West Virginia is flush with cash.
Frequently, the state has operated hand-to-mouth. Money to operate the state went out the door as fast as it came in. Often state government has had to impose mid-year budget freezes to stay out of the red. But the state’s financial picture has improved over the last several years, particularly this year.
Governor Jim Justice reported last week that revenue collections for the first seven months of the fiscal year are running $541 million ahead of estimates. There are several reasons for the surplus:
The state’s economy is growing, and that produces more in tax collections. The Governor and the Republican-led Legislature have approved flat budgets and kept revenue estimates conservative over the last few years.
Also, West Virginia is getting a gigantic windfall from the federal government because of the pandemic. The state has already received $677 million from the American Rescue Plan (ARP), with another equal amount still due.
House Finance Committee Chairman Eric Householder believes the surplus represents an opportunity to lower taxes. His proposal calls for a ten-percent reduction in each of the state’s income tax brackets, with the option of more cuts in the future.
However, Householder’s plan is running into trouble. The ARP funds come with restrictions that prevent states from using the money to reduce taxes or bolster pension funds. A state caught misusing the funds could find itself forced to repay Washington. However, West Virginia Attorney General Patrick Morrisey is leading a coalition of states challenging that prohibition.
Instead, Justice and leaders of the House and Senate are considering using surplus funds on one-time projects, including economic development and long overdue maintenance and construction projects throughout state government.
The Governor’s office is making a list of the projects that will run into the hundreds of millions of dollars. Watch for the funding to be included in supplemental appropriations bills that will be submitted to the Legislature.
Meanwhile, Senate Republican leaders have their eye on a different form of tax reduction. This November, voters will decide on an amendment to the state Constitution. If approved, the Property Tax Modernization Amendment will give lawmakers the power to adjust property taxes assessed on a business’s equipment, machinery and inventory and an individual’s vehicle.
If the amendment passes, and if lawmakers choose, they could eliminate the taxes entirely, saving businesses and individual taxpayers about $600 million annually. Most of those taxes go toward funding schools and local governments, so the Legislature will be under pressure to make those entities whole.
Republicans desperately want to cut taxes. After all, lower taxes is a principle tenet of the GOP. However, they still must reach agreement on the best way to achieve that goal, while being careful not to ignore more immediate needs, create future budget shortfalls or run afoul of the federal government’s restrictions on pandemic relief money.