Dropoff in coal, gas taxes take toll on W.Va. coffers fuel deficit
CHARLESTON, W.Va. - A drop in coal and natural gas severance tax collections was the No. 1 cause for West Virginia's $90.6 million year-end deficit, budget officials said.
Late last week, Gov. Earl Ray Tomblin approved a $17.7 million cut from the state's Medicaid reserve fund to help make up for that shortfall and avoid ending the fiscal year with a budget deficit, which is forbidden by state law.
The state also emptied its $45 million income tax reserve fund and the Legislature passed $28.3 million in budget cuts in an attempt to make up the deficit.
The state ended fiscal year 2013 with $4.05 billion in tax collections, far below the predicted $4.149 billion.
Deputy Revenue Secretary Mark Muchow said a drop in severance tax collections largely drove that shortfall.
The state collected $409.7 million in severance taxes over the last year, although the state revenue department had predicted $461.5 million in collections.
Muchow said coal sales dropped by more than 15 percent, causing production to drop about 20 million tons from 2012. Natural gas didn't make up for those losses, as the price of gas trended downward over the last fiscal year.
Congress also extended "bonus depreciation" for another year, which led corporation income and business franchise taxes to come in under estimate. Muchow said the state expected to collect $248 million last year. But after Congress extended the tax breaks, which allow businesses to write off half the cost of new equipment for one year, collections actually came in at $238 million.
Sales taxes also suffered. Muchow said the state expected Congress to phase out its temporary payroll tax reduction. Instead, federal lawmakers let the tax break abruptly expire Jan. 1, leading to smaller paychecks nationwide.
"That had an impact on sales tax collections. Less money in my pocket means less ability to spend," he said.
Muchow said he expects the state will have a slightly easier time meeting its budget in the coming fiscal year. He said the state would need 1.9 percent revenue growth to make ends meet.
"It's within reason," he said. "It's a reachable target. But I don't expect this to be a banner year in terms of growth."
The state will lose at least one revenue source for the coming fiscal year: the state's food sales tax expired on Monday, costing the state about $174 million a year in collections.
Muchow said that would not affect budget projections, however, because the state didn't include food tax collections in its 2014 projections.
State lawmakers from both parties heralded the end of the food tax Monday, each taking credit for its demise.
House Republicans hosted a press conference Monday morning. Democrats put out a press release later in the afternoon.
House Minority Leader Tim Armstead, R-Kanawha, said removing the food tax has been a top priority for state Republicans for two decades.
"I think it's a very important step forward for the people of West Virginia," he said.
Armstead called the food tax "immoral" because food is "something that everyone has to have.
"I think anything we can do to put more money back in (taxpayers') pockets is helpful," he said.
Armstead also predicted dropping the food tax would have a positive effect on other sales taxes. He said more than half of state residents live near the border, and have previously driven to other states where food taxes were lower.
Now that West Virginia's food tax has been eliminated, Armstead said those shoppers would shop for groceries inside the state, and pick up items that are still taxed at the full 6 percent.
Meanwhile, Democrats chided Republicans for taking credit for the food tax reduction, saying the road to its elimination began during a special session in 2005.
"I'm disappointed that the Republicans keep trying to have it both ways. They do nothing but criticize the Democratic majority in the legislature, except when they're rushing to take credit for landmark legislation that could only be passed by that same Democratic majority," House Speaker Tim Miley said in a press release.
State party chairman Larry Puccio said Democrats "continue to accomplish many great things and improve the lives of West Virginians.
"Republicans ought to join our efforts instead of taking credit for what we have already achieved," he said.
Other Top Headlines