Blog Posts > Tax Collections Are up, but Not Back to Pre-recession Peak
September 6, 2018

Tax Collections Are up, but Not Back to Pre-recession Peak

This week, Governor Justice held a press conference to announce much stronger than anticipated general revenue fund collections for the first two months of Fiscal Year 2019 – which began July 1, 2018. Altogether, revenues are $65.8 million or 11 percent above the revenue estimates. Approximately 92 percent of the current two-month surplus is due to sales ($16.1m), personal income ($14.3m), and severance taxes ($30.3m). Overall, this is a 19 percent or $106 million increase over last year.

 

The growth in revenue collections is a welcomed sign. It highlights that the state’s economy is beginning to pick up, but it still has a long way to go. The central factors behind the strong revenue growth and the state’s growing economy is the rise in natural gas prices and production and metallurgical coal demand, both of which are almost entirely exported out-of-state. The rise in natural gas prices is also boosting construction employment, especially pipeline construction.

Though general revenue collections for the first two months are higher than in previous years, this doesn’t take into account inflation or the price increases in the cost of goods and services. Using the Consumer Price Index (CPI), general revenues for July and August this year are down by about $83 million from their peak in FY 2011 and $46 million below FY 2008.  In general, state general revenues should grow between three to five percent per year, while general inflation (CPI) over the last ten years has been about two percent annually.

WV General Revenue Collections, August and September, FY2007-FY2019

Source: WV State Budget Office, U.S. Bureau of Labor Statistics, Inflation Calculator (July 2018)

While the Governor and legislative leadership maintain that state policy changes over the last few years are responsible for improvement in the state’s economy, that does not appear to be the case, unless they can control global energy prices or foreign coal markets. The debt financed road bonds may be positively impacting revenue collections, however, there is no evidence that recent low-wage policies (such as “right-to-work”or repealing prevailing wage) or budget austerity have helped grow revenues or the economy. The real good news on the policy front is that the WV Senate and Governor were unable to eliminate the income tax or cut the severance tax. These two taxes alone account for over two-thirds of the current surplus.

The growth in revenues is good for the health of the state budget. Especially since the state’s weak economy and deep tax cuts have meant large cuts to higher education and other important programs services that people rely on every day. That said, policymakers need to remain cautious. The surplus is being driven by volatile energy prices, that have significantly boosted severance tax and other tax collections, and it is only the first two months of the fiscal year.

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