- Associated Press - Tuesday, November 13, 2012

Virginia state finances can weather a continued sluggish economy, but the so-called “fiscal cliff” could threaten core state programs unless Washington can reach a deficit reduction deal.

That’s the assessment House of Delegates budget writers heard Tuesday from their own experts in a two-day tutorial preparing them for another year of austere budgeting in the 2013 General Assembly.

It came as Gov. Bob McDonnell’s administration announced a 15.7 percent spike in general state tax collections in October over the same month a year earlier. Strong receipts from individual income taxes withheld from paychecks and two additional deposit days over October 2011 moved overall revenues ahead of forecast for 2.9 percent growth on which budgeted spending is based for the first time four months into the fiscal year.

Staff analysts and economists told the House Appropriations Committee at its annual autumn retreat in Suffolk that Virginia will continue to experience modest revenue growth in an economy that will continue to struggle restoring jobs to their 2008 pre-recession levels.

While Virginia’s unemployment rate of 5.9 percent is the nation’s 12th lowest and below the national average, the state slipped from its ranking of 18th in job growth in September 2011 to 35th two months ago.

Even more ominous, the state’s economic dynamo, northern Virginia, is showing signs of slowing, according to reports presented to the committee. Among metro areas of 1 million people or more, the Washington/northern Virginia market had one of the smallest annual rates of job gains in August, falling from No. 1 in August 2011 to 15th out of 26 major markets this August.

An austere two-year budget enacted by the General Assembly that took effect July 1 will make it easier to protect the state’s fiscal fitness, but it becomes far more difficult if Congress can’t agree on strategy to arrest government debt that has spiraled past $16 trillion by Jan. 2. “Sequestration,” as the cuts are known, would direct federal discretionary spending cuts of 9.4 percent for defense programs and an 8.2 percent reduction in non-defense appropriations.

One-third of Virginia’s gross state product comes from direct federal expenditures, the highest percentage in the nation. The ratios are even higher in its two most populous regions – Washington, D.C.’s Virginia suburbs and Hampton Roads, home to the world’s largest U.S. Navy base in Norfolk. Under a worst case, Virginia could lose more than 82,000 jobs in two years, inflicting an average annual toll of $330 million in lost state sales taxes, individual income taxes and corporate income taxes on Virginia’s treasury.

The committee’s chairman, Del. Lacey Putney of Bedford, said the uncertainty about whether Congress will act to avoid deep, automatic cuts clouds conditions the 2013 General Assembly will face and advocated more pessimistic assumptions.

“…Given the uncertainly, it would be prudent to revise downward the job growth forecast and the forecasted rate of growth in payroll withholding” in the new fiscal year that begins next July. “Until Congress acts, the true impact of federal spending on our economy, primarily in defense, will be unknown.”

Republican Gov. Bob McDonnell acted last week to brace state agencies for austerity measures when he ordered heads of executive branch state government agencies to prepare contingencies for cuts up to 4 percent in their budgets. Mr. McDonnell will use the proposals, due Nov. 21, in preparing amendments he will propose to the two-year $80 billion state budget on Dec. 17 in an address to House and Senate budget-writing panels.

Last year’s budget also set aside $30 million as an initial payment into a state contingency reserve fund specifically to shore up a sharp drop in federal spending.

October’s revenue report was the first in the 4-month-old fiscal year to exceed monthly targets necessary to keep the budget in the black. Individual income tax withholding receipts were up by 13.8 percent for the month over October 2011, and corporate income tax collections increased by 143 percent, from 17.6 million in October 2011 to 42.8 million last month, thanks in part to late September payments arriving in October.

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