Blog Posts > West Virginia’s Revenue Gap Grows to $210.7 Million as Hundreds of Millions in Spending Obligations Loom
November 8, 2023

West Virginia’s Revenue Gap Grows to $210.7 Million as Hundreds of Millions in Spending Obligations Loom

For the first four months of FY 2024, West Virginia’s General Revenue collections are down $210.7 million compared to the same period in FY 2023, despite the state exceeding the fairly modest revenue estimates set by the Governor Justice administration in an effort to maintain a ‘flat budget.’

The combination of self-inflicted tax cuts and a collapse in severance tax revenue explain the revenue gap. Personal income tax collections are down $26.5 million compared to this time last year, while severance tax collections are down $306.3 million. Global factors remain the primary cause of low energy prices and, by extension, the tanking of severance tax revenues, and are out of the West Virginia Legislature’s control. However, a lack of growth in income tax revenues to offset the expected decline in the severance tax is the direct result of income tax cuts passed earlier this year by the Legislature. Those tax cuts were enacted despite widespread understanding that personal income tax collections are a far more stable source of income than volatile severance tax collections, which were responsible for about 40 percent of the FY 2023 ‘surplus.’

As severance tax revenues settle back to normal levels, the income tax cuts are depressing total revenue collections relative to potential collections absent these cuts. Worse, the price tag will grow steeper in the coming months as individuals and businesses file their 2023 income tax returns and personal property tax rebates, which were part of the tax cut package, begin to be paid out. The property tax rebates are expected to cost between $135 and $145 million in FY 2024, growing to $158 million in FY 2025, with the annual cost continuing to rise gradually over time.

After adjusting for inflation, the FY 2024 appropriated budget is $591.2 million less than FY 2019 expenditures, meaning that the state’s ‘flat budget’ is actually a declining one, leaving state agencies and programs with fewer resources compared to five years ago.

While revenues are decreasing, the state is facing looming, already obligated costs that will impact the base (General Revenue) budget in upcoming years, even before any new laws with price tags are enacted in upcoming legislative sessions.

These costs include:

  • $152 million in additional annual costs for Medicaid due to the reversion to the normal federal Medicaid match as a result of the end of the COVID-19 Public Health Emergency;
  • $313 million in new annual state PEIA costs by FY 2028;
  • $100-$150 annually for the Hope Scholarship expansion starting in FY 2026; and
  • $64 million for K-3 legislation to boost reading and other milestones.

With last year’s surplus generated by severance tax collections proving temporary, there is little room remaining in the budget for these new, ongoing spending obligations, particularly as permanent tax cuts take effect. The state now faces $670 million in additional spending obligations as revenues are already falling $210 million behind–and this is before even beginning to account for multiple state crises driven by underfunding.

With looming costs and shrinking revenues, West Virginia faces a potentially challenging budget future. The revenue surpluses used to justify expensive tax cuts are starting to evaporate, and the state will soon start to feel the squeeze of the flat budgets.

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