Economic and Revenue Update A Briefing for the Money Committees Aubrey L. Layne, Jr., MBA, CPA Secretary of Finance Commonwealth of Virginia www.finance.virginia.gov May 2018
Topics for Discussion • National and State Economic Indicators • April Year-to-Date Revenue Collections, Fiscal Year 2018 • Next Significant Data Points • Revenue Analysis • Rating Agency – PRAG Report 2
National and State Economic Indicators • According to the advance estimate, real GDP grew at an annualized rate of 2.3 percent in the first quarter of 2018, following 2.9 percent in the fourth quarter. • Payroll employment rose by 164,000 jobs in April, below expectations. – The March gain was revised up by 33,000 to 135,000. • The national unemployment rate fell to 3.9 percent in April due to a contraction in the labor force. • Initial claims for unemployment rose by 2,000 to 211,000 during the week ending April 28. – The four-week moving average fell by 7,750 to 221,500, the lowest level since March 3, 1973. • The Conference Board’s index of leading indicators rose 0.3 percent in March, following a 0.7 percent increase in February, suggesting the economic expansion should strengthen over the coming months. • The Conference Board’s index of consumer confidence rose 1.7 points to 128.7 in April. Both the expectations and current conditions components increased for the month. • Conditions in the manufacturing sector were somewhat weaker than expected in April. The Institute of Supply Management index fell from 59.3 to 57.3, but remains in expansionary territory. 3
National and State Economic Indicators • The CPI fell 0.1 percent in March after a 0.2 percent gain in February and stands 2.4 percent above March 2017. – Core inflation (excluding food and energy prices) rose 0.2 percent, and has increased 2.1 percent from last year. • At its May meeting, the Federal Reserve left the federal funds target rate range unchanged at 1.50 to 1.75 percent. • In Virginia, payroll employment rose 1.1 percent from March of last year. Northern Virginia posted growth of 1.8 percent; Hampton Roads grew 0.1 percent; and Richmond- Petersburg rose 0.6 percent. • The seasonally adjusted unemployment rate fell 0.1 percentage point to 3.4 percent in March, the lowest rate since March 2008. • The Virginia Leading Index fell less than 0.1 percent in March after increasing 0.6 percent in February. – The U.S. leading index and future employment improved in March, while auto registrations declined and initial claims for unemployment rose. – The indexes increased in Northern Virginia, Hampton Roads, Charlottesville, Bristol, Harrisonburg, and Staunton, while decreasing in Richmond, Lynchburg, Blacksburg, and Winchester. The Roanoke index was unchanged. 4
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Growth in Total General Fund Revenue Collections FY18 Monthly and Year-to-Date 18% 16% 14% 12% 10% 8% 5.8% 5.9% Forecast: 3.4% 5.4% 6% 6.7% 4.1% 6.2% 3.0% 4% 4.9% 5.2% 4.9% 2% 0% -2% Monthly Year-to-Date -4% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Growth: 5.4% 1.1% 5.5% 7.7% 4.9% 10.0% 5.1% 10.9% -3.5% 17.8% • Total general fund revenues increased 17.8 percent in April. Individual nonwithholding payments received ahead of the May 1 st due date accounted for most of the – increase. • On a year-to-date basis, total revenues increased 6.7 percent, ahead of the annual forecast of a 3.4 percent increase. 6
Growth in Withholding Tax Collections FY18 Monthly and Year-to-Date 14% 12% 10% 8% 6.7% 5.6% 4.4% 6% 4.7% 4.2% 4.0% 4.0% 4.0% 3.5% 4% 3.0% 2% 0% Forecast: 3.5% -2% -4% Monthly Year-to-Date -6% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Growth: 6.7% 0.8% 5.0% 4.0% 4.1% -1.8% 14.0% 11.8% -4.7% 6.1% • Collections increased 6.1 percent in April, a small amount of growth was due to an additional deposit day. • Year-to-date, withholding collections increased 4.4 percent compared with the same period last year, ahead of the projected annual growth rate of 3.5 percent. 7
