Virginia revenues up in December on income-tax gains

"This trend is welcome news and indicative that the Virginia economy is gradually improving,” said Governor Terry McAuliffe in a statement. "Making Virginia less dependent on the federal government is a long-term goal that must guide our thinking and our endeavors if we are to continue to make economic progress in the future."

Collection of payroll withholding taxes rose 15.1 percent in December from December 2013, although that was partly due to an extra deposit day, according to the governor's office.

Nonwithholding rose 39.5 percent from quarterly tax payments. Nonwithholding could also affect this month's collections, as the final deadline for payments is Jan. 15.

At the same time, corporate income tax collections were up 22.9 percent.

As of the end of December, revenue for the fiscal year was ahead of last fiscal year by 6.8 percent, much stronger than the 3.1 percent annual growth in the state's budget forecasts, a report from Finance Secretary Ric Brown showed.

Virginia's fiscal year starts July 1, and so December marks its halfway point.

The state's economy is traveling a rocky road as federal spending cuts and budget battles slow business for defense contractors, law firms and other organizations located in Virginia.

"You are probably well aware of the importance of federal spending on goods and services for Virginia. For example, close to 13 percent of all federal contract spending in fiscal year 2014 landed in the commonwealth," said Federal Reserve Bank of Richmond Jeffrey Lacker in a speech on Friday to a group of Virginia bankers and business leaders.

Noting the contraction will make the legislative session starting this week "particularly challenging," Lacker added, "the broader context to bear in mind, though, is that the state generally fared better than the rest of the nation prior to and during the most recent recession."

In June, Virginia saw its largest revenue decline in 13 years.

Since then the state's income has crept back.

In October, total general fund revenue collections were 4.4 percent greater than during the same month a year earlier and in September collections were up 5.3 percent. November data was not available.

(Reporting by Lisa Lambert; Editing by James Dalgleish)