The 2023 state legislative session has seen both chambers heavily focused on turning the state’s revenue “surplus” into personal income tax cuts, despite the clear need for new spending after four years of austerity forced by flat budgets. We’ve covered at length the temporary factors driving the surplus, as well as the fallacy of calling it a surplus at all when much of that money is obligated to future budget spending based on decisions lawmakers have already made. This piece will take a look at West Virginia’s expected FY 2023 surplus and outline how we could spend it in equitable and sustainable ways while still meeting our budget obligations.
Seven months into the fiscal year, West Virginia has a budget surplus of $995.3 million. Half of that, $497.8 million, is severance tax collections above estimates, which have resulted from temporarily high energy prices due to factors outside of West Virginia’s control. To put the historic severance tax collections into context, just seven months into FY 2023, we’ve collected 252 percent of the severance tax we estimated to bring in this year.
If current revenue trends continue, we would expect the total FY 2023 surplus to be just over $1.7 billion, which is the amount state officials are projecting as well.
Earlier this month, Senate Finance Chairman Eric Tarr identified in an interview that they used the budget hearing process as a workaround to understand each state agency’s upcoming spending needs. What the Senate Finance committee learned is that the state is already on the hook for “at least $917 million” in ongoing, base budget spending obligations based on legislation previously passed, which means that much of the surplus is simply not available to fund tax cuts without changing existing laws or drastically cutting the budget. Chairman Tarr noted that over $900 million is already obligated before lawmakers pass any additional legislation this year that has a price tag.
That leaves about $800-850 million remaining of the FY 2023 surplus. If current trends continue, we can expect the severance tax portion of the surplus to be around $800-850 million. We’ve long cautioned that severance tax revenues are incredibly temporary as they are tied to volatile energy prices. A fiscally responsible practice would be to not use any temporary severance tax revenue toward permanent spending — either for the budget or for permanent tax cuts. That said, it’s important for the state to meet its legal spending obligations.
With the $800-850 million of severance tax surplus remaining, these funds could be incredibly transformative in the coal and natural gas communities where these tax benefits derive from and which, in many cases, have seen underinvestment in recent years in both infrastructure and economic development. Last year, we called on lawmakers to create an infrastructure and development fund for counties that have coal and natural gas production and to place the FY 2023 severance tax surplus into that fund. With an $800-850 million pot of money, many meaningful projects could be pursued to improve economic opportunities in these communities for this and the next generation.
That more than exhausts the FY 2023 surplus. However, some of the costs Chairman Tarr identified as upcoming base-building costs do not become part of the budget until FY 2025 or later. Additionally, the state still has about $500 million in unappropriated surplus funds from FY 2022 that could go to one-time needs, but again, it would be deeply irresponsible to base any ongoing spending or tax cuts on temporary surplus dollars—either those from the severance tax or from the remaining FY 2022 surplus.
West Virginia could make some long-needed one-time investments with these dollars — for example, investing in child care subsidies for thousands of families who lost theirs at the end of last year, launching a paid family and medical leave program, and investing in education and workforce training programs.
There are also equitable one-time ways to get money back into the pockets of West Virginians. The best option would be a child tax credit applied to all children in the state under the age of 18. For about $350 million, every child in the state could get a one-time $1,000 child rebate. If revenues continue to grow in future years, the legislature could come back and consider making the program permanent.
West Virginia’s FY 2023 surplus does present significant opportunities to invest in our people—but most of that investment will need to be in the form of meeting our obligations for public services that serve all of our people. The plan laid out above to meet our spending obligations, invest temporary severance tax revenues back into our coal and natural gas communities, and get more money into the pockets of families with children is both a sustainable and an equitable approach.
Read Kelly’s full blog post.
Two significant tax breaks for the coal industry are currently moving through the West Virginia Legislature, and together they could cost nearly $100 million in state coal severance tax revenue annually.
