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VA Gov. Sees 2010 Budget Surplus After Money Woes

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By BOB LEWIS AP Political Writer

RICHMOND, Va. (AP) Despite months of declining revenues and a small decrease in May tax collections, Gov. Bob McDonnell predicted a year-end state budget surplus Monday.

McDonnell's administration said the state will finish the current fiscal year by month's end in the black if it can collect $1.37 billion in June.

General fund tax collections for May were down slightly, 0.2 percent from receipts totaling $1.238 billion for the same month in 2009.

As recently as March, McDonnell and legislative budget writers were making deep spending cuts to avert a projected $4 billion shortfall.

Putting a bright face on a year of forlorn fiscal news, McDonnell touted growth in state sales tax collections despite eight months of revenue decreases in the 11 months of fiscal year 2010 so far.

Taxes on retail sales increased 6.5 percent for the May report, a reflection on April purchases because of a one-month lag in merchants collecting and submitting the tax.

It portends hopeful economic news because it is the first time the sales tax showed consecutive monthly growth since November and December of 2007, when it showed monthly increases of 3 percent and 16 percent, respectively.

But income taxes, the single largest source of general tax collections, were down by 1.6 percent for the month, despite a 7.5 percent jump in tax collections withheld from wages and salaries. Income taxes account for about two-thirds of general fund collections.

The levy collected to record deeds, wills, lawsuits and contracts was down by 15.5 percent from May 2009, indicating a real estate market still struggling.

For the year to date, general fund tax collections are 3.3 percent below what they were in 2009 with one month left in the fiscal year. That's greater than a decrease of 2.3 percent, the official forecast on which spending in the current budget is based.

The general fund pays for core state government services such as aid to public education, health care and public safety.

Yet the report, issued two weeks before the fiscal year and the 2010 budget expire on June 30, failed to darken McDonnell's sunny assessment, and he seized on the sales tax uptick.

"This is a small, yet very important, indicator that activity is returning to our economy," McDonnell said in a news release accompanying this month's report from Finance Secretary Richard D. Brown.

Despite a flat May, a significant month for revenue collections, the administration said in its release that the state can salvage a surplus of about $138 million if it can collect slightly less this June than the $1.5 billion it took in last June, "in a slightly softer economy."

The administration had been rooting for the kind of outright increase in overall general collections it had seen in March and April revenue reports. The last time the state reported three successive months of revenue growth was August through October of 2007.

(Copyright 2010 by The Associated Press. All Rights Reserved.)

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