Virginia tax revenue takes steepest drop since 2010

The governor's office announced Friday that in December, for the first time in more than a year, state revenue collections declined, indicating Virginia's economy may not be rebounding as fast as officials had hoped.

Collections decreased 4.7 percent last month from December 2010, with the state taking in $1.5 billion.

Virginia hasn't seen a month with a year-over-year revenue decline since May 2010, when collections dropped 0.2 percent from May 2009. Officials had taken modest growth and below-average unemployment as indications of recovery, but Friday's announcement may temper those hopes.

Officials attributed most of last month's decrease to having one fewer Wednesday than in the preceding December, which resulted in fewer payments from individual income tax withholding. Declines in payments for taxes on corporate incomes and insurance premiums also contributed.

The holiday shopping season may have offset some of the impact, with a 3.9 percent growth in collections from sales and use taxes in December totaling nearly $257 million.

The decline emphasizes the need for caution as the General Assembly makes budget decisions for the next two fiscal years, Gov. Bob McDonnell said in a news release. It also means the state is slightly behind in its general fund revenue forecast for the fiscal year, adjusted in December to expect a 4.6 percent growth.

McDonnell in December put forth an $85 billion two-year budget, which avoids tax increases and cuts $900 million from state programs and services.

The state collected $1.5 billion in December, 4.7 percent less than the same month of 2010. The drop was the first in more than a year.

Millions found during a review of Gov. Bob McDonnell's proposed two-year budget will be routed to some of his previously announced education funding priorities, including plans to provide in-state tuition to Virginia National Guard members.

The governor Friday afternoon sent down a series of adjustments to his roughly $85 billion spending plan. Revisions totaling $58 million were submitted to meet a legislative deadline for budget amendments.

His proposed amendments would add $47 million to a class-size reduction program targeting kindergarten through third-grade students, put an additional $8 million into a reading proficiency program for young students, and increase by $8.7 million money for teaching hospitals like those at the University of Virginia and Virginia Commonwealth University.

In a statement, McDonnell said the amendments raise proposed new state spending on public education to $497 million. Virginia's next budget cycle begins July 1.