A Sluggish Recovery Casts New Worries on Va. Budget

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Virginia State Capitol house in Richmond. (Credit: Chris Jackson/Getty Images)

Virginia State Capitol house in Richmond. (Credit: Chris Jackson/Getty Images)

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RICHMOND, Va. — It looked like a steady rebound, if not a rousing one, for the revenues that keep Virginia’s government operating.

For 22 months, from August 2010 until last May, every month but one brought revenues exceeding those collected in the same month the year before. Seven of them showed double-digit growth, feeding the half of the state budget that comes from broadly paid levies such as income and sales taxes and pays for core services such as public safety, education and health care.

After a harrowing 16-month nosedive from August 2008 to November 2009 when every month showed revenue declines, Finance Secretary Ric Brown could breathe easy after years in which the governor and General Assembly had to pare billions of dollars to keep the state from finishing its budget in the red.

In 2009, then-Gov. Tim Kaine, a few months from leaving office, ordered 19 state rest areas along Virginia interstates shuttered at the depth of the worst economic slump since the 1930s. His successor, Bob McDonnell, reopened them.

But now, Virginia’s revenue numbers are sputtering again in a recovery that’s never really caught fire. Six of the past 12 months have been downers; the worst was March’s 6.1 percent general revenue drop.

While the budget that expires June 30 might avoid a shortfall, Brown warns that looming federal budget cuts bode ill for the 2014 general fund budget that begins July 1. Virginia has a heavy population of federal government workers, and many agencies will order unpaid furlough days for their employees beginning in the next fiscal year. Those salary cuts will eat into state income tax receipts.

“We may stumble out of (fiscal year) 2013, but that may not put us in good shape for 2014,” Brown, the top money man for two governors — McDonnell and Kaine before him — told The Associated Press last week. “My crystal ball says I think we make it this year but not with a big surplus unless something really unexpected happens.

“Clearly, this has not been a good quarter for us,” he said.

It’s been a quirky one, for sure, distorted in part by vagaries of the calendar and banking days. Congress’s 11th-hour political brinksmanship before the Jan. 2 deadline to agree on debt reduction legislation or set in motion indiscriminate, across-the-board spending cuts known as sequestration delayed the production of tax forms.

Because of that, people who file income taxes early in anticipation of refunds were unable to do so, causing an uncharacteristic decrease in refunds issued for the month of January — only $29.9 million compared with an average of $67.8 million for January over the previous 10 years. That helped inflate that month’s overall revenues to 19.5 percent greater over the first month of 2012. There was also an additional deposit day that month, and taxes withheld from salaries and wages were strong for the month.

February’s collections, however, were not so hot, and revenues slipped by 2 percent thanks to a downturn in income taxes that Brown warned at the time could herald economic certainties ahead. Then came last month’s kick in the pants.

“I got calls from Wall Street on that because that 6 percent (decline) was spooking people,” Brown said.

That makes last week and this week — the busiest of the year for income state returns that are due May 1, though many are filed concurrently with federal returns on April 15 — critical. Income taxes account for more than two-thirds of Virginia’s general revenues, and the returns that come in over the next 10 days will largely determine how close Virginia comes to meeting the official revenue forecast on which budgeted spending is based.

“Final payments are where we make or break this forecast,” Brown said.

March ended Virginia’s third fiscal quarter with general fund revenues 4.4 percent ahead of where they were through March 2012. That’s less than 1 percentage point ahead of the budgeted revenue forecast for 3.6 percent revenue growth.

If revenues hold their own the final three months, state government should end the year with cash after expenses. Historically, fourth-quarter collections are the richest of the year, averaging 31 percent of annual revenues over the past five years while the other three quarters each accounted for an average of 23 percent.

Virginia’s economy has improved since the dire days of 2008 and 2009. Last month, the state’s unemployment rate decreased to 5.3 percent, its lowest mark in more than four years and down from 5.6 percent in January and February and a high of 7.4 percent at the end of 2009 and through the first quarter of 2010. It’s also better than the national average unemployment rate of 7.6 percent.

While Virginia fared better than many states during the most recent recession, its revenues have not bounced back from this recession the way it shrugged off those of the early 1990s and 2001-02.

“It’s anemic growth. One would expect we’d grow a lot faster coming out of this recession than we have,” Brown said. “We’re not growing as fast as the nation right now.”

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(© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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