Virginia ends fiscal year 2018 with $551.9 million surplus

RICHMOND—Governor Ralph Northam announced today that Commonwealth of Virginia reached the end of fiscal year 2018 with a revenue surplus of approximately $551.9 million.

Total revenue collections rose by 6.3 percent in fiscal year 2018, ahead of the revenue forecast of 3.4 percent growth. The main drivers of the revenue increase were growth in payroll withholding and nonwithholding income tax collections.

“On the strength of a record $2.4 billion in revenue collections in the month of June, I am happy to announce that preliminary figures indicate that the state concluded fiscal year 2018 with an approximately $551.9 million surplus in general fund revenue collections,” said Governor Northam. “This significant surplus will substantially increase the Commonwealth’s cash reserves in order to protect taxpayers against a future economic downturn and further affirm our valuable AAA bond rating. I am particularly encouraged by the strong growth in payroll withholding, which is a sign that our investments in building a stronger economy and a more-prepared workforce are paying off for Virginians in every corner of the Commonwealth. As we close the books on this fiscal year, I look forward to working across the aisle to build on our economic momentum and build a Virginia that works better for all people, no matter who they are or where they live.”

Provisions in the Virginia Constitution, the Appropriation Act, and the Code of Virginia specify how most of the fiscal year 2018 additional resources must be assigned. These numbers are preliminary, the final fiscal year 2018 surplus tally, including transfers, will not be available until the August 17th Joint Money Committee meeting.

Analysis of Fiscal Year 2018 Revenues
Based on Preliminary Data

• Total general fund revenue collections, excluding transfers, exceeded the official forecast by $551.9 million (2.9 percent variance) in fiscal year 2018.

• • The 29-year average general fund revenue forecast variance is plus or minus 1.6 percent.
• The fiscal year 2018 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 (JABE) opted for the standard forecast.

• • The business leaders and General Assembly members that make up the Governor’s Council on Revenue Estimates (GACRE) also adopted the standard forecast but expressed concerns about the timing of federal expenditures and their impact on Virginia.

• • The continued adoption of a nonwithholding “collar” that limits forecasted growth in payments as it relates to historical performance of this source as compared to total general fund revenue growth.
• The fiscal year 2018 revenue surplus is largely due to stronger payroll withholding and nonwithholding income tax collections.
• Payroll withholding and sales tax collections, 85 percent of total revenues, and the best indicator of current economic activity in the Commonwealth, finished $230.8 million or 1.5 percent ahead of forecast—almost all of this surplus was due to payroll withholding.

• • 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.

• • Payroll withholding growth of 5.4% was well ahead of the forecast of 3.5 percent growth.  This source was $227.2 million above the estimate, however about half of this amount is attributable to the July 4^th holiday falling on a Wednesday and business tax payers submitting payments early.

• • Sales tax collections increased 3.1 percent as compared to the annual forecast of 3.0 percent.
• Nonwithholding income tax collections finished the year above expectations, a 15.1% increase as opposed to the official forecast of a 4.3% increase.  The strength in this source came from individual estimated payments received in December and individual final payments submitted by May 1.
• Corporate income tax collections increased 4.2 percent for the year, behind the annual forecast of 5.7 percent.