WV’s Future Budget Picture Troubling, Justice’s Tax Plan Further Threatens State’s Financial Stability

For Immediate Release: March 15, 2021
Contact: Renee Alves, 559-916-5939

Charleston, WV – Last month, Governor Jim Justice proposed what he described as a “flat” budget for FY 2022, with only minor changes from the FY 2021 budget. While the state budget remained stable during the COVID-19 pandemic, that stability relied on tapping reserves, federal stimulus funding, and other temporary measures. The future budget picture remains troubling, with projected revenues far below initial estimates, while the reserves the state has been relying on to balance the budget are being depleted. In addition, the governor is proposing a major tax overhaul that would both increase overall taxes on the average low- and middle-income household and create an immediate $185 million budget gap.

Our new issue brief, Pay More, Get Less: The West Virginia FY 2022 Budget Proposal, explores the facade of West Virginia’s current budget stability, the state’s concerning economic outlook, and how proposals to slash the state income tax would make a fraught budget situation even worse.

“Before the legislative session began, Governor Justice announced that his goal of eliminating the state’s income tax would be a major part of the 2021 legislative agenda. The net effect of the governor’s proposal would be a dramatic change in who pays state taxes in West Virginia, shifting the responsibility onto working families to make room for tax breaks for the wealthy,” says WVCBP senior policy analyst and brief author Sean O’Leary. “Altogether, these changes would lower General Revenue Fund collections by an estimated $185 million in the first full year of implementation, all but guaranteeing that the state will have to make painful budget cuts, while simultaneously increasing overall taxes on the average taxpayer in the bottom 60 percent of households in West Virginia.”

The brief’s key findings are as follows:

• FY 2022 base budget appropriations are $57 million below the final FY 2021 budget.
• The FY 2020 budget was balanced with $300 million in one-time budget maneuvers, including using $150 million in Medicaid reserve funds.
• Medicaid reserve funds are also being used to balance the FY 2021 and FY 2022 budgets. By FY 2025 the reserve funds will be depleted, and by FY 2026 Medicaid will be facing a $153 million shortfall.
• An increase in the federal match for Medicaid under the CARES Act will save the state $300 million in calendar year 2022. Overall, West Virginia citizens, businesses, and state and local governments have received over $7 billion from the CARES Act, which has boosted the economy and aided the budget.
• The governor’s proposed plan to cut the income tax and raise sales and other taxes would lead to an immediate $185 million loss in revenue, while raising taxes on the average low- and middle-income household.

Read the full issue brief here.

West Virginia was fortunate to make it through the pandemic and recession without any budget cuts in 2020. But without federal aid and reserve funds, the state budget would be in far worse shape. As it currently stands, the budget is on shaky financial ground, with reserves running dry and revenue growth significantly curtailed. The governor’s tax plan threatens the state’s financial future, and would turn a flat budget that already falls short of meeting the state’s needs into one that requires substantial and painful cuts.

We know that past tax cuts have already failed West Virginia, creating no economic growth, forcing cuts to higher education and public health, and leading to a decade of underinvestment. It is vital that West Virginia does not double down on these past failures. New sources of revenue should be explored, but not in order to pay for tax cuts for the wealthy. Instead, we should be looking for ways to both meet current needs and to invest in our people and communities to build a stronger, more equitable economy.