Governor McAuliffe announced that preliminary figures indicate the state concluded Fiscal Year (FY) 2014 with an approximately $438.5 million shortfall in general fund revenue collections, excluding transfers.
Total general fund revenue collections declined by 1.6 percent in FY 2014, behind the revised revenue forecast of 1.0 percent growth. This marks the first time that Virginia revenues have declined outside of a national recession.
The main driver of the revenue decrease was a large drop in nonwithholding payments. Despite record-breaking increases in the stock market, it appears that the uncertainty about the federal Fiscal Cliff in December 2012/January 2013 shifted more realized capital gains from 2013 into 2012 than expected. Revenue collections during the last quarter of each fiscal year are significant in this regard because upper income individuals who have a significant portion of their income based on capital gains pay a substantial portion of their tax liability in the April to June period.
A comprehensive breakdown of the preliminary FY 2014 revenue shortfall is shown below. The final FY 2014 tally will not be available until mid-August.
Analysis of Fiscal Year 2014 Revenues
Based on Preliminary Data
- Total general fund revenue collections fell short of the official forecast by $438.5 million (-2.7 percent variance).
- Total general fund revenues declined 1.6 percent compared with the forecast of 1.0 percent growth.
- The revenue shortfall is primarily due to a large drop in individual nonwithholding collections. That source, which is made up on non-wage income (mainly capital gains), was $401.1 million off the mark.
- Payroll withholding and sales tax collections, 83 percent of total revenues and the best indicator of current economic activity in the Commonwealth, also fell short of the forecast by $78.9 million, a forecast variance of -0.6 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.
- The general weakness in withholding and sales tax collections over the last several quarters is indicative of the negative effect that federal government spending cuts are having on the Commonwealth.
- Individual income tax withholding, 64 percent of total general fund revenues, was below the estimate by $66.0 million (-0.6 percent variance).
- Annual collections increased 2.3 percent compared with the forecast of a 2.9 percent increase.
- Individual income tax nonwithholding collections, 15 percent of total revenues, fell 10.1 percent in fiscal year 2014 reversing the 19.1 percent gain in FY 2013, despite a record-level stock market increase in both years. Total nonwithholding collections fell short of the annual estimate by $401.1 million (-14.3 percent variance).
- Individual refunds finished $51.3 million (-3.0 percent variance) below the annual estimate, a net positive for the Commonwealth.
- Taken together, withholding, nonwithholding, and refunds, i.e. net individual income taxes, fell 0.8 percent, behind the annual forecast by $415.7 million, a forecast variance of 3.7 percent.
- Sales and use tax collections, 19 percent of total revenues, fell short of the annual estimate by $12.9 million (-0.4 percent variance).
- Corporate income tax collections, 5 percent of total revenues and one of the most volatile revenue sources, declined by 4.9 percent, compared with the forecast of a 3.4 percent decline.
- Wills, Suits, Deeds, and Contracts (primarily recordation tax collections), 2 percent of total revenues, finished the year $66.7 million (-17.7 percent variance) behind the annual projection of no growth.
Insurance premiums tax, 2 percent of total revenues, exceeded the annual estimate by $31.0 million (11.8 percent variance).