CHARLESTON, W.Va. — The state is starting the new fiscal year already $11 million down, Justice administration Chief of Staff Nick Casey said today.
“We don’t look too good,” Casey said at the Capitol during a presentation of the state’s revenue picture.
There’s some math required to reach that conclusion:
Anticipating a budget gap to close out the fiscal year, Casey noted, the Legislature approved using $40 million from the Rainy Day fund plus sweeps of about $60 million from state agencies.
Technically, that wound up creating a surplus entering the new fiscal year of $63 million.
When the state ends the fiscal year with a surplus, it invests half back into the Rainy Day fund. The other half may be used for appropriations in the new budget year.
“So the good news is that part of that created surplus due to the raid on the Rainy Day fund is going to flow over into 2018’s budget,” Casey said. “Kind of the bad news on that is, when you do the mathematics, the Legislature predicted in their budget there would be $82 million flowing in surplus. You cut that in half for the Rainy Day Fund. So they rolled in about $41 million of expected surplus.
“The negative is, that number’s only going to be about $30 million. So there’s an $11 million gap.
The upshot is, the administration now expects to have to make up ground through additional cuts to programs. The general fund budget amounted to $4.35 billion.
“We’re going to have to look at some issues, “Casey said. “Some of that surplus that was expected and not there was intended to go to DHHR, so DHHR will have a shortfall. Some was expected to go to volunteer fire departments. They will appear to have a shortfall. We’ll have to look at other things that can be controlled by the executive branch.
“If you don’t have $11 million, you have to figure out somewhere to get it.”
Legislators realized a budget gap still remained to close out fiscal 2017. One reason they tried to build a surplus into the budget for the coming year was so that if revenue came up short, they could pass a supplemental appropriation in the next session, which starts in January, to close the gap.
One of their concerns was trying to maintain a 3-to-1 federal match for Medicaid funding. Casey said if the administration has to cut DHHR, it will try to be careful to avoid sacrificing any of that federal match.
Casey said the state ended the year by coming in under the original revenue projections in several areas.
The consumer sales tax over the course of the year wound up $62 million below estimate.
Personal income tax wound up $100 million below estimate.
Corporate net income tax wound up $21 million short.
“The only real bright spot,” Casey said, was that over the final quarter, severance taxes were $58 million above estimate.
Casey said that’s an area of optimism entering the new fiscal year. Energy markets have trended stronger, leading to additional severance tax revenue, he said.
He said that — combined with anticipated economic activity from the governor’s roads projects — could actually lead to a much better economic picture later in the year.
“If the severance taxes do as the governor has predicted they will, we’re going to find ourselves in a strange situation as we go later in the year because we can only spend what the Legislature has appropriated.
“If the governor is right on the severance taxes and secondarily, once the roads kick in as an engine to drive our efforts, we may find as we get later in the year we have more revenue. The only trouble is you have more revenue than is budgeted, you can’t spend it. So we need the Legislature to come back in 2018 and tell us where any additional revenue via the roads, energy or the severance tax benefits.”
More from the revenue update:
— Governor Justice had advocated — and continues to advocate — a revenue plan that would have raised some taxes while also providing personal income tax reductions. The proposed number fluctuated but was often an average 7 percent reduction that would have started July 1 if the full Legislature had approved it.
The governor mentioned the income tax changes that had been proposed as part of a broader criticism of the Legislature on Tuesday:
“The career politicians in Charleston might be satisfied with 50th, but I can’t stand it. The Legislature said NO to my S.O.S fund for economic development, they slashed money to grow tourism in our state, they didn’t reform the tax code, they refused to help our coal miners, and they crippled our schools so it’s even harder for our people to be career ready.”
Asked during the news conference if going ahead with a personal income tax cut wouldn’t have put collections in that area farther behind, Casey hedged a bit. The general idea was to raise sales taxes — where collections were also behind estimates — on July 1 and then reduce the personal income tax the following Jan. 1 to allow for a revenue cushion.
“Certainly there were some expectations that if you eliminate the personal income tax at certain levels you generate other economic activity and the other economic activity then helps to offset the loss,” Casey said.
“If your personal income tax rates are reduced and you collect less certainly that takes down your cash. But if that generates economic activity that causes other rates to go up, you’ve got to do the balancing act on that. We were $100 million off; if the tax rates were lower last year, we’d have been more off than $100 million.”
He said just for June, personal income tax collections were down 15 percent overall. The projection was $214 million in personal income tax collections. The actual personal income tax collection for June was $182 million.
— Earlier Wednesday, Senate President Mitch Carmichael — who was upset about recent criticism of the Legislature by the governor — had said he’d earlier laid off criticism of tax debts owed by the governor’s family-owned coal companies.
Carmichael was especially irritated over Justice’s criticism that renovation of restrooms at the Capitol is a waste and that the money would be better spent on drug treatment programs. Carmichael, speaking on statewide radio, said he would no longer hold back on his criticism of the debt.
“I’m going to now,” he said. When you’re talking about making the people’s house ADA compliant and this guy shows cow feces and owes the state $4.5 million, I mean, come on.”
Referring to Justice’s comment that the money being used to upgrade the restrooms could instead be used to pay for drug treatment, Carmichael added: “Pay your taxes — $4.5 million in taxes for drug treatment.”
Asked if $4.5 million couldn’t go a long way toward filling the $11 million gap he’d described earlier in the news conference, Casey said it is not part of his role to say.
“I would only say this. I’m the chief of staff for the governor of the great state of West Virginia. My responsibility and duties do not extend into the area you’re talking about. There might be someone who knows, but it’s not me,” Casey said.
— Past monthly revenue updates have been conducted via teleconference among state reporters, the state Revenue Secretary, the deputy revenue secretary and the budget director.
Last month, when asked about the possibility of officially updating revenue estimates for the coming year, Revenue Secretary Dave Hardy and the other state officials acknowledged the likelihood.
During a press conference later in the day, Governor Justice said he wanted to clear up any confusion over that possibility. He said the revenue increase would occur only if his preferred revenue bill and roads-funding bills were to pass.
“We have reported this 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,” Justice said. “That money that you’re reporting that just looks so good is monies that are going to be there if we pass the bill that’s in front of us.”
Responding to a reporter’s question June 6, Justice elaborated to say, “That’s where the misconception is and I have no idea why Secretary Hardy is putting that out. I don’t know where that’s coming from.”
Casey today said the format of the revenue update was changed just to try something new.
“This method of doing it we thought was a little bit more effective because of some of the policy questions you ask,” Casey said.