BRADENTON, Fla. - Virginia faces a $1.48 billion budget gap that includes a deficit from fiscal 2016.
Gov. Terry McAuliffe said the extent of the state's fiscal problem began with closing of the books in June, which revealed a $279.3 million deficit.
That triggered lower revenue estimates of $1.2 billion for the current biennium.
"Unlike in the past when solid job growth resulted in significant revenue gains, fiscal year 2016's revenue growth resembled what we typically experience in tougher economic times," he told a joint meeting of House and Senate finance and appropriations committees on Friday.
General fund revenues rose by 1.7% for total collections of $18 billion dollars.
However, the official forecast projected that revenues would grow by 3.2%.
The combined shortfall, including general fund revenue and transfers, totaled $279.3 million.
"Almost all of the shortfall was due to poor performance of withholding and sales tax collections, the two revenue sources most closely tied to current economic conditions," McAuliffe said.
The state ended the year with 86,200 more jobs than in 2015, a figure that met expectations for employment growth.
However, McAuliffe said the loss of high-paying jobs due to sequestration – federal automatic across-the-board cuts for defense and nondefense programs – as well as reductions in defense spending and the use of temporary employees have changed the state's traditional employment mix.
"Recent job gains have been in lower paying job classifications," he said.
Because Virginia's total individual income, corporate income and sales tax collections in fiscal 2016 were 1.5% below revenue estimates, state forecasters were required to reexamine estimates for the current biennium.
The Joint Advisory Board of Economists met on July 15 to discuss economic scenarios going forward, and the Governor's Advisory Council on Revenue Estimates met last week.
The results lowered expected revenue growth to 1.7% from 3.2% in fiscal 2017, and to 3.6% from 3.9% in 2018.
The new forecast reduced anticipated revenue by $564.4 million in 2017 and $632.7 million in 2018 for a total reduction of $1.2 billion over the current biennium.
"The revised revenue estimates I report to you today have been further reduced to reflect the belief that the trend toward lower paying jobs will continue in the short-term, as well as our concern about next October's sequestration trigger," McAuliffe told the joint meeting.
The state has several options to "make a substantial down payment" on the shortfall in 2017, he said.
McAuliffe suggested that $125.1 million could be drawn from the fund set aside for pay increases to state and state-supported local employees this year. Those raises are dependent on revenue collections.
Some $378.2 million could come from the revenue stabilization fund.
"We cannot assume that the remainder of the fiscal fix will be easy or cheap," he said. "We must prepare ourselves for tough decisions ahead."
McAuliffe plans to finalize actions on 2017 shortfall by early October before dealing with the projected gap in 2018, he said.
The governor will released his budget proposal in December.
