In January, Governor Morrisey unveiled his proposed FY 2027 budget, which is now in the hands of the West Virginia Legislature to review, amend, and pass. Newly proposed tax cuts–on top of previously enacted tax cuts–as well as continued growth in the Hope Scholarship are creating significant budget strains, leading to considerable budget gaps in the coming years. Like past budgets, the FY 2027 budget is largely flat, and once again relies on one-time surplus revenue to fund ongoing costs. Ensuring Medicaid solvency, supporting public schools, and increasing access to child care remain unaddressed in the proposed budget.
Governor Morrisey proposed a $5.93 billion base budget for FY 2027, which includes General Revenue and Lottery appropriations, excluding surplus and supplementals. Public education remains the largest area of the budget, at $2.29 billion, or 39 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 $1.10 billion, or 18 percent of the base budget. Notably, the Hope Scholarship alone now accounts for $230.1 million, or four percent of the base budget.
While the FY 2027 budget is largely flat compared to FY 2026, a few areas of the budget did see funding increases. The fastest growing and largest increase was for the Hope Scholarship, which saw funding increase by $124.3 million in the FY 2027 proposal. A proposed public employee pay raise increased proposed spending by $78.4 million, and the state’s share of PEIA increased by a proposed $35.1 million.
Declining student enrollment and an increase in local property taxes decreased state aid to schools through the school aid formula by $27.7 million, while $117.4 million was cut from Medicaid and Managed Care Organizations, which was moved to the surplus section of the budget.
The proposed FY 2027 budget calls for using $270 million in surplus funding to keep the budget balanced. This includes $170 million for Medicaid–ongoing funding that will have to be found in future budgets. In addition, $100 million in surplus funding is being used for the Division of Highways, funding that typically would come from the State Road Fund.
While the FY 2027 proposed budget is balanced, significant budget gaps are projected for future years, totaling $1.2 billion from FY 2028 to FY 2031. Those budget gaps are driven by Hope Scholarship growth as well as a five percent income tax cut that Governor Morrisey included in his budget proposal, which would reduce revenue by an estimated $134 million per year.
Notably, the governor used his State of the State address to push for an additional five percent income tax cut, bringing the total tax cut to 10 percent or $268 million per year. While not reflected in the six year plan, this would push the projected budget gaps to $1.7 billion from FY 2028 to FY 2031. Notably, the projected budget gaps assume no further growth in the Hope Scholarship, despite it currently being the fastest growing part of the budget, and no growth in Medicaid, despite medical inflation and significant costs being shifted onto the state budget from Congress’ passage of HR 1 (“One Big Beautiful Bill Act”).
When the West Virginia Legislature passed its initial income tax cut in 2023, it included an automatic mechanism designed to incrementally reduce personal income tax rates if specific state revenue goals had been met. If General Revenue collections (minus the severance tax) exceed the inflation-adjusted 2019 baseline, an automatic rate reduction is enacted, capped at 10 percent in a single year. The trigger is intended to gradually reduce the state personal income tax if economic growth exceeds the benchmark.
It is critical to note, Governor Morrisey is calling for a full 10 percent income tax cut in FY 2027 despite the state falling hundreds of millions of dollars short of meeting the benchmark. FY 2019 General Revenue collections, minus the severance tax, totaled $5.41 billion, adjusting for inflation. FY 2025 General Revenue collections, minus the severance tax, totaled $5.08 billion, $327 million short of meeting the benchmark for an income tax rate reduction. The official FY 2026 General Revenue collections estimate, minus the severance tax, is $4.93 billion, which would be $482 million short of meeting the benchmark. The revenue estimate for FY 2026 is below FY 2025’s actual collections, demonstrating that overall revenue is estimated to decline even before potential additional tax cuts beyond the trigger are enacted.
Over the past decade, two-thirds of state and federal tax cuts have gone to the wealthiest 20 percent of West Virginia households, with the wealthiest five percent (who have average annual incomes of over $500,000) now paying $1.2 billion less in taxes per year. The governor’s proposed 10 percent income tax cut is more of the same–it would deliver 65 percent of the tax cuts to the wealthiest 20 percent of the state, while reducing desperately needed state revenues by an estimated $268 million per year.
The five percent tax cut that is included in the governor’s budget proposal tells a similar story. At a cost of an estimated $134 million, 65 percent of the tax cuts go to the wealthiest 20 percent of the state.
After the recent federal and state income tax cuts, the wealthiest 20 percent in the state (those making approximately $200,000 per year), have received tax cuts totaling $2.1 billion annually. Meanwhile, state needs like fully funding Medicaid, addressing the ongoing child care crisis, supporting public education, and more go unaddressed.
Reforming the state’s income tax brackets would raise critically needed revenue to both close budget gaps and fund unaddressed needs, all while maintaining the existing tax cuts for the majority of West Virginians. Adding an eight percent bracket starting at $200,000 and a 12 percent top rate starting at $500,000 would raise $500 million, while only those making over $200,000 per year would see a tax increase. And even with that tax increase, their total state and federal tax cut since 2015 would still total $1.6 billion.
As long as tax cuts and allowing the Hope Scholarship to grow unchecked remain the main budget priorities, the state will continue to struggle with budget shortfalls, cuts to vital programs, and unaddressed needs.
West Virginia has decades of experience cutting taxes to improve its business and tax climate. Notably, in each case, the tax cuts have failed to result in promised economic growth for our residents.
Nevertheless, many policymakers willfully ignore these prior results and existing evidence, choosing instead to press on and promising that the next tax cut will be the one to turn things around. And as state revenues decline as a direct result of these cuts, lawmakers slash spending toward public services like public education and infrastructure that would actually improve prosperity for our people and make West Virginia more appealing for businesses and families alike.
