For the third straight year, the Commonwealth of Virginia has reached the end of the fiscal year with a revenue surplus. Governor Bob McDonnell announced today that the state concluded Fiscal Year (FY) 2012 with an approximately $129.2 million surplus from general fund revenue collections and transfers. Total revenue collections rose by 5.4 percent in FY 2012, ahead of the revised revenue forecast 4.5 percent growth. This marks the second straight year that revenue growth has exceeded 5 percent in Virginia. The main drivers of the revenue increase were growth in individual income tax receipts from payroll withholding, lower individual income tax refunds and higher than expected sales and corporate income tax collections. A comprehensive breakdown of the FY 2012 revenue surplus is attached to this press release.
Revenue and transfers make up one-half of the overall FY 2012 surplus number. The other half comes from savings in state government. The final FY 2012 surplus tally will not be available until mid-August after final tabulations of appropriation savings recognized through greater operational efficiencies and incentives to control spending throughout state government are calculated.
It is the third fiscal year in a row that Virginia has concluded the fiscal year with a revenue surplus. In FY 2010 the revenue surplus for the year was $228 million. The final FY 2010 surplus, including savings, was $403 million. In FY 2011, the revenue surplus was $311 million, and the final surplus, including savings, was $544.8 million.
Total revenues have now returned to the level reached in FY 2008, an indication of continued recovery from the recession that struck the country in recent years.
"Virginia continues to demonstrate that conservative fiscal management, a focus on government efficiency, and bi-partisan efforts to bolster our economic development and job creation programs can speed economic recovery in the Commonwealth," Governor McDonnell said. "For too long, elected officials from both parties have overpromised and overspent, and the result is the fiscal crisis we see unfolding in Washington D.C. Here in Richmond, we are committed to a culture of fiscal responsibility and restraint in state government. We have made some very tough choices. We have reduced spending, not raised taxes and focused government on its core functions. Virginia continues to live within its means and in doing so has posted three straight years of surpluses, while being recognized as one of the best places in the nation in which to live and do business. During that same period, unemployment in our state has fallen by over 20 percent, and our 5.7 percent unemployment rate is the lowest in the Southeast. We will continue to follow this path of bi-partisan cooperation, fiscal responsibility and a focus on private-sector job creation. It is working."
Lieutenant Governor and Chief Jobs Creation Officer Bill Bolling added, "Through conservative fiscal policies and disciplined spending, Virginia has enjoyed revenue surpluses in excess of $650 million during the first three years of our administration. Adding in the agency savings from the past two years, Virginia has experienced more than $1 billion in total surpluses, with more good news expected when FY 2012 agency savings are calculated next month. This record demonstrates the power of these conservative principles and the bi-partisan focus on keeping Virginia's financial health in order. With continued economic uncertainty and mixed financial indicators, Virginia must continue to be frugal with how we spend the taxpayer's money, and we must direct those resources we have to the state's highest priorities. This third straight surplus shows our policies of job creation, economic development, and government reform are working for the people. Continued fiscal discipline and a vigilant focus on creating jobs and growing our economy will ensure that the Commonwealth continues this trend of positive economic news in the days to come."
Secretary of Finance Ric Brown outlined the sources of the surplus funds and where it will be spent going forward. The majority of the revenue surplus is obligated to predetermined areas of the state budget as outlined in the Virginia Constitution and state law. This year, as required, the majority of this revenue surplus, or $78.6 million, must be deposited to the Rainy Day Fund. The Fund will now stand at $690 million, the largest it has been since 2008. If sufficient, funds also will be directed toward paying for a state employee bonus of up to 3 percent as provided for in the Appropriation Act."
