State Treasury Brings In More General Fund Revenues Than Projected

by Dick Hall-Sizemore

Some commenters on this blog have expressed serious concern about the choices facing Governor Youngkin this fall in the development of his recommended amendments to the state’s two-year budget. They cite the prospects of recession and the uncertainty created by such prospects. They can rest a little easier for now.

The Secretary of Finance has informed the Governor that the Commonwealth’s first quarter general fund revenues for the current fiscal year are $500 million ahead of projections, or 7.6%. In September alone, after adjusting for timing differences, “total general fund revenues increased 10.7 percent for the month compared to a year ago.”

The Secretary’s transmittal letter and details can be found here. One feature of these documents that may be a little confusing at first glance is the frequent reference to declines in revenues. What one needs to keep in mind is that the General Assembly, in the adoption of the 2022-2024 biennial budget, assumed a 14% decrease in general fund revenues in FY 2023 compared to FY 2022. This projected decrease was based on the adoption of tax reductions. The actual revenues for the first quarter were less than for the same period last year, but only 5% less, rather than 14% less. Quite encouraging are a 9.2% increase in individual income tax revenues for the first quarter, along with a 20.3% increase in sales tax revenues.

In his transmittal letter, Secretary of Finance Stephen Cummings declared “revenue collections for the remaining nine months of fiscal year 2023 can decline 16.4% year-over-year, or $3.8 billion, and still meet projections assumed in the current appropriation act.” 

Cumming apparently does not think that is likely to happen. He recently told the Richmond Times-Dispatch that he anticipates a “mild recession” with the economy losing ground by the end of the calendar year but starting to recover in the spring. That prediction is in sharp contrast to the sharper recession some national financial figures are predicting. Perhaps Cummings is trying to be proactive to head off any objections to the additional tax cuts that his boss, Governor Youngkin, wants.

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40 responses to “State Treasury Brings In More General Fund Revenues Than Projected”

  1. James McCarthy Avatar
    James McCarthy

    Do the increases in income tax revenues reflect a full employment phenomenon? Is the sales tax revenue increase related to consumer spending?

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      I assume your questions are rhetorical.

      1. James McCarthy Avatar
        James McCarthy

        Macro govt finance is over my pay grade. My questions seemed to have obvious answers but not within the article.

        1. Dick Hall-Sizemore Avatar
          Dick Hall-Sizemore

          The answer to both questions is a qualified yes. The state’s unemployment rate in August was 2.6 percent, which is pre-pandemic level. Wages have also increased. However, the labor force participation rate is lower than it has been in 40 years. Full employment is defined as a situation in which every person willing and able to work is able to get a job. Based on the reports of employers having trouble finding employees and the “help wanted” signs I see, I would say we are at full employment.

          The increase in sales tax revenues is due to two factors: consumers are still spending at a healthy rate and the prices of goods have increased.

          1. LarrytheG Avatar

            re: ” , the labor force participation rate is lower than it has been in 40 years.”

            and normally it means people who are not working and not seeking work. What are these folks doing to be able to pay for food and shelter? One presumes they’re not homeless and actually are continuing to eat and live somewhere.

          2. how_it_works Avatar

            ” What are these folks doing to be able to pay for food and shelter?”

            Ever heard of “couch surfing”?

          3. LarrytheG Avatar

            sure. How do those folks pay for the couch and internet to surf on?

            Do we now have some folks who get so much entitlement money they no longer have to work?

            or is the labor participation rate also including seniors and teens?


          4. how_it_works Avatar

            They don’t, they’re sleeping on someone else’s couch. And likely eating someone else’s food. At least till that someone else gets tired of being sponged off of and asks the sponge to leave.


          5. LarrytheG Avatar

            whoa! ” A dependence on couch surfing is a form of homelessness. Couch surfing is usually missed by homeless counts and is therefore a type of hidden homelessness.”

            Who KNEW? 😉

          6. Lefty665 Avatar

            The decrease in the labor participation rate is the critical number. The unemployment rate is artificially decreased because of it.

            Consumers wages are falling behind inflation, and “spending at a healthy rate”, is increasingly coming from credit cards and decreased savings. That is not healthy at all.

