A weak September for General Revenue collections underscored the heavy price of 2023’s tax cuts on the state’s budget and should serve as a warning against Governor Justice and lawmakers moving ahead with even deeper cuts to revenue.
September General Revenue collections totaled $567.7 million, which is $104.4 million below September 2023’s collections, marking a decline of 15.5 percent compared with the same month last year. Three months into the new fiscal year, overall collections are $111.0 million below FY 2024’s collections, a decline of 7.8 percent.
While Governor Justice has called a special session to consider a further five percent cut to the income tax just months after a four percent cut was triggered but not yet implemented, income tax collections specifically were particularly weak in September. They totaled $239.3 million, $81 million below last September’s collections, a drop of 25 percent. Overall income tax collections are down $74 million so far in FY 2025, compared to FY 2024, a drop of 12 percent.
While revenue collections are flat compared to the estimate, they are in a steep decline year over year. Compared to this point in FY 2023, General Revenue collections are down $220 million, or 14.4 percent, before adjusting for inflation.
Keep in mind 2023’s income tax cuts were in place for all of FY 2024, so additional losses in income tax collections into FY 2025 are worth noting. At the end of FY 2024, revenue officials and lawmakers touted that income tax collections had only declined 16 percent after a 21.25 percent cut, but an additional decline of 12 percent three months into the new fiscal year shows that the full impacts of the cuts are still being learned. Moreover, neither the property tax rebates that were part of the 2023 tax law nor the four percent triggered tax cut have gone into effect yet. Those will begin to impact collections in the second half of FY 2025, reducing collections by an additional estimated $280 million annually.
Other major sources of revenue are not making up the losses from the income tax as some proponents claimed would happen. Sales tax collections are up only $9.4 million, or 2.2 percent, so far in FY 2025, while severance tax collections are up only $1.7 million. Corporate net income tax collections are down $45.8 million compared to this point last fiscal year. All other taxes are up only $6.2 million.
While tax collections are falling further behind last year’s numbers, they are largely on track with revenue estimates, coming in $1.2 million above estimates after three months. This means the low-balled estimates of years past that generated large year-end surpluses are likely no more. This too could raise concerns for lawmakers who have been increasingly reliant on surplus allocations to fund structural budget obligations that cannot fit into Governor Justice’s “flat budgets.” Just this year, lawmakers approved supplemental and surplus allocations to fund structural and ongoing obligations to the Hope Scholarship, Medicaid, the Department of Health, and the Department of Corrections and Rehabilitation (DCR). Without year-end surpluses, it is unclear how those ongoing budget obligations and unmet needs will be funded.
And after years of near-flat budgets, lawmakers returning in 2025 face a myriad of issues borne from underfunding programs, and likely need to consider raising revenue rather than reducing it–even in order to fund Republican spending priorities. Over the next two years, the Third Grade Success Act ($33 million) and Hope Scholarship (up to $200 million) will continue to increase as a cost to the state budget.
A new report from the National Education Association shows average teacher pay in West Virginia ranks 51st in the country, even after recent pay increases; thousands of families currently receiving child care subsidies are at risk of losing them if new state funds are not allocated to the program; and experts are urging the state to prioritize funding its Flood Resiliency Trust Fund, among other needs.
This month’s revenue report makes clear that the governor’s proposed additional tax cuts are likely unaffordable under current budget obligations and could create near-term issues in meeting existing spending needs- even before accounting for mounting unmet needs.
Note: Governor Justice’s team issued a press release stating that September revenues were $580.6 million, generating a $14.3 million surplus, but those figures do not match the Department of Revenue’s figures and appear to be based on erroneously counting a $12.9 million loan paid back to the Personal Income Tax Reserve Fund as revenue collections.
