor Bob McDonnell announces surplus for fiscal year 2011
Governor Bob McDonnell announced today that for the fourth straight year, the Commonwealth of Virginia has reached the end of the fiscal year with a revenue surplus. Preliminary figures indicate that the state concluded Fiscal Year (FY) 2013 with an approximately $261.9 million surplus from general fund revenue collections, excluding transfers. This is the first time since Governor George Allen’s administration that a governor has attained a revenue surplus at the end of all four fiscal years during his term.
Total revenue collections rose by 5.3 percent in FY 2013, above the revised revenue forecast 3.6 percent growth. This marks the third straight year that revenue growth has exceeded 5 percent in Virginia. The main drivers of the revenue increase were growth in individual income tax receipts from nonwithholding payments, lower individual income tax refunds and higher than expected recordation tax collections. A comprehensive breakdown of the preliminary FY 2013 revenue surplus is shown below.
Governor McDonnell commented, “Today’s great news is further proof that Virginia’s economy is getting stronger. The numbers we are seeing show that Virginia’s housing market is starting to recover, and even more importantly more people are returning to work. Over the past three years we’ve seen our state unemployment rate fall to 5.3 percent; nearly Virginia’s lowest unemployment rate in over four and a half years … We reduced the number of state employees by over 2,000 and invested in areas that would produce economic growth. After facing a significant shortfall in fiscal year 2009 in the first year of the Great Recession, we now have seen four consecutive years of improving revenue growth.”
We concluded Fiscal Year 2013 with a preliminary $261.9 million revenue surplus and a 5.3 percent increase in revenue collections. Most of these surplus funds are already allocated by budgetary requirements, including payments to the Revenue Stabilization (“Rainy Day”) Fund and the Water Quality Improvement Fund. Nonetheless, the preliminary report I received from the State Comptroller, indicating that actual general fund revenues collected exceed our budget estimates, will allow me to authorize the pay increase and salary compression adjustment in the Appropriation Act, giving state employees a pay raise for the first time in six years.”
The increase will be reflected in state employees August 16, 2013 paychecks. Savings resulted through incentive programs that encourage increased savings among state agencies by providing a three percent performance bonus in 2010 and 2012, and now the first permanent base pay raise.
Secretary of Finance Ric Brown said, “Virginia’s economy is improving. After facing years of little or negative growth, we continue to head in a positive direction as a result of our fiscal discipline and conservative budgetary approach. This is a Virginia accomplishment as much as it is a finance one. It is indeed good news for our collective Commonwealth.”
The final FY 2013 surplus tally will not be available until August 19th. Most, if not all of the revenue surplus, will be used to satisfy Constitutional or other legal requirements, such as additional payments to the State’s “Rainy Day Fund” and the Water Quality Improvement Fund.
Today’s announcement constitutes the fourth fiscal year in a row that Virginia has concluded the fiscal year with a revenue surplus. In FY 2010 the revenue surplus for the year was $228 million. In FY 2011, the revenue surplus was $311 million. And in FY 2012, the revenue surplus was $129 million.
Analysis of Fiscal Year 2013 Revenues
Based on Preliminary Data
- Total general fund revenue collections exceeded the official forecast by $261.9 million (1.6 percent variance) in fiscal year 2013.
- The 25 year average general fund revenue forecast variance is plus or minus 1.5 percent.
- The FY 2013 revenue surplus is attributable to prudent fiscal management, including Virginia’s consensus revenue forecasting process.
- In its fall meeting, the Joint Advisory Board of Economists was split between the standard forecast and “standard minus,” with two members choosing the recession forecast.
- Based on business leaders’ and General Assembly member comments, the “standard minus” outlook for fiscal year 2013 was adopted.
- During the midsession review, year-to-date trends did not support a revision to the forecast.
- Total general fund revenues rose 5.3 percent in FY 2013 compared with the forecast of 3.6 percent growth.
- The FY 2013 revenue surplus is largely due to stronger individual nonwithholding, lower refunds and higher recordation tax receipts.
- On a cautionary note, payroll withholding and sales tax collections, 85 percent of total revenues, and the best indicator of current economic activity in the Commonwealth, fell short of the forecast by $144.0 million, a forecast variance of -1.1 percent.
- 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.
- The slowdown in withholding and sales tax collections over the last five months of FY 2013 suggests that federal sequestration is having an effect on the Commonwealth.
- Individual income tax withholding, 63 percent of total general fund revenues, was below the estimate by $115.0 million (-1.1 percent variance).
- Annual collections increased 2.1 percent compared with the forecast of a 3.3 percent increase.
- Individual income tax nonwithholding, 15 percent of total revenues and one of the most volatile revenue sources, exceeded the annual estimate by $290.0 million (11.5 percent variance) in FY 2013.
- These payments are historically tied to non-wage income sources – mainly the financial markets.
- Total nonwithholding collections grew 19.1 percent in fiscal year 2013.
- Despite the unexpectedly robust growth in FY 2013, nonwithholding collections still remain below fiscal year 2008′s peak.
- Individual refunds finished $72.2 million (4.0 percent variance) below the annual estimate in FY 2013, a net positive for the Commonwealth.
- Taken together, withholding, nonwithholding, and refunds, i.e. net individual income taxes, grew 6.9 percent in FY 2013, ahead of the annual forecast of 4.5 percent growth by $247.3 million, a forecast variance of 2.2 percent.
- Sales and use tax collections, 20 percent of total revenues and the other revenue source (along with withholding) most closely related to current economic activity in the Commonwealth, fell short of the annual estimate by $29.0 million (-0.9 percent variance).
- Corporate income tax collections, 5 percent of total revenues and one of the most volatile revenue sources, declined by 7.3 percent in FY 2013, compared with the forecast of a 4.5 percent decline.
- Wills, Suits, Deeds, and Contracts (primarily recordation tax collections), 2 percent of total revenues, finished the year $41.0 million (12.2 percent variance) ahead of the annual forecast.
- Collections grew 17.2 percent in FY 2013, well ahead of the projected growth rate of 4.5 percent.
- Insurance premiums tax, 2 percent of total revenues, exceeded the annual estimate by $6.6 million (2.6 percent variance).
- All other revenues were $20.3 million above expectations in FY 2013.