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Revenue spike brings hope to WV budget talks

By PHIL KABLER

Charleston Gazette-Mail

CHARLESTON, W.Va. — As West Virginia’s legislative budget impasse stretched into its 34th day, with 24 days left before a partial state government shutdown, the Justice administration saw a glimmer of hope Tuesday as May’s revenue collection of $350.39 million came in 20 percent above projections.

Gov. Jim Justice uses white boards to show what will happen if the 2017-18 state budget doesn’t pass in time for the fiscal year’s start, on July 1.
(Photo by Kenny Kemp)

That was prompted by a sharp upturn in natural gas prices over the past couple of months, along with improving coal production numbers.

Revenue Secretary Dave Hardy announced during the department’s monthly revenue report Tuesday that the upturn in the economy will help allow the state to increase its 2017-18 budget revenue estimate from $4.055 billion to $4.225 billion.

“I think we can see the light at the end of the tunnel, and I think we can conclude the [2016-17] fiscal year balanced,” he said.

The fiscal year ends June 30.

The new estimates — which assume passage of the governor’s road funding plan — could provide a bit of a cushion as legislators struggle to come up with a 2017-18 state budget, meeting Tuesday in the 12th day of a special session that has met on and off since May 4.

Even with the new estimate, revenue would still be about $124 million short of what is needed to balance Gov. Jim Justice’s proposed $4.35 billion 2017-18 budget.

“It makes it easier to put the budget together, absolutely,” Senate President Mitch Carmichael, R-Jackson, said of the new revenue estimate.

Tuesday afternoon, Justice again called on legislators to adopt his revenue proposal — which would increase the state sales tax to 6.35 percent while lowering income tax rates by at least 7 percent — saying the plan is “as good as we’re going to get.”

“We’re never going to come up with the perfect deal,” he said, adding, “I’ve worked night and day to try to understand the other sides and make it work.”

Justice said Tuesday that he was not surprised by the improving severance tax collections, saying he had predicted the upswing during the 2016 gubernatorial race, but he said it is not enough, in itself, to close the ongoing budget deficit.

“The growth we’re having is still nowhere close to even remotely getting us out of this mess,” Justice said.

The new 2017-18 revenue estimate assumes passage of the governor’s plan to increase funding for roads by about $130 million a year. This would be paid for through increased gas taxes and Division of Motor Vehicles fees. However, it does not include passage of any tax increase measures pending in the special session, estimated to raise an additional $180 million a year, if enacted as proposed.

“It’s better than the numbers we had before,” Hardy said of the improving revenue figures, “but it’s still a long way from where we need to be.”

About $40 million of the increased revenue estimate comes from measures enacted in the 2017 regular session, including shifting funds that had gone to pay down the old Workers’ Compensation fund, and an increase in state wholesale liquor prices.

House Finance Chairman Eric Nelson, R-Kanawha, said Tuesday he could not build the increased revenue estimates into the 2017-18 budget until the Legislature receives the official letter raising the estimates, but he said the Justice administration previously had indicated that it expected at least $94 million in revenue growth.

“Until we receive an adjustment letter from the governor, we can’t use anything,” Nelson said.

For a second straight day, House Finance — which will first take up the revenue and budget bills for this go-around — did not meet officially, although committee Republicans and Democrats met in separate closed-door caucuses Tuesday.

“Until we are closer to a final product, some committee meeting time would not be productive,” Nelson said, adding, “I’m hopeful we’ll do something this week. We’re close.”

The improved revenue projections could help with budget compromises — particularly with pushback from legislators in both houses for a key component of Justice’s latest budget proposal, to raise $92 million a year by removing a sales tax exemption for building-contracting services.

Justice on Tuesday questioned why some legislators insist on “re-trading” his budget proposal, dragging out the special session with just over three weeks to a partial government shutdown if there is no budget by July 1.

“This is a dysfunctional group,” he said of the Legislature. “They’re good people, but this is silly.”

Justice said he wants the budget impasse to be over “right now,” and said those who would lead the government into shutdown or impose severe spending cuts on state agencies and programs must be held accountable.

On April 14, Justice vetoed a budget bill that would have imposed more than $400 million in spending cuts. He said Tuesday that he will not accept any budget that cuts spending “to the bone.”

He said his department heads have contingency plans readied, in the event of a partial shutdown, but said, “We don’t want this to happen. We absolutely don’t want to shut government down.”

Nelson agreed, saying, “The clock is ticking. Without a doubt, there’s not one person in this building, or next door, who’s not concerned about June 30.”

May’s tax collection jumped to $350.39 million, coming in $59.2 million, or 20 percent, over estimates, as sales taxes, income taxes and severance taxes all exceeded projections.

Severance tax collection for May of $49.2 million exceeded estimates by $15.8 million and were, essentially, double what was collected in May 2016.

Through April, severance tax collection on natural gas — which has seen prices increase from less than $1 Mcf to nearly $2.50 Mcf recently — are up 30 percent, while severance taxes on coal are up 4 percent on increased production, Deputy Revenue Secretary Mike Muchow said.

Overall, year-to-date severance tax collection through May is up 32 percent over the same point in 2016, which Muchow said is all the more remarkable, considering that collection was running 14 percent under estimates in December.

“This is a dramatic change that’s occurred in the last three to four months,” he said.

Accordingly, income tax collection of $123.2 million exceeded estimates by $16.4 million, and sales tax collection of $106.8 million was $6.6 million ahead of estimates.

May marked the third month of the past four that revenue exceeded projections, following seven straight under-performing months, Muchow noted.

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