Governor Justice has once again touted the state’s so-called “surplus” as reason to pursue more tax cuts favoring the wealthy. But make no mistake, the state’s surplus isn’t a sign of uncharacteristically strong revenue growth, or a sign that the state’s needs are all being met. Instead, the surplus has been largely manufactured by artificially low revenue estimates, unexpectedly high energy prices, and a flat budget that is ignoring state needs. Further, there are indications that revenue growth is starting to slow, which should be a strong sign to any tax-cut-hungry lawmakers to pursue those cuts cautiously.
As of December 2022, West Virginia’s FY 2024 budget is running a healthy surplus, with revenue collections exceeding estimates by $833 million. But just like last year, those revenue estimates were set to be artificially low, designed to create the illusion of a surplus.
The FY 2023 revenue estimate of $4.6 billion is $1.2 billion below actual collections in FY 2022 and $120 million below actual collections in FY 2019 . That means one of two things: either the administration unreasonably expected an economic collapse in FY 2023 that would wipe out four years of growth, or the revenue estimate was intentionally low-balled to manufacture a surplus. If the state experienced no economic growth or inflation in FY 2023, then revenue collections should be the same as they were in FY 2022. But since the revenue estimate is so low, the state could manufacture at least a $1.2 billion surplus.
What’s more, the majority of the current $833 million surplus is from severance tax collections, which are being boosted by a temporary surge in energy prices, along with the low revenue estimates. Severance tax collections in FY 2022 totaled $768.8 million, but the estimate for FY 2023 is only $250 million. The combined impact of that artificially low revenue estimate and surging energy prices is that the severance tax is coming in at $433.5 million above the estimate as of December 2022, accounting for 52 percent of the $833 million surplus. To put that in perspective, in the FY 2023 revenue estimate, the severance tax was only predicted to account for 5.4 percent of total revenue.
Aside from the severance tax, the other main sources of state revenue–the personal income tax, the sales and use tax, and the corporate net income tax–are barely outperforming last fiscal year’s collections, after adjusting for inflation, and have actually fallen behind in recent months.
While total FY 2023 collections are $833 million above the low-balled revenue estimate, personal income tax, sales and use tax, and corporate net income tax collections are only $54.7 million above FY 2022 collections, after adjusting for inflation. And revenue collections are showing signs of slowing down compared to last year. While September 2022 personal income, sales and use, and corporate income tax collections were $54.1 million above September 2021 collections, both November and December 2022 collections were well below 2021 collections, down a combined $52.5 million after adjusting for inflation.
With so much of West Virginia’s surplus built on artificially low revenue estimates and volatile severance tax collections–and while other sources of revenue are beginning to slow–using the “surplus” to justify tax cuts is fiscally irresponsible. Voters overwhelmingly rejected the harmful tax cuts associated with Amendment 2 in November’s election, making clear that when given the opportunity to vote directly on the matter, they prioritize funding for public services and programs over further tax cuts. As such, it’s well past time for lawmakers to address important and neglected budget issues like PEIA and Medicaid shortfalls, staffing crises throughout state government due to noncompetitive pay, and underinvestment in child care, higher education, housing security, and other health and family supporting policies.
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