WASHINGTON (Reuters) - Virginia's revenue shot up last month, but the state's governor on Tuesday warned that federal budget battles could cut off the its gathering fiscal strength.
Virginia's total general fund revenue collections soared 15.7 percent in October from a year before, after shrinking by a slight 0.7 percent in September.
Governor Bob McDonnell warned in a statement that "the continuing uncertainty surrounding our federal government's financial outlook and the looming 'fiscal cliff' mean Virginia must look beyond these short-term increases and prudently prepare for how to weather any potential financial challenges in the coming months."
McDonnell has asked all state agencies to submit plans to reduce their spending by 4 percent in case the federal government cannot reach a tax and spending deal soon.
At the end of the year, the so-called Bush tax cuts will expire just as automatic spending cuts kick in. The anticipated contraction in consumer spending from people putting more of their money toward paying taxes, mixed with the sudden shock of austerity, have economists and policymakers warning that the country could fall off a "fiscal cliff."
Virginia and other states with a heavy military presence face an additional economic threat as the spending cuts are also expected to affect the U.S. armed forces.
The state weathered the 2007-09 recession better than most and entered the recovery quickly, largely due to contractors and others in the state who work closely with the nearby U.S. capital.
"A failure to find a resolution prior to this fast approaching deadline would have negative economic consequences on all the states, Virginia included," McDonnell said. "At this time we are simply preparing for this possible, but still avoidable, outcome."
Reporting by Lisa Lambert, editing by Gary Crosse