Nonwithholding Tax Collections FY16 - FY18 Monthly 1,000 FY16 FY17 FY18 FY18 Required to attain annual estimate 900 800 700 Millions 600 500 400 300 200 100 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun • To date, roughly 83 percent of the nonwithholding forecast has been collected, and collections increased 23.6 percent from the same period last year, ahead of the annual estimate of 4.3 percent growth. • May receipts will mainly be final payments for tax year 2017 and continues to be a significant unknown positive affecting the revenue forecast. 8
Analysis of High Net Worth Individuals • In December and January – 781 high-income tax payers (more than $1.7 million in taxable income) submitted $297 million in payments. – This compares to the average of the last three years where 423 high-income taxpayers submitted $162 million. • Previous peaks in payments were in FY07 and FY08 where an average of 478 high-income taxpayers submitted $177 million. • From April 1 through May 10 – 22 have filed returns and requested $1.1 million in refunds. – 38 have filed returns and paid an additional $1.5 million in payments. 175 have paid $34.7 million via extension returns and have until November 1 st to – file returns. – The remaining 546 have had no additional activity and have a six-month automatic extension to file their returns by November 1 st . 9
Individual Income Tax Refunds • As the main filing season continues, $499.8 million in refunds were issued in April compared with $469.1 million last April. • Year-to-date, refunds increased 4.2 percent from the same period last year, as compared to the estimate of a 5.8 percent increase. – Since the filing season began in January, TAX has issued 2.3 million refunds, about 60,000 more than through April of last year. Net Individual Income Tax • Through April, collections of net individual income tax rose 8.4 percent from the same period last year, ahead of the annual estimate of 3.4 percent growth. 10
Growth in Sales Tax Collections FY18 Monthly and Year-to-Date 10% 8% 5.7% 6% 4.7% 4.5% Forecast: 3.0% 3.8% 4% 3.2% 3.2% 3.2% 2.7% 2.9% 2% 1.1% 0% Monthly Year-to-Date -2% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Growth: 5.7% -1.3% 5.0% 9.0% 5.1% 0.0% 0.8% 3.6% 0.4% 5.3% • Collections of sales and use taxes, reflecting mainly March sales, had a 5.3 percent increase in April. • On a year-to-date basis, collections increased 3.2 percent, ahead of the annual estimate of 3.0 percent growth. 11
Net Corporate Income Tax Collections • Collections of corporate income tax were $181.0 million in April, compared with $162.5 million last April. – Most of the activity in April is from companies making final tax year 2017 payments. • On a year-to-date basis, collections in this source have increased 7.2 percent, ahead of the estimate of 5.7 percent growth. 12
Recordation Tax Collections • Collections of wills, suits, deeds, and contracts – mainly recordation tax collections – increased 10.2 percent in April. – On a year-to-date basis, collections are down 0.3 percent, behind the forecast of 3.3 percent growth. Insurance Premiums Tax • Insurance companies made their first estimated payment for tax year 2018 in April. Collections in this source were $128.5 million compared with $126.1 million in April of last year. – Estimated payments are due in June. • For the fiscal year to-date, net insurance premiums tax collections are $212.2 million compared with $223.3 million during the same period last year. 13 13
Summary of Fiscal Year 2018 Revenue Collections July through April Percent Growth over Prior Year As a % of Total YTD Annual May-Jun Req'd Prior Year Major Source Revenues Actual Estimate Variance to Meet Est. May-Jun Withholding 63.7 % 4.4 % 3.5 % 0.9 % (1.2) % 7.2 % Nonwithholding 16.3 23.6 4.3 19.3 (40.8) 4.8 Refunds (10.2) 4.2 5.8 (1.6) 15.7 39.3 Net Individual 69.8 8.4 3.4 5.0 (16.7) 4.0 Sales 17.9 3.2 3.0 0.2 2.4 3.6 Corporate 4.5 7.2 5.7 1.5 0.8 12.3 Wills (Recordation) 2.1 (0.3) 3.3 (3.6) 18.2 2.9 Insurance 1.9 (5.0) 6.2 (11.2) 27.4 (4.9) All Other Revenue 3.8 (0.9) 1.6 (2.5) 7.2 (0.9) Total 100.0 % 6.7 % 3.4 % 3.3 % (8.8) % 3.7 % 14
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