Va. ended last budget with $220 million surplus

By BOB LEWIS

RICHMOND, Va.

Virginia's battered state budget swung from a $1.8 billion shortfall in January to a surprise surplus of at least $220 million when the 2010 fiscal year ended two weeks ago, Gov. Bob McDonnell said Wednesday.

That exceeds forecasts of a month ago anticipating a $140 million unspent balance and guarantees a one-time 3 percent December bonus for state employees, the first pay boost in years for most.

It also boosts the Water Quality Improvement Fund -- a deposit the law requires with any surplus -- and the distribution of $18 million to local school districts, which have seen state aid cut by about $1.2 billion over the past two budget cycles.

The surplus ended a dire budget year in which official revenue forecasts were lowered three times and raised once as policymakers struggled to reconcile a nearly $2 billion shortfall.

Preliminary June revenue figures show that the larger-than-expected year-end balance resulted mostly from strong collections of individual and corporate income taxes, Finance Secretary Richard D. Brown said.

The surplus almost exactly matches the amount the state received from accelerating its sales tax payment schedule for retailers, requiring them to remit collections two weeks early.

Finance Secretary Richard D. Brown, however, said the accelerated sales tax had no bearing on the surplus, that it was the result of strong individual and corporate income tax growth the past two months.

"It didn't really add anything. It subtracted from the bottom line," Brown said.

McDonnell noted that the accelerated sales tax was enacted by the 2009 General Assembly under his predecessor, Democrat Timothy M. Kaine, and is a tactic used during the past decade by his Democratic predecessors to provide a boost in tight budget years.

"That acceleration was already included in the revenue estimates. We just fell a little short of what we thought so it didn't contribute to the $220 (million)," McDonnell said. But were it not in place, McDonnell conceded, "Would we be in worse shape in the budget overall if that wasn't in there? You betcha."

Democrats said the surplus was no surprise at all, arguing that McDonnell created the perception of a late resurgence by downplaying estimated revenues months ago.

"The new governor had zero to do with this," said Senate Majority Leader Richard L. Saslaw, D-Fairfax County. "This was the caboose budget that Tim Kaine recommended."

McDonnell dismissed the criticism.

"They don't understand math," he said. "This is the way surpluses have been calculated for centuries. So I am disappointed that people wouldn't want to see a little bit of good news coming out of the Virginia budget."

June tax collections, while not spectacular, outperformed what state finance officials had anticipated, continuing a modest recent improvement in state finances. The final three months of fiscal 2010 -- April through June -- revenues increased by a combined 8 percent over the same period the year before, the first quarterly growth in general fund revenues since January through March of 2008.

Taxes withheld from individual wages barely topped $820 million in June, up 2.5 percent from June 2009. That brought final annual collections of the tax that accounts for two-thirds of the state's general operating budget to nearly $9.2 billion by the time the fiscal year ended on June 30.

It was an increase of just 0.4 percent over total withholding income tax collections for the previous fiscal year, but it beat the official forecast which was for an increase of only 0.2 percent, and that made the difference, Brown said.

Corporate income tax receipts of $157 million for June increased by 14.2 percent over the same month the year before, and collections of about $806 million for the full year were nearly one-fourth greater than the previous fiscal year.

Sales tax collections for the most recent month doubled what they had been in June 2009. To boost cash receipts, the state accelerated the schedule for retailers to turn in taxes collected on sales. But Brown said the accelerated sales tax generated less than expected and did not boost the final surplus figure.

Cuts large and small, made by both Kaine and McDonnell, were at the heart of reconciling a budget that was wildly out of line with estimated revenues six months ago. Funding even for once untouchable priorities such as schools was reduced.

Since taking office, McDonnell has reversed some cuts, ordering 19 Interstate rest areas Kaine ordered closed reopened this spring, and lifting Kaine's ban on state purchases of bottled water.