Appropriations Committee Meeting News

Appropriations Committee Meeting News

Revenue is exceeding predictions; will there be a recession?

On Monday, I traveled to Richmond for the October Appropriations Committee meeting to hear an update on Virginia’s budget forecast from Secretary of Finance Stephen Cummings. This meeting was a special one, as it was the first ever to be conducted in the brand-new General Assembly Building, which had its grand opening last week. In this new building, the House Appropriations Committee has our very own state-of-the-art, modern committee hearing room.

Overall, the Commonwealth remains in a good financial position. September completed the first quarter of fiscal year 2024, and revenues were ahead of projections by more than $400 million, and all major revenue sources are meeting or exceeding expectations. This economic resilience is primarily attributed to higher non-withholding revenues.

There are worries that a recession may occur sometime in the next 6-12 months, however, the current budget has accounted for that possibility and we are prepared accordingly. The current revenue forecast built into the budget assumed a 20% decline in revenue. More revenue information will become available in December after the November deadline for income tax extension filers and the necessary tax refunds are calculated. September is also the most significant month for corporate income tax collections. Corporate income tax revenues are up 18.7% over the last fiscal year.

To date, the US economy has also shown much resilience. Second quarter real gross domestic product (GDP) rose by 2.1%. Third quarter GDP growth, which will be released on October 26th, is currently estimated at an additional two percent growth. In addition, while long-term trends suggest a cooling labor market, September showed a surge in employment. US employers added 336,000 jobs in September, mostly in leisure and hospitality and government. Virginia’s seasonally adjusted unemployment rate in August remained unchanged at 2.5%, and the labor participation rate held steady at 66.7%. The current GDP estimates and “hot” September jobs report increase the likelihood of a federal rate hike by year’s end. 

The current factors that will need to be monitored in the coming months include the threats of an impending federal government shutdown, which was narrowly avoided a few weeks ago, escalating conflict in the Middle East or Ukraine which may impact energy prices going forward, and high interest rates that will impact the housing market and consumer spending. 

The Virginia economy is growing more strongly than expected in the official budget forecast. Overall, the budget, crafted to conservatively measure revenues has served the Commonwealth well and prepared us for excellent financial health in an uncertain year. But, inflation pressures still persist, with the Consumer Price Index (CPI) rising 0.4% in September, and remaining up 3.7% from last year. 

In December, Gov. Glenn Youngkin will present his FY 2025-2026 budget to the Joint Money Committees, his first budget as Governor. To combat the rising cost of living, Virginia's amended budget recently incorporated an additional $1 billion in tax relief. However, it is important to recognize that this tax relief was a necessary measure to support families, veterans, and workers in the short term, but it should not set a precedent for further tax cuts. While the September figures show a remarkable increase, it is imperative not to lose sight of the bigger picture. To ensure fiscal responsibility and safeguard against potential economic uncertainties, the new budget’s focus should be on sustaining the economic well-being of the Commonwealth, including more for education and the environment, and addressing pressing issues such as inflation and geopolitical instability.