Governor Justice will be making his State of the State address this week, followed by the release of his proposed FY 2020 budget. Here’s some key areas of the budget to watch for:
Pay Raise and PEIA
The governor has previously promised an additional five-percent pay raise for public employees, as well as pledging $100 million to stabilize PEIA for the coming year. This would eat up much of the state’s current budget surplus, which also has to be shared with the Rainy Day Funds (50% of General Revenue surpluses are automatically deposited in the Revenue Shortfall Reserve Fund).
In addition, it leaves the long-term question of funding PEIA unanswered. In order to maintain current benefit levels, PEIA needs $50 million in additional funding every year, meaning it needs $50 million this year, another $50 million on top of that next year, and so on.
How pay raises and PEIA will be built into the budget will be important moving forward. Will they have permanent sources of funding, or will they rely on one-time surpluses and transfers?
Tax Cuts
High on the governor’s and legislative leadership’s priority lists are more business tax cuts. The push to eliminate the property tax on business personal property is back, and depending on the form it takes, could cost up to $388 million per year. The coal industry is also pushing for a cut in the coal severance tax, at the cost of $117 million per year. Even with an upswing in tax collections, it would be difficult to finance a five-percent public employee pay raise, a fix to PEIA, and hundreds of millions in ineffective tax cuts.
Revenue Collections
Speaking of revenue collections, the governor’s budget should give a hint of just how long we can expect the recent upswing in revenue collections to continue. As some state officials have cautioned, much of the revenue surplus can be attributed to the ongoing construction of several natural gas pipelines. Those pipelines are expected to be completed in 2019, and when they are finished, their impact on revenues will subside. The Six Year plan, which includes revenue projections over the next few years, should give a hint about how much of the current gains we can expect to continue to see, and how much is temporary. The same it true for road bonds that have boosted construction jobs and state revenue.
The governor also reversed his decision to not collect internet sales tax revenue from out-of-state retailers. This should result in the state collecting an additional $50 to $70 million in sales tax revenue.
Higher Education
Higher education was a major target for budget cuts during the state’s down years, with West Virginia spending less on students in 2018 than it did in 2008. With cuts totaling over $70 million in recent years, West Virginia has experienced tuition increases along with declining enrollment. While the proposed plan to offer free tuition to in-state students at public community and technical colleges may return in some form, higher education has yet to recover from years of deep cuts, threatening affordability, access, and quality at public two- and four-year colleges across the state.
Medicaid
As the single-biggest program in the budget at over $4 billion combined state and federal funds, Medicaid is always a big question. While Medicaid’s funding appears to be stable, it is often patched with one-time sources of funding that may not necessarily be there year to year. And if the economy’s recent growth leads to an increase in per-capita income, the FMAP (federal Medicaid match) will decline, and the state will have to increase its share of funding. Just a small change in the FMAP rate can cost tens of millions of dollars for the state.
