Triple A-rated Virginia is expected to have a nearly $2.4 billion revenue shortfall from fiscal 2014 to 2016, said the Commonwealth's Gov. Terry McAuliffe.
McAuliffe announced the new forecast in an address to the Joint Money Committees of the General Assembly on Friday.
The shortfall for fiscal 2015, including the carryover of a $437.8 million one from the year before, is expected to be about $1.3 billion. The budget gap for fiscal 2016 is expected to be $1.1 billion, the governor said. Virginia's 2015 fiscal year began July 1.
The commonwealth has about $1.55 billion in enacted reserves that it can use to address the expected shortfall, but that still leaves a gap of $882 million.
Under Virginia law, when there is a projected revenue shortfall from an enacted budget, the governor is supposed to draw up a detailed plan about how Virginia is to proceed. He can withhold up to 15% of total general fund allotments, with some limitations, McAuliffe said.
"I can assure you that my finance team will work closely with members and staff of the money committees as we move forward with our analysis," McAuliffe said. "I am optimistic that our effort will produce a plan of action coordinated between the executive and legislative branches that can be prepared as quickly as possible so that the citizens of Virginia will know what to expect from their state government in the current year's budget."
The new forecast came about after general fund revenues and transfers were down 0.9% in fiscal 2014, while 1.6% growth had been forecasted.
Under Virginia law, when total individual income, corporate income and sales taxes collected in a fiscal year are at least 1% below the official budget estimates, the governor has to prepare general fund revenue re-estimates for the current two year period and the next one. The Governor's Advisory Council on Revenue Estimates decided to lower the 2015-2016 revenue forecast in light of weak job growth and uncertainty over capital gains income, McAuliffe said.
Most of the discrepancy between the fiscal 2014 projection and the actual result was due to the fact that "individual non-withholding" collections, which are largely tied to nonwage income sources, were $401.1 million below the estimate. This shortfall appeared to stem from more capital gains shifting from calendar year 2013 to calendar year 2012 than expected due to the uncertainty over the federal fiscal cliff in late 2012 and early 2013, McAuliffe said.
Fiscal 2014 was the first time that general fund revenues declined in Virginia outside of a national recession, the governor said.
"The loss of jobs and revenue in Virginia as a result of federal fiscal policy presents a profound challenge for our Commonwealth," McAuliffe said.
Federal spending cuts known as sequestration reduced military contracts in the state by about 20% from 2011 to 2013, and new jobs being created can't compensate for the high-paying jobs that Virginia lost. As a result, Virginia saw employment growth of just 0.4% in fiscal 2014, compared to 1.7% growth nationally, he said.
