West Virginia’s surplus tax revenue, COVID dollars come under scrutiny

CHARLESTON — West Virginia is sitting on hundreds of millions of dollars in excess tax revenue and federal COVID relief dollars lawmakers must consider what to do with and members of the public are also weighing in on where that money should go.

According to the state Department of Revenue, West Virginia has more than $526 million in excess tax revenue left over after ending fiscal year 2022 last June with more than $1.3 billion in surplus tax collections in the general revenue fund plus leftover surplus from lottery and excess lottery funds.

The state also is sitting on $678 million left over from the $1.35 billion West Virginia received from the $1.9 trillion American Rescue Plan Act passed by Congress in 2021. Gov. Jim Justice had a bill introduced on his behalf, House Bill 2883, that would take that $678 million and divide it up.

That’s not including the $1.25 billion the state received from the Coronavirus Aid Relief, and Economic Security Act, $28 million of which was transferred to a special revenue fund controlled by the governor in September prior to a federal deadline to appropriate those funds. The use of some of those funds for Marshall University’s new baseball field has raised eyebrows with lawmakers.

But where should all of this money go? That’s what lawmakers and even members of the public are weighing in.

TAKE CARE

The Senate Finance Committee held a budget hearing Friday on Justice’s recommended supplemental appropriations and the spending of remaining C.A.R.E.S. Act funds.

Congress put $150 billion in the C.A.R.E.S. Act in March 2020 for state and local governments, with West Virginia receiving $1.25 billion. The funding can only be used for necessary coronavirus expenditures incurred during the emergency, expenses that were not already accounted for in state and local budgets and incurred after March 1 through the end of last September.

Any remaining unappropriated money had to be returned to the federal government by a Sept. 30 deadline. The state had $28.4 million in remaining C.A.R.E.S. Act dollars. According to the State Auditor’s Office, that money was transferred to the Governor’s Office Gifts, Grants, and Donations Fund, a special revenue fund.

According to reporting from the Charleston Gazette-Mail, $10 million of the remaining C.A.R.E.S. Act funding transferred to that fund was used in combination with a $3.8 million economic enhancement grant from the state Water Development Authority for Marshall University’s baseball stadium project.

Senate Finance Committee Chair Eric Tarr, R-Putnam, and other committee members grilled Berkeley Bentley, general counsel for the Governor’s Office, over the appropriateness of using C.A.R.E.S. Act funding for the Marshall University baseball project. Bentley claimed that the $28.4 million was used to reimburse COVID expenses by the Division of Corrections and Rehabilitation, freeing up $28.4 million to be transferred to the Gifts, Grants, and Donations Fund.

“If the state charges expenses, it is reimbursed with (C.A.R.E.S. Act) funds and there is no direction where the reimbursement must go,” Bentley said. “When the state reimburses itself, there is no direction where that money goes.”

That answer did not satisfy Tarr, who believes the Governor’s Office is relying on a bad legal opinion from the Bailey Glasser law firm the state used for advice on C.A.R.E.S. Act spending. He accused the Governor’s Office of doing an end run around the U.S. Treasury Department’s C.A.R.E.S. Act rules and the Legislature’s power of the purse.

“In order to transfer $28.4 million out of C.A.R.E.S. funds to the Governor’s Gifts, Grants, and Donations discretionary fund, there had to be COVID-related expenses … in Corrections,” Tarr said. “You didn’t reimburse those expenses that came from Corrections. You reimbursed it to the Governor’s discretionary account. Some of that money is still sitting there, some if it is not. Some of it went to a baseball field and other expenses.”

Tarr provided the committee emails between the Governor’s Office and the State Auditor’s Office raising concerns about the $28.4 million transfer of C.A.R.E.S. Act dollars to the Gifts, Grants, and Donations Fund. State Auditor J.B. McCuskey said his office made their concerns clear to the Governor’s Office but had no authority to supersede their legal opinion.

“Our opinion on the legality of said transfer was based on going forward the money being spent would be spent in a way that was in compliance with the statute as the C.A.R.E.S. Act was written,” McCuskey said. “We would have had to be mind readers to figure out what they were going to do with the money later.”

Under additional questioning of Bentley, Sen. Randy Smith, R-Tucker, accused the Governor’s Office of using C.A.R.E.S. Act dollars to campaign for a potential run for U.S. Senate and of hiding the true purpose of transferring the money.

“That last $28.4 million we booked against expenses the state already incurred, which is allowable, that got rid of the C.A.R.E.S. Act requirements on the money,” Bentley said. “The reimbursement that came into the state was then not subject to C.A.R.E.S. Act requirements, it was subject to state law requirements.”

“Isn’t that money laundering,” Smith asked. “I’m not saying there was anything illegally done. Some of it is borderline unethical … I guess we’ll find out.”

SPENDING SPREE

The Senate Finance Committee also brought in department and agency heads Friday to explain their needs for remaining tax revenue surplus dollars for the previous fiscal year.

