State revenues surged by more than $270 million in March, an 18.5% increase powered by boosts in high-wage jobs, internet sales and a booming housing industry as Virginia emerges from the COVID-19 pandemic in a stronger budget position than when the public health emergency began a year ago.
The increase Gov. Ralph Northam announced on Tuesday puts Virginia $1.35 billion ahead for the first nine months of the fiscal year, compared with the same period a year ago, and positioned for a potential budget surplus when the fiscal year ends on June 30.
State revenues through March 31 were $691 million higher than projected in the two-year budget that the General Assembly adopted on March 12, 2020, the same day that Northam announced the public health emergency because of the global coronavirus pandemic.
“The economy is coming back quicker than people anticipated,” Secretary of Finance Aubrey Layne said Tuesday.
Northam is poised to sign the third state budget the assembly adopted in 12 months. The latest budget includes more than $400 million in revenues that the governor identified in February for the legislature to use in this fiscal year, but current revenues already are $900 million ahead of that revised forecast.
“Virginia’s solid revenue picture is yet another sign that we are emerging very strong from the pandemic and continue to address its impacts on our economy,” Northam said Tuesday. “Together with the General Assembly, we have worked to ensure these gains will translate into additional relief to families and businesses and the targeted investments we need for a broad-based, equitable recovery.”
The state budget still depends on revenues in the final three months of the fiscal year, with state income taxes due May 17, along with quarterly and final payments by taxpayers, such as self-employed professionals and investors, whose income taxes are not withheld from paychecks.
The state has to collect an additional $1.7 billion from those taxpayers alone in the next three months to balance the budget, but Layne said, “I think we’re well on the way.”
The most encouraging sign in the March revenue report is a $273.8 million increase in income taxes withheld from paychecks. Those taxes account for 61% of state revenues, and reflect both jobs and wages.
About $150 million of the increase comes from an additional payroll collection day in March, so that will be partly offset by one fewer collection day in April. However, Layne said the increase in March represents the single largest monthly gain in withholding income tax collections in almost 22 years, even though the state unemployment rate, at 5.2%, is about twice as high as it was a year ago.
Payroll taxes grew for businesses of all sizes during the last quarter — from Jan. 1 through March 31 — for the first time since the public health emergency began, which Layne said reflects hiring even in industries hit hardest by public health restrictions, such as the tourism and hospitality businesses.
“Everyone is adding people now,” he said.
Sales tax revenues grew by more than $21 million in March, or 8.1%, and $182 million for the first nine months of the fiscal year, thanks to internet sales that the state began taxing in 2019 under a U.S. Supreme Court decision the previous year that allowed states to collect taxes on online sales.
“If we hadn’t done that, we’d have been in real trouble,” Layne said.
Home sales and refinancing of mortgages fueled a 58% increase in taxes collected on deeds and other court filings in March, a gain of $23.5 million. For the year to date, recordation taxes have grown by $143.5 million, or 40.6%, reflecting low interest rates and a hot housing industry.
The surge in revenues could produce a surplus at the end of the fiscal year that would trigger a mandatory deposit in the Revenue Stabilization Fund, as required by the state constitution. A surplus also would give Northam additional money to prepare the final two-year budget that he will present to the assembly in December, the month before his four-year term ends.
The governor and the assembly also will have decisions to make in a special legislative session expected in June on spending — or saving — $6.8 billion in federal aid under the American Rescue Plan Act President Joe Biden signed on March 11. The state will be able to spend the money through 2024 under guidelines the federal government has not released.
The swiftness of the economic rebound surprised Layne, a certified public accountant who has preached fiscal caution since the crisis began.
“A year ago, we thought we would be scrapping for funds,” he said. “Now, we’re in a cash-plus position.”