Gov. Terry McAuliffe announced Monday that revenues rose 7.4 percent in January over the previous January, while collections for the first seven months of the fiscal year are up 4.6 percent and ahead of the annual forecast revised in the face of last year’s shortfall.
Even McAuliffe, in his last, cash-strapped year as governor, cautioned against assuming that winter had ended for state revenue collections.
“Even though there is still plenty of time left on the fiscal year clock, the good news is that we are above the forecast at this point,” he said in the revenue announcement Monday. “We continue to be cautiously optimistic about revenue collections.”
The optimism springs not only from total collections through January, which are ahead of the annual forecast by 1.7 percentage points. More important is the source of the increased revenue — primarily income taxes withheld from paychecks, which accounts for about two-thirds of state general funds.
Withheld income taxes grew 8 percent in January, which included an extra payroll collection day from the same month a year ago. But for the fiscal year that began on July 1, this critical source of revenue grew by 5 percent, above the twice-revised annual estimate of 3.6 percent.
The first revision, which the governor made in August, lowered the annual forecast for withholding income taxes from 5.8 to 3 percent. The second, when he presented his budget in December after consulting with his economic and revenue councils, raised the projected growth to 3.6 percent.
“That’s some cause for optimism,” Secretary of Finance Richard “Ric” D. Brown said Monday.
Last year, state and legislative budget officials were caught off guard when payroll withholding grew more slowly than expected, primarily because lower-paying jobs replaced high-wage jobs that were lost in Northern Virginia and other parts of the state especially vulnerable to cuts in federal spending through budget sequestration.
Another potential round of sequestration in September tempers optimism . “It’s good news, but it’s kind of ‘been there, done that,’” House Appropriations Chairman S. Chris Jones, R-Suffolk, said in response to the January revenue collections.
Senate Finance Co-Chairman Emmett W. Hanger Jr., R-Augusta, called the January revenue collections “very encouraging,” but he, too, said the legislature won’t use the improved outlook as reason for raising revenue estimates and generating more money for the budget.
“We just don’t want to do that,” Hanger said.
Three years ago, the governor and Republican legislative leaders broke a bruising budget standoff over Medicaid expansion after learning in late May that non-withholding income taxes — primarily estimated payments for investment gains — were far behind the forecast.
The subsequent revenue shortfall was projected at $2.4 billion over the biennium, but tax collections recovered the next year to produce a record surplus in 2015. The boom went bust again at the end of last year, resulting in a revenue shortfall estimated at $1.5 billion in August and then lowered to $1.26 billion when McAuliffe presented his revised budget in December.
Assembly leaders have made clear they don’t intend to revise the current revenue forecast to allow for increased spending in the budget the assembly is scheduled to adopt before the end of this month. “We’re not looking to re-forecast,” Jones said. “This puts us in good position for the next biennial budget.”
Among other good news in January revenue collections was the increase in corporate taxes — up 20.7 percent for the month and 10.9 percent for the year, ahead of projected growth of 3.8 percent.