We will know Tuesday night who will be the next governor of West Virginia. The winner will celebrate the victory, and probably take a few days off from a long campaign. However, the governor-elect will have to get to work quickly on an emerging issue with the state’s finances.
A report released Friday by the Senate Finance Committee shows that revenue collections were $15 million below estimates for October. Collections for the previous three months were at or near estimates, so when the numbers are added up, the state is about $14 million behind in collections for the fiscal year.
Revenues from personal income taxes, the largest single source of income, are short of projections by $33 million. Severance taxes, another significant revenue stream of the state, are below estimates by $19 million.
These figures do not bode well for the next administration.
West Virginia has been flush with revenue the three previous fiscal years. An influx of federal dollars and artificially low revenue estimates have produced historic surpluses. This time last year, the state was $575 million ahead of estimates. The surplus was $181 million for the first four months of FY 2022 and $112 million ahead for FY 2021.
Notably, the release of the revenue figures last Friday came less than 24 hours after Governor Jim Justice signed into law another two percent reduction in the state income tax rates. The additional reduction means Justice and the Legislature will have cut tax rates by about 27 percent since 2023.
Those cuts benefit taxpayers, but they also reduce revenue collections, at least until they catch up due to economic growth.
Kelly Allen, executive director of the West Virginia Center on Budget and Policy, has been warning of lean times. “If we are barely beating estimates now, the second half of the year when those tax cuts phase in could be rough for a new legislature and a new governor to deal with,” she said.
Think about what is ahead.
Teachers and state workers, faced with another year of increases in their health insurance costs, are going to be pushing the new governor and the legislature for a pay raise. Childcare providers are asking for financial help. Department of Corrections officials have told lawmakers their regular budget allocations are not meeting operating costs. The expanded school voucher program will allocate an increasing amount of state dollars toward private and home schools.
The surpluses of the last few years were unprecedented, but they were also a sugar high. Allen said the good times were destined to end. “We’ve been getting by for a few years perpetuating the myth that the budget could stay flat by funding ongoing budget needs with surplus dollars. But when there is no longer a surplus, like it’s looking now, how will we meet those budget obligations?”
That will be the first question that the next governor will have to answer.