August 15, 2014 Review of General Fund Revenues Review of General Fund Revenues and the Virginia Economy for Fiscal Year 2014 The Interim Economic Outlook and The Interim Economic Outlook and Revenue Forecast for Fiscal Years 2015 through 2016 A presentation to the Senate Finance, House Appropriations, and House Finance Committees Richard D. Brown Secretary of Finance Secretary of Finance
Overview… Fiscal Year 2014 Year-in-Review • Economic Performance • Actual General Fund Collections • • Actual Commonwealth Transportation Fund Collections Actual Commonwealth Transportation Fund Collections • Financial Results Balance Sheet Updated Outlook for Fiscal Years 2015 through 2016 Updated Outlook for Fiscal Years 2015 through 2016 • May 2014 Economic Outlook • August 2014 Interim Revenue Forecast g • Revenue Stabilization Fund Balance Next Steps • July 2014 General Fund Collections • Fall Forecasting Process 1
The U.S. Economy Performed As Anticipated In Fiscal Year 2014… In Fiscal Year 2014… • As measured on a fiscal year basis (July through June), real GDP advanced 2.4 percent in FY14. • Wages and Salaries advanced 3.3 percent in FY14 in line with expectations. • The U S economy gained 2 3 million jobs in FY14 The U.S. economy gained 2.3 million jobs in FY14. • At the end of FY14, national employment slightly exceeded the previous peak that occurred six years ago in FY08. Summary of Key U.S. Economic Indicators Percent Change Over the Prior Fiscal Year FY14 FY14 Forecast Actual Real GDP 2.1 2.4 Consumer Spending 2.0 2.4 Employment Employment 1 6 1.6 1 7 1.7 Personal Income 3.6 3.1 Wages & Salaries 3.2 3.3 2
However, Due to Federal Budget Cuts, Virginia’s Economy Stalled In The Last Half of Fiscal Year 2014… f Fi l Y 2014 • In Virginia, wages and salaries grew 1.1 percent, significantly lower than the official forecasted rate of 2.6 percent. • Virginia gained a meager 0.4 percent or 14,600 jobs in FY14. Gains in finance, health services, and leisure and hospitality were largely offset by the drag from professional hospitality were largely offset by the drag from professional and business services and government. Summary of Key Virginia Economic Indicators Summary of Key Virginia Economic Indicators Percent Change Over the Prior Fiscal Year FY14 FY14 Forecast Actual Employment 1.0 0.4 Professional/Business 1.0 -1.8 Government -0.1 0.0 Personal Income Personal Income 2 9 2.9 1 6 1.6 Wages & Salaries 2.6 1.1 3
The Composition of Employment Growth is Changing... Changing... 4
Fiscal Year 2014 Revenues And Transfers Finished $437.8 Million (2.5 Percent) Below F Forecast… t Summary of Fiscal Year 2014 Revenue Collections (millions of dollars) Variance % Growth Over FY13 Major Source Forecast Actual Dollars Percent Forecast Actual Withholding $ 10,550.2 $ 10,484.2 $ (66.0) (0.6) % 2.9 % 2.3 % Nonwithholding 2,926.0 2,524.9 (401.1) (13.7) 4.2 (10.1) Refunds Refunds (1 807 1) (1,807.1) (1 755 8) (1,755.8) 51 3 51.3 (2 8) (2.8) 5 1 5.1 2 1 2.1 Net Individual 11,669.1 11,253.3 (415.8) (3.6) 2.9 (0.8) Sales 3,079.4 3,066.5 (12.9) (0.4) (4.4) (4.8) Corporate 769.9 757.5 (12.4) (1.6) (3.4) (4.9) Wills (Recordation) 377.5 310.8 (66.7) (17.7) 0.0 (17.7) Insurance 289.4 320.4 31.0 10.7 10.4 22.2 All Other Revenue 664.1 702.9 38.8 5.8 (3.5) 2.1 Total Revenues $ 16,849.4 $ 16,411.4 $ (438.0) (2.6) % 1.0 % (1.6) % ABC Profits ABC Profits 71 6 71.6 72 2 72.2 0.6 0 6 0 8 0.8 5 3 5.3 6 2 6.2 Sales Tax (0.25%) 334.7 334.0 (0.7) (0.2) 51.2 50.9 Transfers 131.2 131.5 0.3 0.2 (3.0) (2.7) Total Transfers $ 537.5 $ 537.7 $ 0.2 0.0 % 26.6 % 26.6 % Total General Fund $ 17,386.9 $ 16,949.1 $ (437.8) (2.5) % 1.6 % (0.9) % 5
