Old Dominion News

Gov. Glenn Youngkin said in his opening comments at the Governor's Advisory Council on Revenue Estimates that the state's economic outlook has transitioned from recession concerns to a more positive "soft landing" perspective in contrast to last year's projections, potentially influencing proposed tax relief and investments, the Richmond Times-Dispatch reported. 

The council meeting marks the initial stages of crafting the upcoming two-year state budget, which involves estimating Virginia's revenue sources and budget negotiations among the governor, House of Delegates, and State Senate, the news report said.

A "soft landing" refers to a controlled economic slowdown, curbing inflation without triggering a recession and its associated job losses. Following a closed-door council meeting, Youngkin cited positive signs in business hiring and investment plans, saying the economic signs enable the state to potentially accommodate his proposed tax relief and planned enhancements for education, behavioral health, and law enforcement.

Virginia’s economy has performed much better than forecasts made late in 2022, and the state now has a surplus of $5.1 billion. A surplus of $3.6 billion was projected in 2022. “But we’re still going to be cautious,” he said, according to the news report. “I’ve said all along I want $1.5 billion to go to reserves just in case, which I doubt, we do see recession.”

Senate Democrats questioned the surplus estimate due to pending obligations and expenditures from the "skinny budget," potentially leaving only about $3.9 billion in excess revenues. Youngkin's tax relief plan, layered atop $4 billion in prior cuts, remained a point of contention between the Republican-led House and the Democratic-led Senate, leading to debates over budget allocation, including converting ongoing tax cuts into one-time rebates, the news report said.

Youngkin's optimism about a soft landing for Virginia's economy faces a potential challenge from higher oil prices, which could reignite inflation fears and undermine efforts to control consumer prices, an Aug.10 article at oilprice.com said. The effect of higher energy costs on core inflation might jeopardize the anticipated soft landing, potentially leading to continued interest rate hikes by the Fed and other central banks, the article said.

Although the likelihood of a soft landing has risen to around 30%, experts caution that even if achieved, it might not translate to significant market growth over the next year, an analysis on the website seekingalpha.com said.