WASHINGTON - Virginia's revenue projections for fiscal 2009 and 2010 are expected to be revised downward as the nationwide economic downturn bleeds into the state and could force cuts in the two-year, $77 billion budget, Secretary of Finance Jody M. Wagner said in an interview this week.
Wagner said the two general fund revenue sources most closely tied to current economic activity - payroll withholding and retail sales taxes - experienced a "meaningful" slowdown in growth during the second half of fiscal 2008.
"As a result, significant downward adjustments to the revenue forecast for the current biennial budget cycle that started July 1, 2008, are to be expected during the upcoming fall revenue forecasting process," Wagner said in a letter sent to Gov. Timothy Kaine earlier this month. "State agencies are being advised to expect further budget adjustments to reflect any reductions in the general fund revenue forecast for the current fiscal year and the next fiscal year."
Kaine will address a joint meeting of the Virginia House Appropriations Committee, the House Finance Committee, and the Senate Finance Committee on Aug. 18, when he will "lay out his plan" for moving forward, Wagner said.
Until then, the state has asked its agencies to "seriously think through their spending" and told them that all new hiring requires cabinet-level approval, she said.
Wagner said that while the state's surplus for fiscal 2008 was higher than projected at $5.4 million, budget projections that revenue will grow by 2.2% during fiscal 2009 and by 6.8% in fiscal 2010 will have to be revised downward in light of the economic slowdown plaguing the nation. The state had a considerably more robust $1 billion surplus at the end of fiscal 2006.
Declining employment levels, slower income growth, lower consumer confidence, and the continued downward trends in the housing market have led to shortfalls in withholding, sales, and recordation taxes in the second half of fiscal 2008, Wagner said. The revenue losses, though, were offset by a large surplus in corporate income tax collections due to strength in the defense and energy sectors, she said.
"We had gone through a re-forecast process in the winter and we knew that it was going to slow down, we just didn't anticipate it would be as prolonged as it has been," Wagner said. "I think the national forecasters for the federal government didn't anticipate it either."
But Wagner said the lower revenue projections are unlikely to hamper a pending $1.4 billion bond package that the General Assembly approved in late April for construction projects for colleges, parks, and mental health facilities, although the state could "slow down" the issuance of the bonds.
"I don't really see us slowing that down, though, because the goal was to really accomplish two things - to stimulate employment in Virginia through these construction projects and to compete needed infrastructure projects at the universities and some other agencies," she added.
About $1.02 billion of the bonds are to be issued by the Virginia College Building Authority for higher education projects, and the remaining $437.7 million will be issued by the Virginia Public Building Authority for parks and mental health facilities. The two agencies will use the bond proceeds to finance 75 projects.
Virginia has been a triple-A rated state since 1938 and has historically been viewed as fiscally conservative and economically strong. But the state was not immune to the last economic downturn after the Sept. 11, 2001, terrorist attacks. Moody's Investors Service placed the commonwealth on negative watch in 2004 because of projected revenue shortfalls, but ultimately allowed it to keep its gilt-edged rating because the state's resurgent economy, a freeze on some popular tax cuts, and a readjustment of its tax code reestablished its position of financial stability.
The current economic troubles come as Virginia also faces a nearly $3 billion shortfall in funding for transportation projects after the General Assembly ended a special session earlier this month without passing legislation that would have raised money through tax increases to cover the gap.
The state's mounting transportation needs were highlighted in mid-June when the Commonwealth Transportation Board approved a six-year plan that would cut hundreds of projects and transfer $2.75 billion from the state's transportation construction fund to its transportation maintenance fund.
Without legislative help, the board will have to follow through with its plans to ax about $1.7 billion of planned and proposed northern Virginia road projects and delay additional projects across the state that carry a price tag of about $400 million. Sources have indicated that it is unlikely lawmakers will shore up transportation funds before the November 2009 election, when voters will elect a new governor and lawmakers.
