Revenue plunge leads Virginia governor to push for budget trims

WASHINGTON Thu Feb 13, 2014 12:26pm EST

Terry Mcauliffe, former chairman of the Democratic National Committee and also the former chairman of the Hillary Clinton for President committee, waves at the 2008 Democratic National Convention in Denver, Colorado August 26, 2008. REUTERS/Chris Wattie

Terry Mcauliffe, former chairman of the Democratic National Committee and also the former chairman of the Hillary Clinton for President committee, waves at the 2008 Democratic National Convention in Denver, Colorado August 26, 2008.

Credit: Reuters/Chris Wattie

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WASHINGTON (Reuters) - Virginia should tap its reserves and lottery funds, as well as use unspent money from various accounts to make up for falling revenues, newly installed Governor Terry McAuliffe said on Wednesday.

The grim outlook for a state that has thrived fiscally in recent years comes days before the legislature begins finalizing a $96 billion proposed budget for the next two years. Budget committees in both chambers are expected to release their spending plans for Virginia on Sunday.

In a news release posted late Wednesday, McAuliffe, a Democrat who took office last month, said total revenue fell 5.9 percent in January, with declines in all major tax sources except corporate income tax. Through January, the fiscal year-to-date revenues are down 0.5 percent, compared with forecasts for 1.7 percent growth.

McAuliffe said January is a significant month for both individual estimated tax payments and sales taxes collected from December purchases, which makes the report a harbinger of future fiscal struggles.

"In order to remain prudent, we must adjust our revenue estimates downward, which will reduce future risks," he said, adding that he was recommending lowering the forecasts by $125 million for fiscal 2014, ending on June 30, and by $15 million for fiscal 2015, starting July 1.

McAuliffe said that in a meeting with state budget leaders he suggested scrapping a $59.9 million payment to the state's revenue stabilization fund because the deposit was contingent on revenue growth in fiscal 2014.

On the other hand, lottery revenues will likely surpass forecasts by $15.5 million, which can be used to cover public school costs in the state's budget, he said. In the same vein there are balances from a former state agency that can be deposited into the general fund, along with unclaimed funds for other programs.

When he left office in December, former Governor Robert McDonnell set aside $51 million, the state's largest unappropriated balance since 1991, to provide spending flexibility. McAuliffe said the state should draw $40 million from that balance.

Virginia steamed through the 2007-09 recession with few economic problems because of its proximity to the nation's capital. Along with being home to a multitude of federal workers and contractors, the state is the site of many military installations.

Automatic spending cuts known as sequestration and a congressional budget fight at the end of 2013 caused the local economy to soften, and Virginia's budget is now hurting. Last year, revenues fell in February, March, August, and October.

Nonetheless, the state enjoys a triple-A rating from Moody's Investors Service, which gave it a stable outlook in July.

(Reporting by Lisa Lambert; Editing by Jonathan Oatis)

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Comments (7)
Burns0011 wrote:
That cuts the reserve *very* sharply. And this is for, what, just a two year budget cycle?

What happens if the two years after that are another set of flat or lower revenue years? Suddenly, that 51 million reserve has zeroed out and gone negative.

Reserves *are* there to be used in lean times. But you never eat up the majority of the reserve in a single budget cycle.

Feb 13, 2014 5:24pm EST  --  Report as abuse
foiegras wrote:
The solution to this problem is simple: slash state government jobs, lay off teachers and cops, cut essential services. Austerity. Hey! We’re broke. We have been so successful with our economic “recovery” on the federal level by blocking stimulus, cutting government jobs and services, refusing to invest in infrastructure, threatening to default on the national debt every chance we get, shutting down the government on a whim – why not try it on the state level? Well, we already are.

Welcome to the new normal.

Feb 13, 2014 7:52pm EST  --  Report as abuse
morbas wrote:
VA revenue is entirely controlled by the corporate. All VA revenue is in decline except corporate income revenue. The VA tax system is essentially flat rated at 5.75% on personal income above $17,000, also taxing sales, property etc. as flat rates. An oligarchs dream state. VA will follow USA municipalities into debt, as the local governments are denied graduated income tax revenue. Flat tax rate applies to subsistence income, an egregious assault on liberty and happiness. Va is a weak state because it is subjugated to corporate will.

USA tax structure is the fault and an obstacle to worldly potential. Transaction tax code imposes disproportionate burden at the most fundamental rights of liberty, justice. Any encumbrance on sustenance is contrary to equality in the ’pursuit of happiness’. Debt and deficit is simply insufficient revenue. We can nationalize the tax code eliminating all other taxation, immediately balancing the budget(s), through a margin graduated income tax principle.

To: Office of Senator ____________________
United States Senate Washington,
D.C. 20510
To: Office of Representative_________________________
U.S. House of Representatives
Washington, DC 20515
We the people of this United States do proclaim this federal government ‘of, by and for the people’. That, in order to fairly distribute revenue burden, to satisfy ‘net income’ progressive taxation, to balance all governments budgets, and to not tax poverty;
The people mandate:
Income National Tax code that shall use margin graduated income tax principle: Margin $30k 0% single, $60K 0% joint, income above this a linear increasing rate {Income-[$30k or $60k])*(Income/$800k)*90%; 90% limit} . Exemptions shall be prohibited. The Federal Reserve shall amend the (90%) rate, and control currency printing mandated to maintaining currency availability and value. The Federal Reserve shall set the Margin rate value well (>2x) above highest of all State Poverty Level(s). Revenue shall be proportioned 1/3rd Federal,1/3rd State proportioned per cast ballot and 1/3rd Local proportioned per cast ballot.
This National Tax is a peoples tax, no other citizen taxation shall be permitted. Business shall not be taxed. The Federal Reserve shall control taxation. The people will by simple majority approve or reject all margin and rate changes at every Congressional House Representative election year ballot.

morbas(i)

Feb 13, 2014 8:46pm EST  --  Report as abuse
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