HB 3133 would enable the state’s coal producers and processors to reduce their severance tax responsibilities by 20 percent annually, by allowing them to claim a credit against the severance tax for up to 50 percent of their qualified operating costs including labor, materials, machinery and equipment, and services. Coal producers and processors could use this credit to reduce their coal severance tax liability by 20 percent each year, carrying any remaining credit up to nine years forward. In essence, HB 3133 is a backdoor 20 percent cut in the severance tax rate for the state’s coal processors and producers and, by extension, would reduce the state’s coal severance tax revenues by 20 percent every year going forward. A fiscal note provided by the West Virginia State Department of Tax and Revenue estimates the annual cost of HB 3133 at $70 million upon full implementation in FY 2024, with an estimated loss of $25 million in the final quarter of FY 2023.
Meanwhile, HB 3304 (and similarly SB 168) would exempt thermal or steam coal sold to in-state electric generating facilities from severance taxation. According to the legislation, it is intended to “encourage and incentivize the sale of thermal or steam coal to coal-fired electric generating facilities which are based in West Virginia… thereby providing cheaper electricity to the state’s residents.” But notably, there is no language in the bill requiring that any savings to West Virginia electric generating facilities be passed onto West Virginians, which makes it very unlikely to have any impact on electricity costs for West Virginians.
Further, coal production is based on demand, supply, and prices that are set in the regional and global marketplace. Currently, an estimated one-third of steam coal produced in West Virginia is sold to in-state coal-fired electric generating facilities, while the other two-thirds is sold out of the state or even out of the country. It is difficult to see how reducing a coal company’s severance tax payments will stimulate demand from power plants to purchase West Virginia coal unless the coal companies pass the savings onto the power plants in the form of lower coal prices, but there is no requirement in the legislation for them to do so.
According to the fiscal note, HB 3304/SB 168 is expected to cost an estimated $24 million once fully phased in during FY 2024. With that said, if both HB 3133 and HB 3304 are passed, the two bills would reduce the coal severance tax by approximately $94 million, or 38 percent of total FY 2022 state coal severance tax revenues.
There is little evidence to support a severance tax cut or tax credit for coal as a tool to increase production and employment. Overall, the state has little ability to influence the forces affecting the coal industry, be they competition from natural gas, environmental regulations, productivity, or transportation issues. Further, while coal production and jobs have been and continue to be important for our state’s economy, they also come with serious health, infrastructure, and environmental costs. The severance tax is one of the only means we have to account for the costs created by the coal industry and invest in our state’s frontline coal communities.
Read Kelly’s full blog post.
This week, the House Education Committee took up HB 2619, which would turn the state’s already broad education savings account program, the Hope Scholarship, into one with universal eligibility, costing up to an additional $160 million per year according to the West Virginia Department of Education.
When the Hope Scholarship was passed in 2021, we published analysis showing that despite proponents’ promises, the program would be mostly inaccessible to rural, low-income students, and those with disabilities. Our public schools are the only schools that serve all students, and the Hope Scholarship, by design, increases segregation of students by ability, income, and other factors.
HB 2619 rips the veil off the promises of the Hope Scholarship. Instead of being about increasing opportunity for students and families who couldn’t previously afford private school, it opens the program up even to families who are already in private school or home school. And again, the bill comes with an annual price tag of up to $160 million, meaning it comes directly at the cost of other state programs and services that serve families and students.
We urge lawmakers to reject diverting more tax dollars away from the public school system. Instead, we should adequately fund our schools so they can have smaller class sizes, more specialized resources for student needs, and more education opportunities to meet the expectations of all families.
While Senators tout their tax cut plan, SB 424, as a “safe” approach to tax reform, a closer look reveals that it poses significant financial risks which would force future budget cuts or increases to other taxes.
SB 424 proposes an initial 15 percent personal income tax cut. This cut would overwhelmingly benefit the state’s wealthiest households, with two-thirds of the tax benefits going to the top 20 percent of households. The bill also contains automatic triggers to further reduce and ultimately eliminate the personal income tax, which brought in $2.5 billion in FY 2022, making it the state’s single largest general revenue source. This is the largest and costliest portion of the legislation. Beginning in 2025, if sales tax revenues grow by five percent from the previous year, the personal income tax is automatically reduced dollar-for-dollar by the amount the sales tax increased over a single year.
Eliminating the personal income tax based solely on one-time increases in sales tax revenue would make the state far more reliant on the regressive sales tax and further shift tax responsibilities onto low- and middle-income West Virginia households.
