RICHMOND – Governor Bob McDonnell announced today that December revenue collections decreased by 4.7 percent over the prior year. While calendar abnormalities with December only having four Wednesdays this year versus five Wednesdays last year (Wednesdays being a significant day for individual withholding payments,) account for most of the lower numbers, lower returns on corporate income tax payment and insurance premiums tax payments indicate continued prudence is necessary. As the General Assembly convened this week to consider the biennial budget, these numbers, slowing growth, lingering uncertainty regarding federal funding, and continued unacceptable levels of unemployment are prompting caution.
Because a number of factors can influence the flow of payments and monthly growth rates this time of year, December and January receipts must be considered together to get a clear picture of revenue growth. December’s revenue decrease was primarily driven by a 6.7 percent decline in individual income tax withholding payments and a 7.8 percent decline in corporate income tax payments and a 29.9 percent decline in insurance premiums tax payments—for which December is a significant month for collections. Other indicators were positive with an 11 percent increase in individual income tax nonwithholding payment and a 3.9 percent growth in sales and use taxes. January’s numbers will not be available until mid February.
On a year-to-date basis, total revenue collections have risen 4.2 percent, slightly behind the revised annual forecast of 4.6 percent growth. Adjusted for the accelerated sales tax program, state revenues have grown 3.7 percent, trailing the economic base forecast of 4.7 percent growth.
“Virginia’s economy continues to grow and recover from the economic challenges of past years, but the rate of growth has slowed. December’s falling revenue numbers are by no means a cause for panic, but they do call for a continuation of a conservative fiscal approach as the General Assembly considers my proposed biennial budget ,” Governor McDonnell said. “We have taken significant efforts to develop a conservative and focused spending plan that advances core government services such as the state retirement system, K-12 education, public safety and transportation, while allocating record funding to Virginia’s rainy day fund and our newly established federal spending contingency fund. Our proposed budget makes Virginia state government live within its means, and set priorities within existing revenue. Today’s revenue report demonstrates the need to adhere to this prudent approach. All indicators at the state and national level urge caution as our economy struggles to regain its footing. Virginia’s economy continues to demonstrate modest growth and lower than average unemployment, but the fragile national economy, persistent uncertainty in federal funding, and world and national events that impact our economy require us to exercise caution during this upcoming budget and to continue to take a conservative, responsible approach to state spending. We’ve helped create a more positive fiscal and business climate by keeping taxes low, setting priorities and exercising restraint as we navigate through this tough economy. We must continue that same approach going forward.
“More than 250,000 Virginians are still unemployed, an unacceptable hardship on Virginia’s families. We will continue making job creation and economic development our top priority. Our budget proposal to the General Assembly reflects our commitment to reducing spending, spurring private sector job creation and economic development, shrinking burdensome regulations on business and local governments, and focusing on the core services of government.”
The Commonwealth issued its general fund revenue forecast in December, revising total general fund revenues to grow by 4.6 percent in fiscal year 2012.
The December revenue numbers are available at this link: http://www.finance.virginia.gov/KeyDocuments/RevenueReports/FY2011-2012/2012ReportsList.cfm