CHARLESTON, W.Va. — The Justice administration is talking about updating revenue projections for the coming fiscal year, but the initial discussion was marked by some confusion.
Get out your own personal, shiny, beautiful whiteboard because this is how you get from the old projection to the potential new one:
$4.055 billion
This is the starting point because it’s the revenue projection that was announced last November. That represents the original amount of revenue that was anticipated for the 2018 fiscal year, which begins this July 1.
One big factor in this number has been the soft energy markets that have suppressed state budget figures for the past couple of years.
Earlier this year, Republicans in the Legislature frequently cited $4.055 billion as their spending target, saying the state would need to live within its means.
Plus $40 million
This would be official acknowledgement of some stuff lawmakers already did during the regular session.
“There’s going to be additional adjustments related to some measures enacted by the Legislature during the regular session that added a little bit extra to the treasury,” deputy revenue secretary Mark Muchow said during a conference call on Tuesday.
A major piece of that was foregoing a $33 million transfer for the Workers’ Compensation Fund because the state’s workers comp debt is nearly paid down. Another portion was a markup on liquor.
And then another $130 million
Some of this is related to an ongoing rebound in energy markets. Metallurgical coal has been on an upswing because of international conditions, and natural gas prices have strengthened.
Gov. Jim Justice on Tuesday afternoon described his election-season prediction of this strengthened revenue source.
“If we go back to the debates, the question was asked of me, ‘Well, where’s the money going to come from?’ and I said, ‘The money’s already coming. We’re going to see an increase in severance tax,” Justice recalled. “Long ago I said that. And honestly, people almost started laughing.
“It’s what’s happening. It’s exactly what’s happening. It is better.”
But that’s only a small part of the more optimistic revenue outlook, according to the Justice administration.
“We have reported this amount of money that looks like a tremendous amount of money that has come in that we’ve just flipped over a rock somewhere and found this money. Well believe me be, we’ve tried to flip over every rock but the rocks we’re flipping now don’t have any money under them,” Justice said.
“So that money that you’re reporting that just looks so good is monies that are going to be there if we pass the bill in front of us. The gain that we’re having is still nowhere close to getting us even remotely out of this mess.”
In other words, the upswing from energy only gets you so far.
So besides the rebounding tax base already under way from energy markets, the administration is calculating an additional $100 million next year because of the economic growth it anticipates from its severance tax tiering proposal and its $2.8 billion infrastructure package.
The idea on both is putting additional coal miners and road crews to work — plus related employment — would result in increased numbers of workers paying income taxes.
“Let’s go through the math. Here’s the deal,” Justice said “Next year, I put in $10 million of increased severance revenue. It’s going to be more than that. I put in $90 million from economic benefit from the roads.”
Balancing state budget with projected “economic growth” from a road bond and severance taxes. This is not sound fiscal planning. #magicmath https://t.co/yRM5uEFvz8
— Ted Boettner (@WVpolicywonk) June 6, 2017
The administration’s revenue officials on Tuesday’s conference call agreed that the severance tax tiering proposal and the Road Fund bill would need to be passed to make this projection possible.
“It’s still a dynamic number because we’ve got legislation up there,” Revenue Secretary Dave Hardy said.
That gets you to $4.255 billion
The projected revenue has gotten to this number without any direct revenue increases.
“Without any tax legislation, it’s 4.225,” Muchow said on the conference call.
Hardy concurred: “The 4.225 number is official number now. No new revenue measures passed, it’s 4.225.”
This is where the proposals to raise the state sales tax and to expand the sales tax to additional economic sectors come in.
“Of course, the bill that’s over in the Legislature now would have a projected increase of $130 more million,” Hardy noted.
Most of the revenue bills that have been discussed by the House of Delegates, the Senate and in negotiations with the governor have targeted somewhere in this range.
“Ultimately, the tax legislation that has been discussed over the past several weeks has been centering around this 100 to 150 revenue increase number that I think has been developed with the thought in mind that these other economic circumstances would occur,” Muchow said.
“The hundred million dollars itself wasn’t going to balance the budget, so it takes the economic piece together with some sort of revenue piece to add up to the numbers being proposed in the latest budget proposal.”
In any case, add $130 million from a package of revenue increases to reach the governor’s budget goal.
Governor Justice proposes a budget of $4.35 billion
So additional proposed tax increases would reach this point.
But it’s more complicated than that because the proposal backed by the governor also would include personal income tax reductions starting next January.
“When you come on down and you pick up your telecommunications and your broadening of the base and everything, you pick up more money. You put in the 6.35 (percent sales tax increase) and you get more money. But then you’ve got to deduct out the income tax situation and you come to a net number. That’s what that is,” Justice said.
“Now, remember you’re starting with a gigantic hole. This is what backfills it. This is what puts you on the right path.”