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Governor Jim Justice reiterated the idea of putting aside the financial “surplus”, built on the strength of federal aid dollars, in a “bucket” while touting his proposed income tax cut which could leave a big hole in the state budget.
Analysts say it’s doubtful West Virginia can use federal relief money in this way – and it doesn’t appear to be in line with the federal government’s intention.
“State tax assistance under the CARES Act and the American Rescue Plan is intended to cover costs 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 unacceptable – to use relief funds for families and communities to pay for tax cuts. It is untenable and fiscally irresponsible to use one-time funds to pay for permanent tax cuts. “
For the covid-19 relief package currently under consideration by Congress, there is language that would prevent states that changed their revenue mechanisms this year from qualifying for additional covid funds.
As for West Virginia, an income tax elimination could prevent the state from qualifying for any money in the future.
The House of Representatives passed the $ 1.9 billion relief bill. The US Senate is expected to resume it in the coming weeks.
West Virginia received $ 1.25 billion in pandemic relief last spring. Until the middle of this month, the state still had about half, $ 660,874,770, according to the state’s auditor transparency site. The administration of justice allocated most of this sum to planned unemployment benefits.
The next budget package, the American Rescue Plan, is expected to include $ 350 billion in direct aid to state and city governments.
West Virginia is expected to receive an additional $ 1.259 billion.
The justice, speaking to national and state journalists, made it clear that it wanted the Biden administration and Congress to grow.
“Trying to be, in and of itself, financially responsible right now with what we have in this country, if we’re actually throwing money away now, so what? the governor told CNN.
But in recent public remarks, the governor also spoke of setting aside what results from West Virginia’s federal aid.
His remarks come in the context of his proposal to cut the state’s personal income tax by at least half by $ 2.5 billion a year. Justice asserts that population growth spurred by those attracted by the initial income tax cut will allow the state to reduce the rest afterwards.
Income tax makes up about 43% of the general state fund and pays for services such as education and health.
If unforeseen financial problems were to arise, the governor said, he would like to count on a reserve. And federal relief could be the way to fill it.
The judge first described this earlier this month during his State of the State address.
“What do you think will happen with the Biden stimulus package? What could happen? They could forgive all the dollars we spent on unemployment, ”Justice said in his remarks.
“And what if? What if we had hundreds, hundreds, hundreds of millions of dollars more? Put it in the bucket. Don’t spend it. For God’s sake, don’t throw them away 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, at a town hall on the income tax proposal, Justice answered a question about what he meant. He was also asked for his opinion on whether his proposal was in line with the intention of the Biden administration.
“In the state of West Virginia today, we have a cash surplus. In 2019, we had an incredible surplus. In 2020, we crossed the finish line with a surplus in a covid year like nobody’s business. In 2021, we currently have a significant surplus. And just behind that, more stimulus packages are coming. And we haven’t delved into the deep dive where we could actually pull money from the existing stimulus we already have that could increase the surplus and increase liquidity even more.
“Now we could do two things. We could just spend the money. Or we could just throw the money away. Or we have the option of putting that aside and establishing something – maybe it’s a vehicle I don’t think about – but maybe it’s a second fund for rainy days. And use it to fill in the gaps. Or choose it as we choose to use it. But from the point of view of our bondholders and so forth, I really believe this is something they would welcome and welcome immediately. I think that would be a great way not to just waste a lot of money on us. “
Much of the current year surplus that the governor described was produced after granting a grace period for tax returns last year. Millions of dollars arrived after the start of the new fiscal year on July 1, providing a financial cushion to start the current fiscal year.
Justice describes the construction of this budget surplus. He is considering the possibility of the federal government forgiving the money West Virginia allocated for unemployment, as well as reimbursement for costs related to the pandemic.
With all of this, and based on the millions of dollars in federal aid to come, West Virginia might have enough short-term for the basics of government operations.
Any sauce could be put aside in what Justice calls a bucket.
Except that all this coincides with his proposal to phase out income tax, which represents almost half of the general state fund. The justice has proposed several measures, including a sales tax hike and a new luxury tax as well as reductions, to offset income tax. But he recognizes that this may not be enough.
So the bucket may need to be close at hand to fill a financial ravine of its own creation.
One of the criticisms of federal state aid is often described as a “blue state bailout,” which refers to largely democratic states like Illinois, New York and California that could benefit from that money to ease their strained retirement programs.
Justice shares this criticism.
“I am not a supporter of bailout of bankrupt pension funds that have decades and decades of bad history,” Justice, a Republican, told USA TODAY. “But we have to do things to meet the needs of states and local governments that have arisen because of this incredible pandemic. There are many needs within states. “
Justice told the national newspaper earlier this month that the federal government should not “heal the past sins” of poor state funding, but should help states “weather the storm.”
“It’s a burden that many states simply cannot carry,” Justice said, adding that states cannot get out of the problem. “You have to get out of the problem.”
But a decision to cut personal income tax in the context of millions of dollars in state and federal aid could also be problematic.
Some U.S. senators are concerned that some states will cut local taxes rather than spending federal relief to meet needs related to the coronavirus pandemic, The Washington Post reported this week.
“We could hand out billions to states, and they come back and cut taxes – there are governors talking about this, and that’s not the point here … there should be a ban on intentionally cutting income,” Senator Angus King, I-Maine, told the Post.
The House bill says states must use the money to:
(A) respond to or mitigate the public health emergency with respect to coronavirus disease 2019 (COVID-19) or its negative economic impacts; ” (B) cover the costs incurred as a result of such an emergency; (C) replace income that has been lost, delayed, or diminished (as determined based on the revenue forecast for the state, tribal government or territory as of January 27, 2020) as a result of such emergency; or (D) address the negative economic impacts of such an emergency.
Recent statements from Justice may help question whether states even need another round of federal relief, said Neal Osten, senior advisor to MultiState Associates, a government relations firm. Osten often consults on state tax policy programs.
“With the governor’s comments on West Virginia ending fiscal year 2020 with a surplus and a surplus right now for fiscal 2021, I don’t know how he would leverage federal stimulus funds to cover the revenue shortfalls due to the pandemic, ”Osten told MetroNews.
West Virginia would be entitled to reimbursement for any funds spent to mitigate the pandemic that are not already paid for by CARES 2020 law funds, including West Virginia’s reimbursement for the additional $ 100 per week that the State agreed to pay the unemployed under the leadership of President Trump. last year, he said, but it was only for a short time.
That’s not even to say if West Virginia could set aside even more federal money as a safety net for income tax reduction. This approach with the Coronavirus Relief Fund is a headache, Osten said.
“I don’t know how the Treasury is going to view the CRF funds in a ‘rainy day’ fund to pay for a future tax cut that would be contrary to the CRF’s goal,” he said.
The judge, speaking at his most recent town hall event, suggested using federal relief to establish a “bucket” would be fine.
“And from the point of view of the Biden administration and the fact that we use that money for certain things – I think, at the end of the day, when we get the raise dollars and all – as we go for a deep dive and the revenue clawback and the revenue come on our balance sheet as a surplus and we get a supplement from the legislature to put it in that bucket, ”he told the citizens of West Virginia,“ I think that is quite feasible.
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