Earlier this month, Governor Morrisey unveiled his proposed FY 2026 budget, which is now in the hands of the legislature to review, amend, and pass. Previously enacted tax cuts and the growing cost of the Hope Scholarship continue to crowd out much needed investments in the state’s public services and institutions. Like previous budgets, Governor Morrisey’s proposed budget is largely flat, once again relying on one-time surplus revenue to fund ongoing costs. Longstanding needs like ensuring Medicaid solvency, filling public sector vacancies, funding school support positions, investing in higher education, and increasing access to child care remain unaddressed in the proposed budget, though the ultimate decisions about investments will rest with the legislature. On a positive note, after years of absence, the FY 2026 budget includes a six-year plan, but unfortunately it indicates significant budget gaps in the coming years.
Governor Morrisey proposed a $5.75 billion base budget for FY 2026, which includes General Revenue and Lottery appropriations. Public education remains the largest area of the budget, at $2.33 billion, or 40 percent of the base budget. The Department of Human Services–which houses the state’s General Revenue appropriations for Medicaid as well as for Social Services–is the second largest, at $1.16 billion, or 20 percent of the base budget.
While the FY 2026 budget process started with a $400 million budget gap that was closed through a combination of higher revenue estimates, transfers, one-time surplus funding, and $109 million in budget cuts, a few areas of the budget did see funding increases. The largest of these increases was for the Hope Scholarship, which saw funding increase by $64.7 million in the FY 2026 budget. Declining local property tax revenue led to an automatic increase in the state’s share of the school aid formula of $29.8 million, while funding for PEIA premiums increased by $46.7 million. While Public Defender Services saw a budget increase of $20 million, it does not represent new funding, but rather years of ongoing budgeting that had been funded via one-time supplementals being moved into the regular budget.
Higher education was once again a target for budget cuts, with a proposed cut of $19.1 million, while the Teachers Retirement System required $43.6 million less than last year. All other cuts in the budget total $23.1 million.
While the FY 2026 budget proposal is balanced, significant budget gaps are projected for future years, totaling $1.8 billion from FY 2027 to FY 2030.
How did West Virginia go from having a budget surplus to facing large budget gaps so quickly? The main driver of the state’s budget gaps is a loss of revenue due to previous cuts to the income tax. Personal income tax collections are projected to be $2.02 billion in FY 2026, $644 million below where they were in FY 2023, before the income tax cuts went into effect.
Major cuts to the income tax have made West Virginia more reliant on the volatile severance tax for revenue, and that volatility has come back to bite the state in recent years. Severance tax collections totaled $946.5 million in FY 2023, a major factor in the state’s budget surplus, but fell all the way down to $368.9 million in FY 2024. Severance tax collections are projected to be $398 million in FY 2026, $548 million below FY 2023’s collections.
In addition to declining revenue, the explosive rise in the cost of the Hope Scholarship is also a significant driver of the state’s budget gap. After costing just $23.3 million in FY 2023, the Hope Scholarship is projected to cost more than $110 million in FY 2026, before spiking again to $300 million in FY 2027, once the program is fully expanded.
With declining revenue and the growing expense of the Hope Scholarship, the FY 2026 budget leaves many state needs unaddressed. The budget does not include permanent funding for Medicaid or the Hope Scholarship, but instead relies on $171 million in one-time funding to close the FY 2026 gap. The budget also does not include a permanent solution for PEIA premium increases. Premiums continue to increase in future years, with increases totaling $285 million from FY 2026 to FY 2030. The FY 2026 budget once again does not address the state’s child care crisis, with no increase in funding for child care development, which is still down a staggering 50 percent from its funding level in FY 2014. The FY 2026 budget contains no increase in public education funding outside of the Hope Scholarship, which is siphoning off dollars that could be put to good use increasing teacher pay and hiring more support staff, among other investments. Finally, the FY 2026 budget does not include a public employee pay raise, while future projected pay raises remain in jeopardy due to growing budget gaps in FY 2027 and beyond.
All of these critical needs and priorities will likely remain unaddressed as long as tax cuts and the Hope Scholarship continue to wreak havoc on the budget. With future budget gaps looming, further slashing the budget is unfortunately more likely than funding the worthy and necessary priorities that would truly improve the Mountain State in the areas it matters most.
