The latest revenue collection numbers for the state are out and they will make it even more difficult for Governor Justice to achieve his goal of cutting income tax rates another five percent. (Read more here from Brad McElhinny)
The figures show that tax collections for September were $14 million ahead of estimates. However, because collections were below projections for July and August, the state is only $1.2 million ahead of estimates for the quarter. Any surplus is a positive, but that is a tiny amount considering the annual budget is $5.3 billion.
Basically, the state is spending just about every dollar that is coming in. The budget is balanced, but there is not much left over, and it is that tiny surplus that will draw the attention of lawmakers who are weighing whether to approve Justice’s tax cut.
The proposed reduction would save taxpayers another $110 million, but legislators want to know how to pay for the cut. The massive surpluses over the last few years appear to be drying up. For the first three months of FY 2024, the surplus was $235 million. The surplus reached a humongous $427 million for the first quarter of FY 2023. The surplus for July, August and September FY 2022 was $143 million.
Justice called the legislature into special session Monday with his tax cut topping the agenda. Lawmakers dealt with a few other items and then recessed until Sunday, putting the tax cut on hold. That move demonstrates how cautious they are about the additional cut.
Senate Finance Committee Chairman Eric Tarr (R, Putnam) told West Virginia Watch he does not foresee the tax cut passing. “I’m doubtful, and the reason I’m doubtful is just because the revenues are coming in slower than they have for the past few years.”
House Speaker Roger Hanshaw (R, Clay) is also cautious. He said on Talkline Tuesday that while he supports lower taxes he does not want West Virginia to end up like Kansas. That state is the poster child for cutting taxes so deeply and quickly that it created a financial crisis.
Justice is unperturbed. “What we need to do – the 5% isn’t do-all, end-all. What we need to do is continue to show the world that West Virginia is on the pathway to getting rid of the personal income tax,” Justice said at a Tuesday briefing. “We need to absolutely show the world that West Virginia is on the way to getting rid of your personal income tax.”
Justice is leading the cut-taxes-now parade, but the band is not in lockstep behind him. Lawmakers need to be convinced the state will not encounter revenue shortfalls in the future and—God forbid—have to raise taxes.
The state’s fiscal future is uncertain because, well, it always is. For example, severance taxes on coal and natural gas, which are key contributors to the state treasury, vary wildly depending on the market price fluctuations. The 20.25 percent income tax cut passed in 2023 is having an impact on revenue. Revenue from income taxes for the first three months of this fiscal year is down $17 million below projections.
I will make a prediction, which is a risky thing to do when it comes to the legislature; They will take up Justice’s tax cut plan starting Sunday, ensure they give it “serious consideration” and then decide to study it, putting off any decision until the regular session next year.
Justice will be disappointed, possibly even fume about it publicly, but what is he going to do? In West Virginia, the governor proposes, and the legislature disposes.