RD252 - General Fund Preliminary (Unaudited) Annual Report for the Fiscal Year Ended June 30, 2017 Presented on a Cash Basis

Executive Summary:
In compliance with the provisions of Section 2.2-813 of the Code of Virginia, I hereby submit my preliminary annual report on the financial condition of the General Fund of the Commonwealth for the fiscal year ended June 30, 2017.

The Commonwealth ended fiscal year 2017 with a total fund balance in the General Fund of $1.3 billion measured on the cash basis of activity. This is a decrease of $138.6 million, or 9.4 percent, from last year’s ending fund balance of $1.5 billion. Planned (budgeted) decreases in General Fund balance for this year were $625.3 million. The difference between the planned decrease and actual decrease is primarily attributed to revenue collections and other sources being approximately $181.2 million more than expected and expenditures and other uses being approximately $305.5 million less than budgeted. This report includes funds that are defined as part of the General Fund pursuant to Governmental Accounting Standards Board Statement No. 54 (GASB No. 54), Fund Balance Reporting and Governmental Fund Type Definitions. Accordingly, $166.4 million of the ending fund balance is attributable to these funds, such as the Water Quality Improvement Fund and the Commonwealth’s Development Opportunity Fund. Additional information on GASB No. 54 is located in Note 6, and fund balance classifications are shown in the first graph on page 9.

Revenue Stabilization Fund

The Revenue Stabilization Fund is routinely segregated from the General Fund, but Virginia law directs that the Revenue Stabilization Fund be included as a component of the General Fund for financial reporting purposes. Therefore, it is included here both as a cash asset and as a restricted component of fund balance. The Revenue Stabilization Fund can be used only for constitutionally authorized purposes.

The Revenue Stabilization Fund has principal and interest on deposit of $548.8 million restricted as a part of the General Fund balance. A deposit of $605.6 million was made during fiscal year 2017 as required by Section 2.2-1829 of the Code of Virginia, which includes the advance reservation of $129.5 million provided in Chapter 665, 2015 Acts of Assembly. Additionally, during fiscal year 2017, in accordance with the provisions of Article X, Section 8 of the Constitution of Virginia and Section 2.2-1830 of the Code of Virginia, a withdrawal of $294.7 million was made from the fund. Further, Chapter 836, 2017 Acts of Assembly, authorizes an additional withdrawal estimated at $272.5 million from the fund during fiscal year 2018.

Under the provisions of Article X, Section 8 of the Constitution of Virginia, no deposit is required during fiscal year 2018 based on fiscal year 2016 revenue collections. Also, no deposit is required based on fiscal year 2017 revenue collections.

Section 2.2-1829(b) of the Code of Virginia requires an additional deposit into the Fund when specific criteria have been met. No such deposit is required since the specified criteria were not met for fiscal year 2017.

Amounts Available for Reappropriation

Section 4-1.05a.1 of Chapter 836 requires reappropriation of 2017 fiscal year unexpended appropriations for Legislative and Judicial Departments, as well as Independent Agencies and states that institutions of higher education reappropriations are subject to Section 23.1-1002 of the Code of Virginia. Additionally, this Section specifies that unexpended balances in the Executive Department will be reappropriated where required by the Code of Virginia, where necessary for the payment of preexisting obligations, or where the Governor determines reappropriation is appropriate. Section 4-0.01b provides that all appropriations, however, are declared to be conditioned on the receipt of sufficient revenue to support them.

Based on an analysis by the Department of Planning and Budget of unexpended appropriations and balances at June 30, 2017, the following amounts have been committed: $103.2 million for capital outlay project needs; $28.1 million for health care services, $2.5 million for central capital planning; $35.6 million for communication sales and use tax distributions; $11.2 million for natural disaster sum sufficient amounts; $66.2 million for mandatory reappropriations; $22.5 pending transfer to the Water Quality Improvement Fund; $60.4 million for the Revenue Cash Reserve; $60.4 million for the Capital Projects Reserve; and $500,000 for local government fiscal distress relief.

In addition, the Department of Planning and Budget has identified $148.0 million as available balances to meet the requirements of Chapter 836 and $80.0 million to be assigned for discretionary reappropriations.

Of the remaining unexpended balance of $2.1 million, $1.4 million is committed for deposit into the Transportation Trust Fund and $694,000 is committed for nonrecurring expenditures as required by Section 2.2-1514 of the Code of Virginia.

Additionally, restricted balances of $4.3 million, committed balances of $122.2 million and assigned balances of $39.9 million are being reported due to the inclusion of additional funds pursuant to GASB No. 54.

Virginia Water Quality Improvement Fund

Section 10.1-2128 of the Code of Virginia established the Virginia Water Quality Improvement Fund. The Fund has $37.6 million on deposit committed as part of the General Fund balance. The Fund was established to provide Water Quality Improvement Grants to various entities to assist in pollution prevention and reduction. The Fund shall consist of amounts appropriated by the General Assembly. Unless otherwise specified by the general appropriation act, these appropriations shall consist of ten percent of revenues collected in excess of the official estimate and ten percent of any unrestricted and uncommitted fund balance not required for reappropriation. For the year ended June 30, 2017, $13.4 million and $9.1 million that represent ten percent of the revenue collected in excess of the official estimate and ten percent of any unrestricted and uncommitted fund balance not required for reappropriation, respectively, have been committed. For additional information regarding the Virginia Water Quality Improvement Fund, see Note 12.

Basis of Presentation

This preliminary annual report is comprised of cash basis financial statements that present the financial condition, results of operations, and changes in fund balance of the Commonwealth's General Fund. The notes to the financial statements are an important and integral part of the statements.

This preliminary report is presented on an unaudited basis. In preparing this report, we relied upon the internal accounting controls of the Commonwealth that are designed to provide management with reasonable, but not absolute, assurances that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of financial statements.

Final Report and Award

The final Annual Report of the Comptroller, due on December 15, 2017, will include certain accruals and other information required for conformance with generally accepted accounting principles. It will be audited by the Auditor of Public Accounts.

We are proud to report that the Comprehensive Annual Financial Report for the year ended June 30, 2016, was awarded the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada (GFOA). Virginia's Annual Report has received this award for 31 consecutive years. In addition, Virginia received a companion award from the GFOA for its fiscal year 2016 Popular Report, entitled Virginia Financial Perspective. Virginia’s Popular Report has received this award for 22 consecutive years.

Respectfully submitted,

David A. Von Moll