Virginia Governor Bob McDonnell announced today that the commonwealth is on pace to post a surplus when the fiscal year ends on June 30. The news vindicates McDonnell’s decision earlier this year to slash spending – and not raise taxes – to deal with an unprecedented $4 billion deficit in Virginia’s biennial budget.
“This is a small, yet very important, indicator that activity is returning to our economy…There is much work to be done, and many more positive reports will be needed before we can truly say we have turned the corner on one of the worst economic downturns in our nation’s history,” McDonnell said. “However, today’s revenue report contains a number of items that should be highlighted, and provide some welcome good news after years of the opposite.”
Before you get too excited, the projected surplus is due mainly to overly pessimistic assumptions. General fund revenues declined only 0.2 percent instead of the 2.3 percent forecast in the budget. That’s still a decline.
However, sales and use tax collections increased 7.3 percent in April and 6.5% in May, the first real back-to-back increase in general fund revenues since November/
December of 2007. That is indeed cause for guarded optimism.
Even more encouraging is the 20 percent increase in corporate tax collections between May 2009 and May 2010. “Year to date collections are up 27.2 percent from the same period last year, ahead of the annual estimate of 12.8 percent growth,” Virginia Finance Secretary Ric Brown said in a June 14 memo to McDonnell.