Blog Posts > FY 2025 Budget Overview
January 29, 2024

FY 2025 Budget Overview

Earlier this month, the Governor unveiled his proposed FY 2025 budget, which is now in the hands of the Legislature to review, amend, and pass. Proposed and enacted tax cuts continue to crowd out long-needed spending priorities in Governor Justice’s budget, which once again relies on one-time surplus revenue that will likely soon dry up to fund ongoing, permanent costs. The impact of the income tax cut enacted last year is apparent in the FY 2025 budget proposal, including the uncertainty created by triggers in the law that will continue to reduce the personal income tax automatically in future years. Given that uncertainty, as well as additional tax cuts proposed by Governor Justice this year, longstanding needs like ensuring Medicaid solvency, filling public sector staffing vacancies, funding school support positions in public schools, investing in higher education, and enacting effective policies to increase access to child care are at risk of being left behind due to a lack of revenue. The FY 2025 budget package once again lacked a six-year plan, leaving the impact of proposed and enacted tax cuts on future budgets unclear and significant questions about potential future budget deficits that will be left to the next governor and Legislature unanswered.

The FY 2025 Proposed Budget

Governor Justice proposed a $5.64 billion base budget, which includes General Revenue and Lottery appropriations. Public education remains the largest area of the budget, at $2.36 billion, or 42 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 $1.0 billion, or 18 percent of the base budget.

Budget Increases

Governor Justice’s proposed budget is $356 million above the final FY 2024 budget. Much of that increase comes from the Governor’s proposed five percent average pay raise for public employees, at a cost of $123 million. Other proposed increases include $100 million in the Governor’s Civil Contingent Fund, which includes $50 million for flood resiliency programs and $50 million to match Congressional earmark funding. Further, $56 million is allocated for contract nursing in various state-run hospitals, $23 million is allocated for tourism marketing and development (up from $7 million in FY 2024), $19 million is allocated for higher education, and $3.5 million is allocated for the Chief Medical Examiner to clear a state backlog of autopsies.

Notably, the FY 2025 budget does not include a Public Employee Insurance Agency (PEIA) subsidy to help offset premium increases, as annual budgets have in prior years. Compared with FY 2024, that lack of subsidy in FY 2025 offsets $71 million of the Governor’s proposed spending increases.

*Note: the public employee pay raise is double counted in some agency increases, including the school aid formula

The state’s share of the school aid formula increased by $154 million, largely due the the public employee pay raise and increased PEIA matching. Overall, school officials testified that enrollment in public schools is down by approximately 5,000 students, meaning statewide, school districts are losing state funding for 387 teaching and service personnel positions due to reductions in the school aid formula, which are calculated based on enrollment.

State Funding Falls Short of Inflation

Even with the proposed increases in the FY 2025 budget after several years of flat budgets, the FY 2025 budget fails to keep pace with inflation, essentially resulting in cuts by attrition. Because of increasing costs, state agencies and programs are able to do less over time when funding stays flat. This is a key driver of some of the funding crises we are seeing across the state. For example, higher education has been one of the services most affected by the erosion of state funding. After adjusting for inflation, the FY 2025 budget is $427 million less than the FY 2019 budget.

Child Care One of State’s Most Pressing Needs

One important area of the budget that has experienced both cuts and attrition from flat budgets has been Child Care Development, which helps fund subsidized child care for West Virginia families of low- and middle-incomes. State funding for Child Care Development is down 50 percent in nominal dollars when compared with FY 2014.

Child care is one of the state’s most pressing needs. While the governor proposed a small child care tax credit during his State of the State address, the state’s needs are greater than what a tax credit can address. Additionally, a tax credit approach will likely only reach families who can afford the up-front cost of child care, failing to increase child care affordability, accessibility, or supply.

