This week, Governor Justice said he would let the state budget become law instead of signing it because the budget contained so many cuts ( a “travesty”) and that his proposed tax plans failed to become law. Governor Justice mostly blamed Democrats and Republicans in the House of Delegates, along with the Senate Democrats, for the state’s “bare bones” budget because they refused to go along with several income tax cut plans that were put together between himself and Senate Republicans. It is important to recognize that had the legislature gone along with most of the governor’s proposed tax plans, the state would have do to make much deeper cuts next year and beyond.
Given the choice between baking in large-scale future budget cuts with big tax cuts and passing a budget with sizable cuts for one year, it seems like the legislature made the better of two bad choices in refusing to go along with Senate Republicans and the governor.
As Governor Justice pointed out during his budget announcement, there were several tax plans that he and the Senate proposed that failed to pass in the House. While the governor called them “missed opportunities” it is more apt to look back upon each of the tax plans as missed fiscal calamities for the state that would have resulted in deeper budget cuts in the future.
While Governor Justice put together several tax plans during the regular legislative session that raised enough revenue to close the budget gap – which moved from -$497 million to -$270 million based on agreed to budget reductions – his joint proposal with Senate Republicans during the last night of the 60-day regular session would have led to larger budget cuts in FY 2018 and beyond. Therefore, it is difficult to understand how Governor Justice can see this as a “missed opportunity” if he is concerned about budget cuts hurting the state.
Strangely, Governor Justice told the media that “all this does is kick the can down the road, and there’s massive budget holes in the out years.” The governor went on to say that the budget gap for FY 2019 is “$179 million” and “$486 million” by FY 2022. A simple look at the revenue impact of each of the “missed opportunities” or tax proposals shows that these gaps would have likely been much larger in outer years if most of these tax proposals would have been adopted.
Below is table that includes the net revenue impact of each of the proposed tax plans from the governor, House, Senate and several that the governor endorsed along with Senate leadership. Outside of the governor’s first tax plan that was included as part of this original budget for FY 2018 and his second proposed tax plan based on agreed to budget cuts (these were not mentioned as “missed opportunities” by the Governor), all of the other tax plans proposed by the Governor (along with the Senate) failed to raise enough money to close the projected budget gap for FY 2018 let alone for future budget years.
In fact, the tax plan the governor put together with Senate Republicans on the last night of the session on April 8th – missed opportunity #1 according to the governor – would have drastically reduced revenues for the state and expenditures absent future tax increases. By FY 2021, the State Tax Department estimated that it would have reduced General Revenue Fund collections by -$220 million and much more going forward, as the income tax was phased down. The House did not fare much better. Two out of three of the tax plans that passed the House lowered net revenue collections by FY 2020, which would require tax increases or more future budget cuts. While the tax plan passed by the Senate last Thursday increased net revenue by $93 million in FY 2018 – presumably close to enough revenue to pass the governor’s FY 2018 budget during the special session along with the new revenue estimates – the estimated revenue for FY 2019 was $30 million less, leading most likely to more budget cuts next year.
While Protect WV, WV Center on Budget Policy, and some lawmakers (see here and here) put forth a several revenue proposals for avoiding the deep cuts included in the FY 2018 budget, the legislature unfortunately could not agree on any revenue enhancements. Despite this inaction, the state’s fiscal health and funding of future budget priorities would have been much worse had most of the “missed opportunities” become law. On top of the tax proposals not bringing in enough money to fund budget priorities, most of the compromise tax plans between the Governor and Senate (see here, here, here, and here) lowered taxes on the wealthy while increasing them on most West Virginians.
If there is silver lining to the state’s budget crisis this year it is that the budget passed by the legislature last week contains about $122 million more in General Revenue Fund appropriations than the budget vetoed by the governor in April. While it remains to be seen whether the new revenue estimates for next year pan out, they at least helped avoid more severe budget cuts.
Moving forward, the state is in for more hard times as the state faces yet again another large budget gap next year and likely stalemate on the need to pass sufficient revenues to meet the states needs. That said, it would have been a lot worse had the legislature acted on many of the governor’s tax proposals.
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