Governor Jim Justice repeated the idea of separating the “financial surplus”, built on federal relief dollars, into a “bucket” while touting his proposed income tax cut that could leave a big hole in the state budget.
Analysts say it is doubtful whether West Virginia will be able to use federal relief money in this way – and it does not appear to be in line with federal intent.
“State tax aid under the CARES Act and the American Rescue Plan is intended to cover costs incurred specifically related to the economic and public health crisis,” said Kelly Allen, executive director of the West Virginia Center on Budget & Policy, a think tank.
“It would be unthinkable – and probably not allowed – to use aid funds for families and communities to pay tax cuts. It is unsustainable and fiscally irresponsible to use single funds to pay permanent tax cuts. “
For the covid-19 relief package under consideration by Congress now, language is being launched that would prevent states that adjusted their revenue mechanisms last year from qualifying for any additional funds covered.
As far as West Virginia is concerned, the elimination of income tax could prevent the state from qualifying to receive any money in the future.
The House of Representatives passed the coveted $ 1.9 billion relief law. The United States Senate is expected to accept it in the coming weeks.
West Virginia received $ 1.25 billion in aid to the state pandemic last spring. As of mid-month, the state still had about half, $ 660,874,770, according to the state auditor’s transparency website. The justice administration has allocated most of this to early unemployment benefits.
The next budget package, the American Rescue Plan, is expected to include $ 350 billion in direct aid to state and municipal governments.
West Virginia is expected to receive an additional $ 1.259 billion.
Justice, speaking to state and national reporters, made it clear that it wants the Biden government and Congress to grow.
“Trying to be, on its own, fiscally responsible right now with what we are going through in this country, if we really throw some money away now, so what?” the governor told CNN.
But in recent public statements, the governor also spoke of putting aside what results from West Virginia’s federal relief.
His remarks were made in the context of his proposal to cut the state’s $ 2.5 billion annual personal income tax in half. Justice says population growth driven by people attracted by the initial income tax cut will allow the state to cut the rest.
The income tax represents about 43% of the state’s General Fund and pays for services such as education and health.
If unforeseen financial problems arise, the governor said, I would like to have a reservation. And federal relief may just be the way to fill it.
Justice described this for the first time this month during his State of the State address.
“What do you think is going to happen with the Biden stimulus package? What could happen? They could forgive all the dollars we invest in unemployment, ”Justice said in his speech.
“What if? What if we had hundreds, hundreds, hundreds of millions of dollars more? Put them in the bucket. Don’t spend them. For God’s sake, don’t throw them out because you’re going to spin five times, wake up and say ‘Where are we? ? ‘ You won’t even know what happened. Put them in the bucket. ”
Then, during a meeting at the city hall on the proposed income tax, the Justice answered a question about what he meant. He was also asked whether his proposal is in line with the Biden government’s intentions.
“Today, in West Virginia, we have a cash surplus. In 2019, we had an incredible surplus. In 2020, we ran to the finish line with a surplus in a greedy year like no one else. In 2021, we have a significant surplus at the moment. And right behind that, there are additional stimulus packages coming. And we did not dive into the deep dive where we could actually take money from the existing stimulus that we already have and that could increase the surplus and further increase cash.
“Now, we can do one of two things. We can just spend the money. Or we can just throw the money away. Or we have an opportunity to put that aside and somehow establish something – maybe it’s a vehicle I’m not thinking about – but maybe it’s a second Rainy Day Fund. And use it to fill any gaps. Or choose how we want to use it. But from the point of view of our bondholders and so on, I truly believe that this is something that they would welcome and welcome immediately. I think it would be a great way to not just make us throw away a lot of money. “
Much of the current fiscal year surplus that the governor described was produced after providing a grace period for tax returns last year. Millions of dollars came in after the new fiscal year started on July 1, providing a financial cushion to start the current fiscal year.
Justice describes the construction of this budgetary surplus. He is anticipating the possibility that the federal government will forgive the money that West Virginia has allocated for unemployment, as well as reimbursement for costs related to the pandemic.
With all this, and with the strength of millions of dollars in impending federal aid, West Virginia could have enough in the short term for the bases of operational government.
Any sauce can be stored in what Justice calls a bucket.
Except for everything that coincides with his proposal to eliminate the income tax, which accounts for almost half of the state’s General Fund. The court proposed several measures, including an increase in sales tax and a new luxury tax, as well as some cuts, to offset the income tax. But he recognizes that it may not be enough.
Therefore, the bucket may need to be available to fill a financial ravine of its own making.
One criticism of federal aid to states is often described as a “blue state bailout”, which refers to widely democratic states like Illinois, New York and California, which can benefit from the money to ease their tense pension programs.
Justice shares this criticism.
“I am not a proponent of rescuing failed pension funds that have decades and decades of bad history,” Justice, a Republican, told USA TODAY. “But we must do things to meet the needs of local and state governments that have come about because of this unbelievable pandemic. There are many needs within the states. “
Justice told the national newspaper earlier this month that the federal government should not “cure the sins of the past” from deficient state funding, but should help states “weather the storm”.
“It is a burden that many states simply cannot carry,” said Justice, adding that states cannot cut their way out of the problem. “You have to grow up to get out of the problem.”
But a measure to cut the state’s personal income tax, against the backdrop of millions of dollars in state and federal aid, can also be problematic.
Some US senators are concerned that some states may cut local taxes instead of spending the next federal aid on needs related to the coronavirus pandemic, The Washington Post reported this week.
“We could distribute billions to states, and they have reversed and reduced taxes – there are governors talking about it, and that is not the point here … there should be a ban against voluntary declining revenues,” Senator Angus King, I-Maine , he told the Post.
The House bill says that states should use the money to:
(A) respond to or mitigate the public health emergency in relation to Coronavirus Disease 2019 (COVID-19) or its negative economic impacts; “(B) cover costs incurred as a result of such an emergency; ” (C) replace revenue that has been lost, delayed or reduced (as determined based on revenue projections for the State, Tribal Government or territory on January 27, 2020) as a result of such an emergency; or (D) address the negative economic impacts of such an emergency.
Recent court statements may contribute to questioning whether states need another round of federal relief, said Neal Osten, senior adviser to MultiState Associates, a government relations firm. Osten often advises on state tax policy programs.
“With the governor’s comments on West Virginia ending fiscal year 2020 with a surplus and having a surplus now for fiscal year 2021, I’m not sure how he would leverage funds from the federal stimulus package to cover revenue deficits due to the pandemic, ”Osten told MetroNews.
West Virginia would be entitled to reimbursement for any funds spent to mitigate the pandemic not yet paid for by the CARES 2020 funds, including West Virginia’s reimbursement for the extra $ 100 a week that the state agreed to pay unemployed workers under the executive President Trump’s request last year, he said, but that was only for a short time.
This does not even mean that West Virginia could set aside even more federal money as a safety net for cutting income taxes. That approach with the Coronavirus Relief Fund is an enigma, said Osten.
“I’m not sure how the Treasury will consider CRF funds going to a” rainy day “fund to pay for a future tax cut that would be contrary to the CRF’s purpose,” he said.
Justice, speaking at his most recent city hall event, suggested that using federal relief to establish a “bucket” would be great.
“And from the point of view of the Biden government and us using that money for certain things – I think, at the end of the day, when we get the stimulus dollars and everything – since we chose to dive deep and recover the revenue and that revenue it comes on our balance sheet as a surplus and we received a supplement from the Legislature to put it in that bucket, “he said to West Virginia citizens,” I think this is absolutely doable. “