Economic Growth and Uptick in Small Business Hiring and Wages Boosts Revenue Estimates by $152 Million Governor Asks General Assembly Budget Committees to Direct Dollars to VRS Repayment, Rainy Day Fund Replenishment, Initiation of Elimination of Accelerated Sales Tax Policy
RICHMOND- Governor Bob McDonnell briefed House and Senate budget committee leaders this morning on the preliminary mid-session revenue reforecast numbers. The meeting took place two days prior to the release of the House and Senate budget documents, in keeping with the Governor’s pledge to speed up release of the data in order to facilitate the work of the committees.
Due to continuing economic growth in the Commonwealth, and our collection experience so far in FY 2011, the revenue reforecast provides for an additional $152 million for the biennial budget. This increase in revenue is based solely on three sources: individual withholding, non-withholding and refunds. Individual withholding has demonstrated notable growth over the past year, increasing by 5.2% versus the official budget estimate of 3.4%. The increase is attributable to a rebound in small business hiring and wages. Virginia’s unemployment rate has fallen from 7.2% to 6.7% since last February.
In addition to his official briefing on the revenue numbers, the Governor also laid out his suggested uses for the new funding. The Governor is asking the General Assembly to make the following allocations:
- $50 million to increase the reserve for the revenue stabilization fund payments due next biennium from $50 million to $100 million;
- $37.8 million to eliminate the accelerated sales tax this June for approximately 75% or 6,500 of the merchants currently paying accelerated sales tax (required to be done in full starting in FY 2013);
- $37.5 million to prepay one-half of the annual repayment to VRS due to the deferral of the employer contributions in the current biennium;
- $7.5 million (net cost) to defer for taxable year 2010 certain income (I.R.C. §108(i)) from Virginia corporate restructurings (as was done in taxable year 2009); and
- $19.2 million for other uses as you deem appropriate.
None of the Governor’s recommendations involve spending new revenue on recurring budget items. All are aimed at addressing current one-time funding issues in a conservative and responsible manner.
Speaking about the revenue reforecast and his recommendations, the Governor commented, “Virginia’s economy is beginning to grow again. That is good news for our citizens, businesses and state government. However, this growth is still tentative and incremental. The steps we take in Richmond will play a key role in determining if this recovery will become the kind of long-lasting and foundational recovery that will create the good jobs and economic prosperity we need. With this in mind any increases in state revenue must be budgeted conservatively. That is what I am recommending. This money should not be spent on recurring items, where any increase today would simply lead to pressures to continue that funding level in the years ahead. Instead, this revenue should be directed towards one-time items that strengthen our state’s financial position.”
The Governor continued, “I am asking the General Assembly budget committees to direct an additional $50 million to our Rainy Day Fund, to ensure we remain prepared for any future downturns or exigencies. I have long opposed the policy of the accelerated sales tax, which was put in place prior to our Administration. It is an unfair burden on Virginia’s businesses. For that reason I submitted a budget amendment last year to move up the phase out of this policy from the scheduled 2015 to 2013. Now I believe we can fast track this effort by allocating $37.8 million to eliminate the requirement by this June for 75% of the merchants currently impacted. During this session of the General Assembly I have put forward a broad plan to dramatically reform how we handle VRS funding. Our plan will put $311 million into the system next year and an estimated $4.2 billion in new funding into the system over the next decade, helping us to move forward on closing the $17.6 billion shortfall in the system. I am also committed, as part of our effort to make the system whole, to paying back the $620 million in deferred payments from last year’s budget action as quickly as possible, with interest. This increase in revenue allows us to start this process earlier than anticipated, and I believe we should do so by using $37.5 million for that purpose at this time, ahead of the scheduled repayments.”
The Governor concluded, “Since taking office we have reduced state spending to 2006 levels. We have not raised taxes; instead we have cut the size of government and balanced our budgets responsibly. Our bipartisan work on the budget, together with our work to recruit new businesses and help existing businesses grow, is having a positive impact on Virginia’s economy. Since last February, the Commonwealth has been home to the fourth greatest amount of net new jobs created in any state. While there is much left to be done, we are seeing signs of economic recovery and job creation in Virginia. Now we must continue to be frugal with taxpayer dollars, focus government on its core functions, ensure a strong and stable state budget, and keep the private sector free and unfettered so that it can create the jobs and opportunities our citizens need and deserve.”