The Drop-Off in May Pushed the Fiscal- Year-to-Date Growth Down to Negative T Territory… it Growth in Total General Fund Revenue Collections FY14 Monthly and Year-to-Date 14% 13.0% 12% 10% 8% Forecast: 1.0% 6% 3.0% 2.8% 4% 2% 0% 1 3% 1.3% 0.6% 0.7% 0.7% -2% -0.8% 0.0% -0.5% -4% -1.6% -1.6% -6% -8% -10% -12% -14% -16% -18% -20% Monthly Year-to-Date -22% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Growth: 13.0% -4.8% 2.6% -5.4% 1.1% 0.8% -5.9% -3.4% 7.8% 10.0% -20.7% -2.2% • Total general fund revenue collections were short of the forecast by $438.0 million in FY14, a forecast variance of 2.6 percent. • Total general fund revenue collections fell 1.6 percent, behind the official forecast of 1.0 percent growth. – Adjusting for the accelerated sales tax (AST) program, total revenues fell 0.6 percent, behind the economic- base forecast of 2.1 percent growth. 6
Payroll Withholding Tax Collections Fell Short of The Annual Estimate By $66.0 Milli Million (-0.6 Percent) In Fiscal Year 2014… ( 0 6 P t) I Fi l Y 2014 Growth in Withholding TAX Collections FY14 Monthly and Year-to-Date 20% 19.6% 18% 16% 14% 12% Forecast: 2.9% 10% 8% 5 8% 5.8% 6% 3.4% 3.4% 4% 4.8% 2% 3.6% 3.0% 3.3% 2.7% 2.5% 2.3% 2.5% 0% -2% -4% Monthly Year-to-Date -6% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Growth: 19.6% -5.5% 2.9% 0.5% 2.6% 3.1% -1.9% 6.6% 0.8% 8.0% -5.4% 0.1% • Collections of payroll withholding taxes, 64 percent of total general fund revenues, grew 2.3 percent, trailing the annual estimate of 2.9 percent. • Slower-than-expected employment and income growth Sl th t d l t d i th dampened collections in this source. 7
Weak Growth in Withholding Collections Due to Slowdown in Public Sector and Declines in F d Federal Contractors and Professional and l C t t d P f i l d Business Services… Withholding Tax Collections Fiscal Years 2012 - 2014 Millions of Dollars # of Firms Millions of Dollars Percent Change Industry (% of Total $ Amount in FY14) dust y(% o ota $ ou t ) in FY14 FY12 FY13 3 FY14 FY12 FY13 3 FY14 Public Sector (18%) 93 $1,831.5 $1,874.9 $1,888.6 2.7% 2.4% 0.7% Education and Health Services (7%) 244 $750.4 $757.4 $772.9 -1.2% 0.9% 2.0% Federal Contractors (4%) 192 $495.6 $482.8 $451.7 -1.7% -2.6% -6.4% Finance (3%) Finance (3%) 134 134 $270 3 $270.3 $294.7 $294 7 $306 6 $306.6 7 0% 7.0% 9 0% 9.0% 4 0% 4.0% Professional and Business Services (3%) 538 $260.5 $285.5 $288.1 8.1% 9.6% 0.9% Investment (2%) 148 $134.8 $159.6 $179.0 3.1% 18.4% 12.2% Manufacturing (2%) 174 $135.8 $141.0 $157.3 7.2% 3.8% 11.6% Transportation (1%) Transportation (1%) 41 41 $103 1 $103.1 $108 9 $108.9 $113.9 $113 9 0 4% 0.4% 5 7% 5.7% 4 6% 4.6% Energy (1%) 47 $96.2 $84.4 $86.2 -2.8% -12.3% 2.2% Other (4%) 720 $468.0 $468.8 $464.1 -1.8% 0.2% -1.0% Total Large Payers (45%) ( %) 2,331 $ $4,546.1 $ $4,658.0 $ $4,708.6 1.6% % 2.5% % 1.1% % Total Small Payers (55%) 242,267 $5,493.5 $5,593.3 $5,775.6 6.5% 1.8% 3.3% Total All 244,598 $10,039.7 $10,251.3 $10,484.2 4.2% 2.1% 2.3% 8
Individual Income Tax Nonwithholding Collections Were $401.1 (13.7 Percent) Below The Annual Estimate In Fiscal Year Below The Annual Estimate In Fiscal Year 2014… Growth in Estimated and Final Payments, FY92-14 Percent Growth Over the Prior Year 60% 60% 50% 40% 30% 20% 10% 0% -10% Estimated Payments -20% Final -30% -40% 40% 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 • Collections of nonwithholding, 15 percent of total revenues and one of the most volatile revenue sources, fell short of expectations due to a drop off in final payments and flat p p p y estimated payments. – Final payments decreased 23.5 percent compared with the estimate no change. • T k Taken together, total nonwithholding collections fell 10.1 t th t t l ithh ldi ll ti f ll 10 1 percent in fiscal year 2014 compared with the annual estimate of 4.2 percent growth. 9
Individual Payments Reflect Realized Capital Gains and Non-wage Income… Large Individual Payments Number of Total $ Amt P Payments t of Payments f P t (in millions) 832 $266.2 FY00 FY01 885 $270.9 FY02 639 $168.8 FY03 617 $177.5 864 $242.3 FY04 1,320 $394.8 FY05 1,749 1 749 $523 1 $523.1 FY06 FY06 1,929 $638.5 FY07 1,858 $657.9 FY08 1,310 $483.3 FY09 FY10 FY10 843 843 $263.8 $263.8 FY11 1,130 $422.3 FY12 1,173 $401.6 1,648 $575.7 FY13 1,119 $328.0 FY14 FY13 and FY14 payments are affected by federal tax policy changes; FY14 payments are the lowest since FY10. Note, large payments are payments over $100,000.00 10
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