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Virginia revenues beat forecast as labor market softens and federal grant pauses linger
Summary
At a Sept. committee meeting, Virginia officials reported August revenues above expectations driven by payroll withholding even as the labor market shows signs of softening and paused federal grants — including dozens tied to higher education — remain under review.
At a meeting of the Virginia Senate Finance and Appropriations Committee on Sept. 9, Secretary Cummings reported August general fund collections were stronger than forecast, driven primarily by payroll withholding.
The secretary told the committee that collections grew 6.8% year over year for August and that year‑to‑date growth was about 7%, roughly $287 million; for the month revenues exceeded forecast by about $122 million, roughly a 6.2% positive variance. “I feel like I'm just reporting the facts,” Secretary Cummings said as he reviewed the numbers.
The nut graf: The August numbers give the state an early cushion heading into the fall budget process, but officials cautioned the committee to watch labor market trends and the impact of federal actions that have paused or reviewed grant awards to Virginia institutions.
Cummings framed the revenue strength as concentrated in payroll withholding, noting Virginia’s withholding gains outpaced national trends. He said withholding tied to federal agencies and contractors “continues to remain stable relative to the prior year.” At the same time, he told the committee the labor market is softening: Virginia job growth is roughly 0.8% year over year, compared with 0.9% nationally, and labor force participation has edged down. The state’s unemployment rate remains below the national average, but the gap has narrowed.
Committee members questioned the secretary about the status of paused federal grants. Cummings said federal grant reviews earlier in the year initially affected roughly $2.5 billion in funding; as of the meeting he reported about $315 million remained paused, down from larger totals earlier in the spring. He said higher education institutions had reported roughly 289 paused grants, estimated at about $269 million, with NIH‑related awards a large component of that total.
Senator Evans asked whether the administration was tracking potential grant losses for localities and school systems; Cummings said the state does not currently have a comprehensive mechanism to capture pass‑through or locality‑level grant losses but offered to seek macro data that could give a sense of scale. Senator Favola emphasized the potential local impact and noted litigation could determine outcomes for some grants.
Members also asked about the expected effect of upcoming data. Cummings flagged September and October as important months for estimated payments and for observing payroll shifts tied to federal buyouts and workforce changes. He said the administration expected some softening but placed the short‑term recession odds at roughly one‑third or lower.
Clarifying details recorded at the meeting included: August collections up 6.8% year over year; year‑to‑date growth of about $287 million; month exceeded forecast by about $122 million; roughly $315 million in federal grants remained paused as of the meeting; higher‑education institutions reported about 289 paused grants totaling about $269 million.
The committee will monitor incoming September and October data as staff prepare the November forecast and the November advisory presentations to the General Assembly’s advisory groups.