If these automatic income tax reductions create an overall reduction in tax revenue—which they are likely to do since they would divert nearly all natural revenue growth to tax cuts instead of budget needs—future legislatures will find themselves forced to roll back the personal income tax cuts, raise other taxes that fall more heavily on average West Virginia families, or cut public services disproportionately impacting everyday families.
SB 424 also contains provisions to have the state tax department provide rebates for personal property taxes paid under the six categories that were considered—and rejected by voters—in Amendment 2. If passed, taxpayers would be able to file at income tax time for a rebate of 100 percent of their local taxes paid on personal motor vehicles and businesses would be able to file for rebates of 50 percent of taxes paid toward the business personal property tax categories (machinery and equipment, inventory, leasehold investments, computer equipment, and furniture and fixtures).
While proponents framed SB 424 as limiting the personal property tax rebates to small businesses, the legislation does not define anywhere what constitutes a small business.
Proponents of the legislation also tout that SB 424 contains a fix to the “marriage penalty,” but according to the conservative Tax Foundation, West Virginia’s tax system does not currently have a marriage penalty, and the cost of changes in SB 424 related to this provision are unclear. Similarly, without a fiscal note from the state tax department, it is difficult to know how many taxpayers might benefit from the legislation’s real property tax rebate for veterans with full service disabilities.
While proponents of SB 424 framed the legislation as an approach that would benefit low- and middle-income families more than the governor’s tax proposal, HB 2526, that’s not really the case. The major provisions of the bill that kick in immediately—the 15 percent personal income tax cut across all rates and the business and personal property tax rebates—disproportionately benefit businesses and the state’s wealthiest households. Combined, the income tax cut for the top 20 percent of earners and the business property tax rebates make up about 61 percent of the cost of the tax plan, according to our estimates.
Read the full blog post.
Black Policy Day 2023 took place this past Wednesday at the Capitol. Organizers, policy experts, students, and other advocates convened to build community, share resources, and call upon lawmakers to address racial inequities plaguing the state. A recent article provides further details. Excerpt below:
The day-long event, held for the first time last year, served as a chance for a diverse group of advocates, policy experts, students and concerned citizens to gather and uplift the needs of Black West Virginians and to convey those needs to state lawmakers.
That included calls for legislators to take substantive action to address a range of disparities in the state that disproportionately affect Black people and other marginalized communities.
“We live in the shadows of the most affluent in the state of West Virginia,” said Rev. Matthew Watts, a pastor at Grace Bible Church on Charleston’s West Side. “Yet we have the poorest performing schools and one of the more undereducated neighborhoods.”
Others argued that there has been a deliberate lack of focus on the needs of Black people in the state, and that this negligence has had dire consequences. Staysha Quentrill, the only Black midwife in West Virginia, noted that this is particularly seen in the range of health issues Black communities face.
“Those are not health disparities, they are health injustices,” she said. “Those things are done.”
Advocates made a point of highlighting specific legislation that lawmakers could tackle, particularly the passage of the CROWN Act, which would ban discrimination based on hair texture and style. As the day went on, Black West Virginians were clear about their goal: not only should the state act to address the needs of Black communities, they should prioritize the solutions set forth by the people most affected by the issues.
For that to happen, organizers involved with Black Policy Day say that the most important thing is that Black West Virginians recognize the power of using their voices. When it comes to advocating at the Legislature “there is so much more to learn,” said Katonya Hart, one of the organizers of the event. “Part of that is getting people to decide that they should come up here and realize that this building belongs to them.”
Read the full Mountain State Spotlight article here.
The WVCBP’s Elevating the Medicaid Enrollment Experience (EMEE) Voices Project seeks to collect stories from West Virginians who have struggled to access Medicaid across the state. Being conducted in partnership with West Virginians for Affordable Health Care, EMEE Voices will gather insight to inform which Medicaid barriers are most pertinent to West Virginians, specifically people of color.
Do you have a Medicaid experience to share? We’d appreciate your insight. Just fill out the contact form on this webpage and we’ll reach out to you soon. We look forward to learning from you!
You can watch WVCBP’s health policy analyst Rhonda Rogombé and West Virginians for Affordable Health Care’s Mariah Plante further break down the project and its goals in this FB Live.