Virginia tax revenues soared by 18.4% in September, showing further signs of economic recovery from the COVID-19 pandemic as Gov. Ralph Northam met with economists on Wednesday to revise the financial outlook for the next two-year state budget.
The state collected about $406 million more during September than the same month a year ago — months before distribution of vaccines began to bring the public health emergency under control — and ended the first quarter of the fiscal year about $569 million up from the same period last year.
Income tax collections, both those withheld from paychecks and estimated payments by self-employed professionals and investors, rose by $234 million over the same month last year. Corporate income tax revenues increased by almost $104 million, and sales taxes went up $64 million.
“Our economy continues to show signs of a strong recovery,” Northam said in an announcement Wednesday afternoon.
Earlier in the day, the governor met privately with the Joint Advisory Board of Economists to prepare a new revenue forecast for the 2022-2024 budget he will propose in December, a month before ending his term. The Governor’s Advisory Council on Revenue Estimates, composed of business and legislative leaders, will meet on Nov. 22 to consider the revised economic outlook.
They know the budget will reflect a $2.6 billion revenue surplus in the fiscal year that ended June 30, as well as mandatory commitments for depositing most of that money in financial reserve and water quality improvement funds. The constitution requires a $1.1 billion deposit in the state rainy day fund, as well as a possible super deposit of $564 million.
But they don’t know what will come next, especially if the COVID-19 delta variant prolongs the pandemic and slows the reopening of Virginia’s economy.
“Overall, this quarter’s revenue performance was strong,” said Secretary of Finance Joe Flores, who will review the revenue outlook with General Assembly budget committees next week. “It is important to remember that we are comparing this quarter’s performance to the heart of the pandemic closures last year when there was still not a vaccine on the horizon.”
As a result, the revenue performance in September and the first three months far exceeded expectations in the current budget, which assumed declines or modest increases in growth. Total revenues increased by 10.6% in the first quarter, compared to the same period a year ago and an expected annual decline of 8%.
The gains came in every major source of revenue for the general fund budget, now about $24 billion a year, which comes from state taxes to pay for core government services such as education, health care and public safety.
Income taxes withheld from paychecks account for 62% of state revenue. Those collections increased by almost $110 million in September, compared to the same month a year earlier, and almost $307 million for the first three months of the fiscal year that began on July 1. Those gains represented a 9.9% increase for the month and 9.7% for the quarter, well ahead of the annual estimated growth rate of 1.7%.
Estimated payments of income taxes not withheld from paychecks, typically paid by self-employed professionals and investors, increased by about $125 million in September, compared to the same month the previous year. For the first quarter, those collections are $120 million below the same period a year earlier, or 12.2% less than the same period a year ago, but the budget assumes an annual decline of 25.4%.
Corporate income taxes finished the first quarter $123 million ahead of the same period a year ago, an increase of 36.5%, compared to an expected annual decline of 16.1%.
Sales and use taxes, including those collected on internet sales, rose by $138.4 million in the first three months of the fiscal year, a growth rate of 16.7%, compared to an expected annual decline of 4.2%.
Recordation taxes, levied on deeds and other court filings, rose by $3.5 million in September over the same month last year. They increased by $15 million during the first three months of the fiscal year compared to a year ago, a growth rate of 9%, even though the current budget assumes a 31.3% decline for the entire fiscal year that will end on June 30, 2022.
“In this strong economy Virginia will continue making critical investments in our communities, our public schools, and statewide infrastructure to bolster our growth economy,” Northam said in a written statement. “Our fiscal responsibility is paying off for Virginians.”