Decline in state’s September revenues darkens economic picture

Virginia's revenue picture continues to darken, dropping 7.5 percent last month -- just as Gov. Timothy M. Kaine started pruning state spending an additional $1.2 billion because of the continuing cash squeeze.

Secretary of Finance Richard D. "Ric" Brown told the House Appropriations Committee yesterday that nearly all major sources of tax revenue fell in September from the same month a year ago.

For the year, revenues have fallen 7.4 percent -- a sign that Virginia, despite modest improvements in employment, remains in the grip of a recession that has led to $6 billion in spending cuts.

"Most national indicators suggest the recession has likely ended, positioning the economy to grow," Brown said in a memorandum that still warned of continuing erosion in labor markets, slowdowns in manufacturing, and declining consumer confidence.

To balance the budget, Kaine is carrying out further reductions of at least $1.2 billion. They are expected to hit programs previously shielded or cushioned, including expanded pre-kindergarten for 4-year-olds and public education.

The year-to-date decline of 7.4 percent dwarfed the official forecast of a 2.6 percent dip, Brown said. The decline last month was the second-worst ever for September, trailing a drop of 8.4 percent in September 2002, during the first year of Gov. Mark R. Warner's term.

Brown said individual income taxes, which make up 66 percent of the state's general fund, were off 6.9 percent in September. Sales taxes, 21 percent of the general fund, fell 6.6 percent. The corporate income tax, 5 percent of the fund, dropped 10.6 percent.

Taxes on wills, lawsuits, deeds and contracts, which account for 2 percent of general fund revenue, were down 13.6 percent. The only increase, 4 percent, was in income-tax withholding by individuals as a down payment against their anticipated tax bills.

Contact Jeff E. Schapiro at (804) 649-6814 or .