NEW YORK -- Virginia's individual income tax refunds leaped more than 21 percent in the 2007 fiscal year, a reflection of the cooling housing market and the strongest rise seen "outside of an economic recession," the secretary of finance said Monday.
People employed in the real estate field likely overpaid their estimated income taxes because they expected to at least match how much they earned in the previous year, state officials and tax experts said.
But with the drop in the housing market, pay checks also plunged. As a result, Virginia had to return nearly $223 million more than it had anticipated in the fiscal year ended June 30, the secretary of finance, Jody Wagner, told the legislature .
"With the slowdown in housing, you have builders who didn't make sales, you have real estate agents who didn't make sales and didn't get commissions," said Dan Timberlake, a deputy finance director in Virginia.
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Other states that rode up with the housing boom also have had to pay out much bigger refunds, Wagner said.
Individual income tax refunds soared 22 percent in New York and 20 percent in Oregon, she said. California and Maryland each saw refunds rise by 8 percent. Officials from these other states were not immediately available to comment.
Faced with an unexpected 1.2 percent drop in revenues, including the impact of the higher tax refunds, Virginia Gov. Timothy Kaine on Monday proposed a 5 percent spending cut and taking out cash from the state's $1.2 billion Rainy Day Fund.
The withering U.S. housing market is also cutting sales tax revenues, Timberlake said, noting that about 25 percent to 30 percent of Virginia's sales tax collections come from housing-related purchases — including washers and dryers and building materials.
Virginia's budget shortfall now totals $641 million, said Kaine, a Democrat, and like most states, Virginia's budget has built-in increases. If no changes are made, for example, spending by the Board of Education will rise $1.2 billion in the next two-year budget.
Kaine also will now require agencies to get high-level approvals to hire employees and consultants.
"Most of our metropolitan areas are experiencing significantly slower housing sales and fewer new housing starts," he said, adding the slowdown also was hurting corporate income tax and mortgage recording tax collections.
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