West Virginia has one of the largest child care deserts in the country, where there are areas with no licensed child care providers or too few child care slots for the number of children who need them. The difference between the number of licensed child care slots and the number of children who need child care is nearly 26,000 when we include all licensed child care slots in the state. In addition, the expiration of millions in child care subsidies and assistance from federal pandemic-era funding programs has risked the stability of the state’s child care providers, who report that they are having a difficult time making ends meet in their centers. One major driver of the challenge is child care providers’ inability to pay child care workers what they could make in similar positions they are also qualified for, like aide positions in the public school system. This has meant that many child care workers are leaving for better opportunities.

One-time Funding Used for Ongoing Needs

Once again, the FY 2025 budget proposal uses one-time surplus funding to fund ongoing costs. Chief among these is the state’s Medicaid program. Facing a significant funding shortfall largely attributable to the expiration of pandemic-era federal funding increases, Governor Justice’s proposal uses $155 million in surplus funding to close the gap, leaving the serious question as to how Medicaid will be funded in the future unanswered, particularly as tax cuts accelerate and continue to erode revenue. Other areas receiving one-time surplus funding rather than permanent funding include the School Building Authority for deferred maintenance and additional fire and EMS support.

Tax Cuts are Growing Costly

The impact of 2023’s income tax cuts are apparent in the FY 2025 budget proposal. Personal income tax collections are projected to be down sharply from their pre-tax cut level. In FY 2023, the state collected $2.66 billion in income taxes. In FY 2025, the state is estimated to collect $2.02 billion, a drop of $640.3 million, or 24 percent. And the full impact of the tax cuts has yet to be felt in revenue collection reports, as the personal property tax rebates portion of the bill–expected to cost about $200 million annually–has not gone into effect yet.

In addition, Governor Justice proposed three additional tax cuts during his State of the State address that would cost West Virginia millions in lost revenue. The child care tax credit mentioned above would cost the state $4.2 million, while a proposed exemption of the income tax on Social Security for those making above $50,000 individually or $100,000 married would have cost $46 million last year, before the overall income tax cut.

Tax Cut Triggers Complicate Budget Process, Jeopardize State Needs

Included in last year’s income tax cut are triggers that will automatically enact further cuts to the income tax until the tax–currently making up 40 percent of the state’s General Revenue Fund–is eliminated. These triggers mean that more tax cuts that primarily benefit the wealthy come first when state revenues grow, before funding PEIA, child care, raises for state employees, infrastructure investments, or any number of other pressing needs. In addition, the lack of long-term budget planning from the Justice administration to identify when these triggers may be met further complicates the budgeting process.

Beyond causing budget problems in future years, the tax cut triggers are expected to come into near immediate conflict with the costs of already enacted legislation. The costs of the Third Grade Success Act, the expansion of the Hope Scholarship, the public employee pay raise, and the estimated increased costs of Medicaid and PEIA mean that already enacted legislation will put state spending over the tax trigger threshold in the next few budget years.

The tax triggers are also fiscally reckless, as the threshold only must be hit once to trigger a permanent tax cut. Additionally, the trigger calculation sets FY 2019 as the baseline, meaning that any revenues above that baseline adjusted for inflation are diverted to tax cuts rather than new spending needs. But in FY 2019, the state did not have to pay for the Hope Scholarship, the Third Grade Success Act, or significant economic incentives and subsidies. That means that pegging new tax cuts to that baseline is not reflective of our current budget needs and will quickly pit additional tax cuts against Republican-led priorities and other spending needs.

As long as lawmakers continue to prioritize tax cuts that reduce the revenues needed to pay for public services, other needs will go unaddressed unless lawmakers can find ways to offset new spending via cuts elsewhere in the budget. That means that worthy and necessary priorities like teacher pay raises, permanent funding for fire and EMS, funding for more Child Protective Services workers, Medicaid funding, a pay raise for home health care workers, and funding for child care subsidies will essentially be pitted against each other in order to prioritize tax cuts that overwhelmingly benefit the wealthy.

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