            We might be better informed if revenue numbers were reported in constant dollars adjusted for inflation rather than less valuable inflated money. The revenue story might be much different. But, our politicians generally benefit from inflated numbers so that ain’t likely.

          7. Dick Hall-Sizemore Avatar
            Dick Hall-Sizemore

            The purpose of the monthly revenue report by the Secretary of Finance is to monitor the revenue stream in comparison to the budget appropriations. If things start going downhill, this periodic monitoring will provide some time to react. The appropriation act is based on real dollars, not inflation-adjusted dollars.

          8. Lefty665 Avatar

            I understand those things. In periods of high inflation the numbers, budgets, receipts and expenditures, all begin to be a house of cards that obscure what is actually happening.

            Going downhill can be masked by inflated dollar reporting. There is a pretty good argument that inflation-adjusted dollars are the real dollars.

            We are in agreement that we’ve got what we’ve got with budgeting and financial reporting. That ain’t going to change, and that may not be helpful.

            Question, what is your estimation of the extent of diddling with the budget and projections due to the inflation we have experienced since the last session that will take place in the GA session coming up?

          9. Dick Hall-Sizemore Avatar
            Dick Hall-Sizemore

            I am not sure what you mean by “diddling”. The Governor’s staff at the Dept. of Taxation and the consultants hired will get their heads together, decide on a set of assumptions, and throw them into the computer model or models they use. They will then massage the numbers that result, based on their experience. The resulting numbers will be the numbers. Whether $50 million will buy next August what it buy now is not material at this point.

            It will be material when the Governor and his budget advisers are considering spending amendments. How much, if any, will they allow for possible inflation? Smart agency budget directors will have already factored in potential inflation for items such as energy, supplies, and equipment into their requests. Two common examples that have arisen in the past: What cost per car to use in requesting funds for replacement of vehicles for the State Police? What rate of increase in medical costs to use for DOC’s request for funding for medical services for inmates?

          10. Lefty665 Avatar

            I believe you’ve described “diddling” very nicely.

            Thanks for the rundown on what inflation driven changes we’re likely to see, why and by whom.

            Inflation driven adjustments are part of the inflation expectations that the Fed is worried will get baked into all our calculations, both personal and governmental. Seems likely that horse is already out of the barn.

          11. James McCarthy Avatar
            James McCarthy

            At the same time, unemployment claims dropped again suggesting the full employment notion as jobs also remain unfilled.

          12. Lefty665 Avatar

            Not quite sure where you were headed with that. Hope it was something like this:

            The labor participation rate falls when people stop looking for work. People filing unemployment claims are required to be looking for work so by definition are still part of the labor force.

            When people drop out of the labor force, the labor participation rate, unemployment claims and the unemployment rate will all go down.

    2. As the prices of goods increase, tax revenue increases even if consumers’ purchasing habits do not change.

      The bottom line is, inflation results in increased revenue for the Commonwealth.

      1. James McCarthy Avatar
        James McCarthy

        And how does employment vs increased income tax revenue play?

        1. Lefty665 Avatar

          There was a recent announcement that income tax brackets are being adjusted for inflation to prevent bracket creep for tax payers. Don’t believe anyone knows yet what that will do to income tax revenue, even with 87,000 new IRS agents.

          1. James McCarthy Avatar
            James McCarthy

            Dependent upon the numbers in an income bracket, preventing creep (holding constant) should not affect the revenue stream. Also it’s not likely a mission specific target for the new agents.

          2. Lefty665 Avatar

            Exactly, and that is why I was responding to your assumption about increased income tax revenue.

            “it’s not likely a mission specific target for the new agents.”

            Zzzzttt. Massively increased tax collection was the specific rationalization for the $80B increase in funding of about 87,000 new positions at the IRS. 5% of those positions, around 4,300, were for customer service. The other 80k+ mostly revenue agents.

            The projected tax collections are what enabled the “Inflation Reduction Act” to both pay for itself and to show a surplus. Who ever said our law makers don’t have a sense of humor, or that the rest of us are not the butt of the joke?”

  2. Nancy Naive Avatar
    Nancy Naive

    Inflation — make the pie higher, to quote the GW.

