The West Virginia state government ended the 2023 fiscal year June 30th with a huge surplus and record setting revenue collections in several categories. However, these numbers require some analysis because not everything is as rosy as it seems.
But let’s start with the positives:
The state collected $6.5 billion in general revenue last fiscal year. That is ten percent more than the previous year and the most revenue ever collected. Tax collections for resource severance, corporations, personal income, consumer sales and interest income all set records. The revenue collections came in $1.8 billion ahead of estimates.
That represents an overall strength of the state’s economy because a growing economy generates more revenue. More people working pay more in taxes and buy more things. Higher demand for coal and natural gas drove severance tax collections to new highs.
“West Virginia is growing, our people are employed and raising their families here, companies from all over the world are investing in us, and we’ve changed the image of our state to the outside world in a major way,” said Governor Jim Justice.
The Justice administration deserves credit for its aggressive efforts to recruit businesses to the state, while the Legislature is responsible for adopting policies that make West Virginia more attractive to business.
However, caution is advised.
The size of the surplus is misleading. The Justice administration sets the revenue estimates artificially low to keep spending under control. That works to keep costs down, but it is not an accurate representation of the expense of running the government.
The Legislature earlier appropriated about $1.2 billion of the expected surplus for dozens of agencies and projects including things like road improvements, funding for the National Cancer Institute at WVU, economic development and another payment to the state’s Rainy Day Fund.
So, the state really has about $450 million in true surplus. It will be up to Justice and the Legislature to decide how to use the one-time money. There is no shortage of needs—corrections, higher education, teacher and state employee salaries, state property maintenance, on and on.
Also, it is worth noting that the bulk of the surplus was accumulated in the first half of the fiscal year, and it was attributed in large part to surging severance tax collections. Coal and natural gas prices soared, and severance tax collections along with them.
However, prices have cooled off, and in the second half of the fiscal year severance tax revenue returned to more modest levels. Personal income tax collections, which are the greatest source of revenue for the state, also leveled off closer to FY 2022 levels.
There is no denying FY 2023 was a good year for the state. The record revenue collections put West Virginia in a strong position to be able to fund income tax and personal property tax cuts of $700 million this year and catch up on some of the state’s overdue needs.
However, some of those revenue collection numbers in the last few months of the 2023 fiscal year suggest a cooling off, especially on the volatile energy front. If we have learned anything in West Virginia it is that economic conditions can go south in a hurry.