According to a document provided by the Senate, the governor plans to spend $447.4 million of remaining surplus tax revenue leftover from the end of the last fiscal year on 19 supplemental appropriations, leaving just $3.7 million remaining in surplus tax revenue from the last fiscal year.

The appropriations include additional funding for deferred maintenance for the Department of Homeland, additional funding for West Virginia Infrastructure and Jobs Development Council water and sewer grants, Hope Scholarship funding, hiring teacher aides, public defenders, pregnancy centers, broadband projects, the Victims of Crime Act, a Welcome Home Vets program, and more.

One of the largest supplemental appropriations bills will provide the Department of Economic Development an additional $150 million. Another $85 million would go to the Public Employees Insurance Agency Rainy Day Fund.

The Governor’s Office also is funding supplemental appropriations by revising their revenue estimate for the current fiscal year from $4.645 billion to $4.636 billion and by using $4.6 million in available money from the school aid formula. The change will allow the governor to fund an additional seven projects at a cost of $4.7 million. These include several public transportation projects, and $1.3 million for a green school bus program.

That would leave $200,745 available at the end of the fiscal year in June, though Department of Revenue officials expect the real tax revenue surplus at the end of the fiscal year to exceed $1.7 billion. As of the end of January the state already has close to $1 billion in surplus tax revenue with five months left in the fiscal year.

TO THE RESCUE

The House Finance Committee held a public hearing Thursday afternoon on HB 2883. The bill would appropriate $678 million in ARPA funds: $500 million would go to the state Economic Development Authority, $177 million would go to the Water Development Authority, and $1 million would go to Marshall University.

ARPA provided $350 billion in direct funds for states. The funds can be used by states to reimburse themselves for COVID-19 expenses. States can also use the ARPA direct funding for water, sewer, and broadband infrastructure projects.

The Water Development Authority provides financing for water, wastewater improvement, and economic development projects across the state. The Economic Development Authority provides loans and direct financing for major private industrial and manufacturing projects.

While some attendees of Thursday’s hearing were fine with the $177 million ARPA expenditure for the Water Development Authority, it was the $500 million Economic Development Authority expenditure that caused some heartburn.

Speakers cited the use of $315 million in January 2022 for the Department of Economic Development to provide matching funds for North Carolina-based steel manufacturer Nucor for their $2.7 billion electric arc furnace project in Mason County. The state was able to free up the $315 million by using ARPA dollars to backfill state agencies where the funds were coming from.

“This is a moral violation of the opportunity presented with these funds,” said Kelly Allen, executive director of the West Virginia Center for Budget and Policy, a left-of-center think tank based in Charleston. “To be clear, if this appropriation is passed, over $800 million, or two-thirds of the ARPA funds that the state received, will have gone to big corporations with the payout to Nucor last year and this proposal.”

According to the final rule for the ARPA funds published last year by the U.S. Treasury Department, using ARPA funds to grow the economy would not be an acceptable use.

“… Such assistance is not reasonably designed to impact individuals or classes that have been identified as having experienced a negative economic impact,” according to the final rule. “In other words, there is not a reasonable connection between the assistance provided and an impact on the beneficiaries. Such an activity would be attenuated from and thus not reasonably designed to benefit the households that experienced the negative economic impact.”

“The appropriation to the Economic Development Authority violates the intentions of the funding if it doesn’t violate (ARPA) altogether, and puts the state and this Legislature at risk of having hundreds of millions of federal dollars clawed back,” Allen said. “The guidance is clear: economic development is not an allowable expense for these funds. It does not tailor this finite funding to those businesses who were most impacted by the pandemic.”

Instead, many of Thursday’s speakers expressed support for a plan developed by the Tuesday Group, led by the Rev. Matthew Watts, to use $300 million in ARPA dollars for their Economic Justice, Fairness and Equity Plan.

Under their plan, the $300 million would be distributed to city and county governments based on a percentage of the total number of people living in poverty in West Virginia. A county, such as Clay County with 1% of the state’s population living in poverty, would receive $3 million. The local governments would be required to distribute their funds to non-profit organizations and small businesses for projects in areas with high minority populations and other disadvantaged communities.

“The 300,000 poor people in this state are the people we have. We cannot continue to ignore it as irrelevant or inconsequential,” Watts said. “This state cannot move forward unless we invest in those people. I implore you to reject this bill and look at the plan the Tuesday Morning Group has presented to you as a viable option … you have the opportunity to be the Legislature that changed the trajectory of the State of West Virginia.”

Other speakers called for using ARPA funding for adding additional healthcare resources in minority and disadvantaged communities, building new housing for the poor, adding funding to the James “Tiger” Morton Catastrophic Illness Commission, and using $74 million to fund construction of a new laboratory for the state Department of Agriculture.

“We should simultaneously build and repair our infrastructure that supports and maintains our current industries. The West Virginia Department of Agriculture has developed nationally recognized laboratories with good people and equipment in crowded buildings,” said Agriculture Commissioner Kent Leonhardt. “We could do more with new facilities.”

The bill has not been taken up by the House Finance Committee.