Blog Posts > West Virginia Sees $109 Million Revenue Gap in First Quarter of Fiscal Year
October 4, 2023

West Virginia Sees $109 Million Revenue Gap in First Quarter of Fiscal Year

The first quarter of FY 2024 ended with West Virginia collecting $109 million less than it collected in the first quarter of FY 2023, though the state did exceed the artificially low revenue estimates set by Governor Justice’s administration. Most of the gap compared with last year was due to a collapse in severance tax collections, which are $199 million below FY 2023 levels through the first quarter. However, disappointing income tax revenue growth—self-inflicted by tax cuts—is also a contributing factor.

While Governor Justice’s recent press release highlights the “surplus” from September’s collections exceeding the revenue estimate, that surplus largely derives from a fairly conservative revenue estimate. Despite collecting $638.8 million in September of FY 2023 and the month of September historically bringing in relatively high revenues, the estimate for this September was just $467.9 million, making exceeding the revenue estimate a low bar to clear even after accounting for income tax cuts. Overall, the revenue estimate for the full fiscal year is $1.6 billion below actual collections for FY 2023.

While the decline in severance tax collections is cause for concern, global factors remain the primary cause of low energy prices and are largely out of the West Virginia Legislature’s control. However, a lack of growth in the income tax is the direct result of income tax cuts passed earlier this year by the Legislature. Over the past decade, income tax collections in the first quarter of the fiscal year have averaged five percent higher than the first quarter from the previous year. However, in FY 2024, income tax revenue is actually down in the first quarter compared to FY 2023, at $607.5 million collected in FY 2024 compared to $608.1 million collected in FY 2023. Notably, collections in the first quarter of FY 2024 are even below collections in the first quarter of FY 2021, before the pandemic began to take its toll on revenue collections.

While income and overall tax collections in September were stronger than in previous months of the fiscal year, they likely represent an anomaly rather than a positive overall trend. Since the income tax cuts were enacted, both income and overall tax revenue have steadily declined compared to the previous year, with the exception of September. This suggests that September’s numbers are more likely the result of a one-time bump caused by factors like the timing of collections, rather than being a true indicator of a strong economy permanently boosting revenue. Indeed, when it comes to jobs, GDP, and personal income, West Virginia’s growth over the past year has been mediocre. There is no sign elsewhere in the economy that September’s economic growth was stronger than in the preceding months for any sustainable reason.

Despite Governor Justice’s recent remarks, the reality in West Virginia is that our economy has been underperforming over the past year, at a time when many other states are experiencing growth for their economies and workers. However, rather than making the investments in supports that grow the economy, like child care and job training, West Virginia is seeing its opportunities to fund meaningful efforts slip away as tax cuts undermine revenue growth and the chance to make real differences in the state.

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