Yesterday, Governor Justice held a press conference to provide an update on the state’s fiscal situation at the start of the 2021 fiscal year (FY) and the ongoing impact of the COVID-19 pandemic.
According to the governor, West Virginia is starting FY 2021 with a $243.9 million surplus, and ended FY 2020 with a $23 million surplus, a sign that the state’s economy is strong despite the challenges of COVID-19. However, a closer look at the state’s revenue collections shows a weakening state economy that has been relying heavily on federal aid to stay afloat.
First, it is important to note that the $243.9 million surplus to start FY 2021 is not from revenues exceeding estimates by $243.9 million, which would be the measure one would use to judge the relative strength of the economy, and is how the governor has announced monthly surpluses in the past. If revenues are exceeding these estimates, the economy is stronger than expected. If revenues are falling short of these estimates, the economy is weaker than expected. For July, state revenue collections exceeded estimates by $44.5 million.
Instead the $243.9 million surplus figure was arrived at by calculating the monthly revenue minus monthly spending. And while the governor pointed to this surplus as a sign of a strong economy, it is more reflective of the state’s spending calendar than anything else. Actual monthly spending and revenues rarely match up month to month, with the state fluctuating from surplus to deficit. One particular month doesn’t tell the full story. Rather, what truly matters is if revenues are hitting their estimates. If revenues meet or exceed their estimates each month, the budget will be in balance.
In fact, July is typically one of the lowest months for spending in the state calendar. In FY 2020, the state spent $273.7 million in July, compared to $467.9 million in June, and in FY 2019 the state spent $293.9 million in July, compared to $721.2 million in June.
So while spending is typically lower in July to begin with, July 2020’s revenues were also higher than usual. Again, this was not due to a stronger economy, but due to changes to the budget calendar. As mentioned above, July’s revenue collections exceeded estimates by $44.5 million, but that was largely the result of delayed personal and corporate income tax payments from extending the filing deadline for West Virginia income taxes from April 15 until July 15 due to the COVID-19 pandemic.
According to a report from the Senate Finance Committee, $192.5 million of July’s personal and corporate income tax collections are from deferred collections due to the filing extension deadline. So instead of exceeding estimates by $44.5 million, July’s revenues would have been $148 million below estimates had it not been for the extension of the filing deadline. Only sales tax revenue, boosted by spending from enhanced unemployment benefits, exceeded the estimate.
With so many moving parts, it can be hard to fully understand the state’s revenue situation in light of COVID-19. The pandemic has certainty affected state revenue, but moving tax deadlines and lumping in monthly spending trends have muddied the picture.
To simplify the matter, and to get a clearer picture of the state’s economic performance during the pandemic, the chart below compares April through July revenue collections in 2020 to their original projections, as well as to collections in 2019. Doing this accounts for extending the tax deadline from April to July, while focusing on how revenue collections have changed during the pandemic.
West Virginia has collected $1.6 billion in tax revenue these past four months, $129.8 million less than what it collected this time last year, and $204.9 million less than the original revenue estimates. Revenues are 7.4% lower than they were last year, and 11.2% lower than the estimates. (NOTE: Updated with corrected data from original post).
Rather than serve as proof of a strong economy, West Virginia’s revenue situation reveals a state that is struggling, one with more than 70,000 unemployed workers and growing housing and food insecurity, and one that is has relied heavily on federal aid to make ends meet.
West Virginia has made it this far without any major budget pain thanks in large part to federal aid. But without a strong additional relief package from Congress, including more state and local aid, a continued FMAP increase, and extended enhanced unemployment benefits, West Virginia’s problems are potentially only just beginning.
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