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Budget Surplus in West Virginia Prompts Governor to Promote Tax Breaks -- WSJ

The Wall Street Journal · 01/06/2023 11:39

By Kris Maher

Pointing to a record budget surplus, West Virginia Gov. Jim Justice said he plans to announce a major tax cut next week, joining a number of governors from both parties entering the New Year with state surpluses and big plans for tax cuts or new spending.

West Virginia ended the fiscal year in June with $1.3 billion more in revenues than expected. Much of the boon was driven by higher prices for coal and natural gas, which in turn drove up severance taxes paid on the extraction of those resources. Severance-tax collections in the state exceeded estimates by $449 million for the fiscal year.

"We'll be announcing the biggest tax cuts in the history of this state, hands down," Gov. Justice said during a press briefing this week. Gov. Justice, a Republican, said he plans to announce a proposal in his State of the State speech next week.

Many states are flush with cash as a result of federal assistance during the pandemic, higher incomes and increasing tax revenues in energy-producing regions. Despite the threat of a recession, state legislatures are opening new sessions with a strong incentive to pursue tax cuts and boost spending.

Revenues exceeded budget forecasts in 49 states in fiscal 2022, with aggregate collections beating forecasts by 20.5%, according to the National Association of State Budget Officers. Nationwide, state general-fund balances plus rainy-day funds have roughly tripled over the past two years, the group said.

About 33 states out of 41 reporting so far this year said that revenues so far are exceeding original budget forecasts for fiscal 2023. The collections "point to another year of stronger than expected revenues," said Shelby Kerns, the executive director of Nasbo, in a statement.

Kathryn White, director of budget process studies for Nasbo, said inflation has indirectly pushed up general-fund revenues, which rely heavily on sales and income taxes, by boosting the prices of goods and wages.

On Wednesday, Connecticut Gov. Ned Lamont, a Democrat, said the state's fiscal woes were over and that he would propose "a meaningful middle-class tax cut." Last month, Gov. Laura Kelly of Kansas, also a Democrat, which has a $2 billion budget surplus, announced a plan to cut taxes on groceries, diapers, school supplies and social security.

Virginia Gov. Glenn Youngkin, a Republican, proposed an additional $1 billion in tax cuts and $2.6 billion in new spending commitments last month. That is in addition to $4 billion in tax cuts the state's General Assembly signed into law last year. The state has a budget surplus of $3.6 billion.

Lucy Dadayan, a senior research associate with the Urban Institute, noted that revenue growth is slowing for some states, and that cutting taxes could present long-term fiscal challenges in some cases. California is currently facing a $24 billion budget shortfall.

In West Virginia, finding common ground on differing tax-cut proposals could prove to be a hurdle, according to state officials.

This fall, Gov. Justice clashed with state Senate leaders of his own party over a failed ballot amendment that would have given the legislature the ability to cut property taxes. The governor opposed the measure, which voters defeated by a margin of 64% to 36%. Instead he has backed cuts to income taxes.

A spokesman for the governor didn't immediately respond to a request for comment about his planned tax proposal.

This week, some Republican state lawmakers said they would have enough votes to pass their own tax-cut measure. With supermajorities in both the Senate and the General Assembly, they said they could override a veto by the governor.

At the same time, others have argued that the state shouldn't institute tax cuts on the basis of short-term revenue gains.

Sean O'Leary, a senior policy analyst with the West Virginia Center on Budget & Policy, said he believes the state should use the surge in revenues to address problems such as staffing shortages of teachers and corrections officers and underfunding of a public employee insurance program.

Moreover, he said, a surge in energy prices shouldn't be used to support tax cuts. "It's ignoring the fact that a lot of this is temporary," he said.

Write to Kris Maher at Kris.Maher@wsj.com

(END) Dow Jones Newswires

January 06, 2023 11:39 ET (16:39 GMT)

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