If times are so good and Virginia’s flush with tax money, why do we feel so poor?

Sometimes it just hurts to watch the constant yammering about the economy, particularly on those dry-as-dust cable networks like CNBC and Bloomberg with anchors and analysts conversing in Wall Street jargon and wringing their hands over inflation and every stumble and leap in the markets.

It takes a toll. The economy – specifically inflation – was the top concern of 31% of those who voted in the midterm elections last month, just ahead of abortion at 27%, according to national exit polling.

Faith in the economy tanked from March through May of 2020 with the onset of the coronavirus pandemic. And it was warranted. The deadly new virus to which humans had no acquired immunity and for which we lacked vaccines set off a wave of panic with an apocalyptic feel.

Hospitals were overrun. Unemployment hit levels unseen since the Great Depression. Supply chains disintegrated. Businesses large and small failed, in many cases wiping out families’ livelihoods and savings. Governments imposed moratoria on foreclosures and evictions during the depth of the crisis in hopes of forestalling, if not preventing, massive homelessness.

Many of those hit hardest, people on the margins financially, have yet to recover. Federal infusions of cash into the economy provided a safety net of sorts, but those are over and legal protections against evictions are expiring.

But as a whole, the economy hasn’t done badly, at least as it is reflected in the taxes people pay to Virginia’s treasury.

I became a state budget nerd more than two decades ago when I started tracking monthly revenue summaries by keying them into a spreadsheet to augment my reporting on Virginia’s finances in the early years of the 21st century. I never intended it to go on and on and on, but it did, and I’ve cataloged that data for every major category of general fund tax collections every month since. 

Over time – 276 months, counting October’s results – those numbers tell some interesting and important stories about Virginia’s booms, busts and everything in between. 

First, a little background for people who lead interesting lives. Virginia’s whole fiscal kit and caboodle for budgeting purposes consists of two primary buckets of revenue: the general fund and the non-general fund.

The non-general fund is the larger of the two, but that money is largely a pass-through, derived from specific sources such as fees, federal grants, fuel taxes, tuition at state-supported colleges, business licenses and profits from the state monopoly on liquor sales, to name just a few. Non-general fund money is already spoken for, earmarked by law for specific uses.

The general fund underwrites state government operations, which include law enforcement, state employee salaries, state support for local public schools and mental health services. More than two-thirds of it comes from state income taxes. Since the money is discretionary — that is, its specific use isn’t prescribed by law — it causes the General Assembly’s most protracted disputes. This year’s standoff lasted until June 1, just four weeks before the previous budget expired at the stroke of midnight on June 30, a record surplus notwithstanding.

Because it’s overwhelmingly drawn from personal income, the general fund is an excellent statistical reflection of the commonwealth’s economic health. The past two fiscal years, which start each July 1 and end the next June 30, have been off the charts after a tepid fiscal 2020.

In fiscal years 2021 and 2022, total general fund revenues climbed year over year by 14% and 16%, respectively, after a mere 2% increase for fiscal 2020. The only comparable fiscal year since 2000 was a 15% spike in fiscal 2005, the apex of a white-hot economy fueled by a lusty run-up in the real estate market that collapsed three years later, hurtling the nation into the Great Recession. 

Hard dollar numbers, however, tell a more convincing story than percentages.  

Through fiscal 2020, year-over-year general revenue had increased by $1 billion or more just six times this century, the largest being just under $1.8 billion in fiscal 2005. In fiscal 2021, however, revenue was $3.1 billion greater than the year before, and in the fiscal year that ended this June, it exceeded fiscal 2021’s total by $4 billion. In both of those years, actual collections obliterated official revenue estimates on which budgeted spending was based.

The first quarter of the current fiscal year picked up where fiscal 2022 left off. General tax collections from July through September totaled about $5.6 billion, down slightly from $5.9 billion in the same period the previous year but eclipsing $5 billion for the same quarter three years in a row.

So what does this wonky number soup mean?

Terry Rephann, a regional economist with the University of Virginia’s Weldon Cooper Center for Public Service, suggests that it’s the result of wage inflation. He points to  data presented to the legislature’s budget-writing committees at their annual retreat last month to back him up.

Wages grew by 9.3% in Virginia in the fiscal year that ended June 30 as businesses large and small struggled to rehire staff lost during the pandemic, the presentation said. Wage growth the previous two fiscal years was 3% and 4.7%, respectively.

Those collections are known as “withholding” revenues and wage earners recognize them from their pay stubs as the bite already sent off to state and federal governments.

The wild card is the so-called “non-withholding” income taxes paid on capital gains and  by the self-employed on their estimated earnings. A stratospheric stock market drove freakish year-over-year non-withholding increases of 31% for each of the past two fiscal years. Over the previous 21 fiscal years, year-over-year average growth was 6%. The trajectory of the past two years’ non-withholding collections is unsustainable, a presentation by the House Appropriations Committee staff warned.

So while Virginians make – and tax collectors take – more than ever, how come we feel poorer?

The price of meat, fish and poultry is up 8% over the past 12 months, according to Forbes Advisor. Electricity is up 14%, natural gas is up 20%, rent is up 7.5%, and fruits and veggies are up 9.3%. And if you just want to get away, gasoline is 50 cents a gallon higher than it was in mid-2021, though down from this summer’s high around $5 a gallon. Airline tickets cost 43% more.

It wears people down, and it can make an electorate surly. You can earn enough political science degrees to paper a wall and never hear truer, more actionable wisdom than this: “People vote their pocketbooks.” You don’t need exit polls to know that, either.