The Senate Finance Committee held its annual retreat last week in Fredericksburg.
This is the first year that I’ve been a member of the committee, but all members of the Senate are invited to attend, so I think I have reported to you about the retreat for a number of years.
This year the news was the gloomiest ever.
We heard from a panel of economists and regional experts including Ray Owens, Senior Economist for the Federal Reserve Bank of Richmond and John McClain, Senior Fellow and Deputy Director of the Center for Regional Analysis at George Mason University. Virtually every indicator of the economic outlook was down: personal income; industrial production; employment; manufacturing; trade; retail; housing prices; equity markets – everything you’ve been reading about or hearing on the evening news. Because of the federal presence here, Northern Virginia is faring a bit better than other parts of the state although we have experienced the most dramatic changes in the housing market.
After the introductory panel, Senate Finance staff turned to explanations of how the economy is affecting state revenues and the budget outlook. More gloom! As Becky Covey of the staff said, “The economic picture has become clearer and uglier.”
She went on to say that most economists agree that we have been in a “slow motion” recession since the beginning of the year but the financial meltdown and resulting credit freeze have pushed the recession into high gear, creating a severe loss in consumer confidence.
The poor economy means that revenue to the state is down, with job and market losses affecting personal income tax revenues; reduced home sales and values affecting the recordation tax; and reduced retail activity leading to lower sales tax revenue. Corporate income tax is indirectly related to income measures because consumer spending and business activity go hand-in-hand.
As the revised revenue forecast is adopted, caution is in order.
One piece of good news for Virginia is that our AAA bond rating has been affirmed, with rating agencies citing the Governor’s prompt response to reduced revenue this summer when he instituted cost-cutting measures early in the fiscal year.
Nevertheless the economy is much worse now than it was at the end of August and further measures are called for. Senate Finance staff now recommends total biennial revenue adjustments of $3.2 billion over this year and next.
The Governor will be adopting a revised revenue forecast and presenting proposed changes to the budget to the General Assembly in December.
Then our work will begin in earnest. A series of regional meetings is scheduled for the Senate Finance committee in early January and the Session will begin on January 14th.
No area of the budget will be exempt, even K-12 education and social services, though great care will be taken to make the least harmful cuts possible.