Disbursement of FY 2012 Revenue Surplus (All numbers are approximate and subject to revisions):
$78.6 million: Revenue Stabilization Fund Deposit from FY2012 Surplus (Subject to Final Audit)
$12.3 million: Water Quality Fund - Part A
$20.2 million: Pay Transportation for its Share of the Accelerated Sales Tax
From Remaining Funds: Payment Toward State Employee Bonus. (Approximately $80 million in total available revenue and savings surplus is needed to disburse the 3 percent bonus that Governor McDonnell recommended and advocated for during the 2012 session. An official announcement regarding the FY 2012 savings figure will be made in mid-August)
Analysis of Fiscal Year 2012 Revenues
Based on Preliminary Data
Total general fund revenue collections exceeded the official forecast by $123.1 million (0.8 percent variance) in fiscal year 2012.
The 25 year average general fund revenue forecast variance is plus or minus 1.5 percent.
The FY12 revenue surplus is attributable to prudent fiscal management, including Virginia's consensus revenue forecasting process.
In its fall meeting, the Joint Advisory Board of Economists were split between the standard forecast and "standard minus," with two members choosing the recession forecast.
Based on business leaders' and General Assembly member comments, the standard outlook for fiscal year 2012 was adopted.
During the midsession review, year-to-date trends did not support a revision to the forecast.
Total general fund revenues rose 5.4 percent in FY12 compared with the forecast of 4.5 percent growth.
Total revenues have now reached the fiscal year 2008 level.
The FY12 revenue surplus is largely due to stronger individual withholding and lower refunds.
Collections of sales and corporate taxes also exceeded their forecasts.
Taken together, payroll withholding and sales tax collections, 85 percent of total revenues, and representing current economic activity in the Commonwealth, exceeded the forecast by $89.2 million, a forecast variance of 0.7 percent.
Estimates for these two sources are directly tied to the economic outlook developed during the fall forecasting process, and specifically, the outlook for jobs and wage income in the Commonwealth.
Individual income tax withholding, 65 percent of total general fund revenues, exceeded the estimate by $33.7 million (0.3 percent variance).
Annual collections increased 4.2 percent compared with the forecast of a 3.8 percent increase.
Individual income tax nonwithholding, 14 percent of total revenues and one of the most volatile revenue sources, fell short of the annual estimate by $94.3 million (-3.8 percent variance) in FY12.
The shortfall was attributable to lower-than-expected individual final payments, which increased by only 5.2 percent compared with expectations of a 14.4 percent increase.
These payments are historically tied to non-wage income sources - mainly the financial markets.
Total nonwithholding collections grew 8.2 percent in fiscal year 2012.
Total collections of $2.4 billion are still more than $500 million below fiscal year 2008's peak.
Individual refunds finished $147.1 million (-7.6 percent variance) below the annual estimate in FY12.
Taken together, withholding, nonwithholding, and refunds, i.e. net individual income taxes, grew 6.7 percent in FY12, ahead of the annual forecast of 5.9 percent growth by $86.4 million, a forecast variance of 0.8 percent.
Sales and use tax collections, 20 percent of total revenues and the other revenue source (along with withholding) most closely related to current economic activity in the Commonwealth, exceeded the annual estimate by $55.5 million (1.8 percent variance).
Adjusted for accelerated sales tax payments received in June, sales tax collections rose by 3.9 percent in FY12 compared with the policy-adjusted forecast of 2.5 percent growth.
Collections of corporate income taxes contributed $32.1 million to the surplus.
Corporate income tax collections, 5 percent of total revenues and one of the most volatile revenue sources, increased 4.6 percent in FY12, compared with the forecast of 0.7 percent growth.
Wills, Suits, Deeds, and Contracts (primarily recordation tax collections), 2 percent of total revenues, finished the year only $0.8 million (-0.3 percent variance) behind the annual forecast.
Collections grew 10.5 percent in FY12, very close to the projected growth rate of 10.8 percent.
Insurance premiums tax, 2 percent of total revenues, trailed the annual estimate by $34.4 million (-12.0 percent variance).
All other revenues were $15.8 million (-2.3 percent variance) below expectations in FY12
The shortfall was primarily due to fines, which came in $12.8 million below forecast.