  3. James C. Sherlock Avatar
    James C. Sherlock

    I certainly hope you are right, Dick. I am too old for a recession. But given 8.2% inflation and the accelerating collapse of housing prices under pressure from 7% 30-year mortgage rates and general chaos, I will be happily surprised if we avoid one.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      I am not the one doing the predicting. The state Secretary of Finance says we are in a “mild recession” and we will start getting out of it in the spring. Other economists and business leaders way above my pay grade are divided.

    2. Nancy Naive Avatar
      Nancy Naive

      Actually, you are the right age.

      You live in the social safety net.

    3. Lefty665 Avatar

      It’s not just housing prices. Interest rates are shutting new construction down too.

      We have had decreased real GDP for two consecutive quarters (January-June) which is the traditional definition of a recession. There is little doubt that the numbers for the quarter ending in September will be the third. How long do decreases in GDP have to go on to qualify as a recession using the new recession math?

      The Fed’s determination (well founded) to strangle inflation by ratcheting up interest rates and reversing quantitative easing will result in a hard landing.

      The math is simple. It takes about 6 months for interest rate changes to work their way through the economy. By the time inflation is strangled and the Fed reacts there will be a half year tsunami of queued up interest rate increases to wreak havoc. What could go wrong with that? They have learned nothing from watching the Greenspan debacles.

      That’s just the obvious domestic side. Spillover from the energy driven depression we have engineered for Europe this winter will increase the decrease. But that’s a whole different story.

      Unfortunately the geniuses who are driving don’t really care about us geezers. We’re collateral damage and likely won’t be around long enough to cause much trouble. Fortunately your military retirement benefits provide you some shelter, and that’s a good thing.

  4. LarrytheG Avatar

    I don’t think the other economic shoe has dropped yet and our choices seem to be more inflation or an induced recession to “cure” it.

    This is not an economy that works the “normal” way with full employment – the economy continues to add jobs – even as inflation rages and the Fed promises to do something that normally results in bad stuff for many.

    Northern Virginia – as a job market and generator of taxes for the Commonwealth is not as affected by economic forces as other places. It’s the HQ for most Federal Agencies. The Feds don’t normally lay off folks due to the economy and even less so the administrative leaders of the agencies.

  5. Continued signs of fiscal health are encouraging. Cummings may be right that the coming recession will be mild. But the commonwealth needs to prepare itself for the possibility that the economy might do worse than expected.

    In a globally interdependent economy, black swan events can come from anywhere. Who would have a figured a month ago that over-leveraged pension funds would cause economic turmoil in the United Kingdom. rattling exchange rates and interest rates across the globe? After a decade of global interest-rate suppression, what other institutions are over-leveraged? What other nasty surprises await us?

    Prudence demands that we err on the side of fiscal caution.

    1. LarrytheG Avatar

      re: the UK – so Liz Truss “promised” tax cuts without paying for them – classic “supply side” economics and it helped to roil the markets and lead to her resignation.

      In Virginia, the drumbeat from Conservatives including TJ and Haner was ‘give us our tax money back” – NOT “prepare itself for the possibility that the economy might do worse than expected.”

      NOW… the same Conservatives are “warning” that we need to be wary. So,
      will Youngkin back off his proposed rebates?

      1. Too late, already mailed and deposited/spent.

        1. LarrytheG Avatar

          That one is Northams. Youngkin has also been proposing a second one, right?

          1. Wrong

    2. Lefty665 Avatar

      An observation, from Warren Buffett I believe, is “When the financial tide goes out we find out who was swimming naked”.

      Pontifications that we are in for a mild recession, or not in one already, are whistling past the graveyard. There are way too many bad omens lurking. I suggest buckling up, the ride is about to get very bumpy.

      1. Nancy Naive Avatar
        Nancy Naive

        Recession? What recession?

        1. Lefty665 Avatar

          Exactly, a round of ice cream cones for every one. Happy days are here again.

          1. ..with Popsicles for the lactose intolerant!

          2. Lefty665 Avatar

            ..and gluten free cones and sticks for the gluten averse!

            For equity’s sake why are there no white ice cream cones? They’re all shades of brown, and have been since 1619. Some say we fought the revolution to repress white ice cream cones.

          3. Nancy Naive Avatar
            Nancy Naive

            Me and the hedgers

          4. Lefty665 Avatar

            Sell short.

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