CRUNCHING THE NUMBERS – Mike McKown, right, budget director for Gov. Patrick Morrisey, provided details Thursday morning to members of the House Standing Finance Committee regarding the governor’s fiscal year 2026 general revenue budget. -- Steven Allen Adams

CHARLESTON — Gov. Patrick Morrisey presented lawmakers Wednesday a balanced general revenue budget for the next fiscal year after announcing a nearly $400 million hole in the upcoming budget last month, with state revenue officials on hand Thursday to explain their math.

Members of the House Standing Finance Committee received a briefing on House Bill 2026 – Morrisey’s budget bill presented to lawmakers Wednesday night during his first State of the State address – setting the general revenue budget for fiscal year 2026 beginning in July.

“First and foremost, what we’re committed to — Governor Morrisey’s administration, especially the Revenue Department – is to be fully transparent,” said Eric Nelson, the cabinet secretary for the Department of Revenue. “I think we’re in a good position, really, as a state.”

Morrisey presented lawmakers his bill for a balanced general revenue budget with a revenue estimate of $5.323 billion for fiscal year 2026 beginning in July, representing a 1.1% increase from the general revenue estimate for the current fiscal year of $5.264 billion, or an increase of $58.6 million.

This comes nearly one month after Morrisey first took office on Jan. 13. After weeks of meetings between revenue officials and department heads leading up to Morrisey’s inauguration, Nelson and Budget Director Mike McKown – a veteran of four previous administrations – determined on Jan. 13 that a $397 million hole existed in the fiscal year 2026 budget.

“That budget gap is not a deficit, and it is not debt,” McKown said. “It’s a budgeting tool that we laid in front of the governor the first day he took office. As a staff, we presented him with things that we thought needed to be done, mostly base items, some one-time items. When you totaled it up with our revenue estimates, we were $397 million short of balancing the 2026 budget. That’s budgeting gap; that’s all that is.”

With McKown returning as budget director, he reimplemented a six-year budget forecast which was first implemented during his first year as budget director under former governor Joe Manchin in 2006. The previous governor – now U.S. Sen. Jim Justice – did away with public release of the six-year budget forecast around 2020.

“One thing that you’ll get introduced today is we’re back on our six-year budget plan so that you’ll be able to look at what we’ve done, what we plan to do, and look forward. And it is a working document,” Nelson said.

Justice and previous legislatures have kept West Virginia’s general revenue budgets relatively flat, but McKown said the influx of federal funding due to COVID-19 and other money combined with the over-reliance on one-time funding led to the state’s budget not truly being flat. When factoring in these issues, McKown estimated that expenses are outpacing revenues, leading to the nearly $400 million hole next fiscal year.

“We add all that up, $6.1 billion, is the total expenses that are needed. We have revenue of $5.7 billion,” McKown said. “That’s how we calculated the $396 million budget gap.”

In order to fill that budget gap without across-the-board cuts, revenue officials did several things, including making revenue adjustments, including transfers from insurance and other sources, increased lottery revenue estimates, and using surplus lottery funds totaling $80 million. Officials also used past available surplus tax dollars and unappropriated funds.

The Morrisey administration also engaged in targeted cuts to departments and agencies totaling $109 million, or 2%; one-time expenditure adjustments resulting in savings of $34 million; and moving programs to one-time funding of $156 million.

Savings are also expected to be found by consolidating several state departments – Department of Commerce with Department of Economic Development; Department of Tourism with the Department of Arts, Culture and History; and the Department of Homeland Security with the West Virginia National Guard.

The balanced budget does not include dollars from the $1.3 billion Rainy Day Fund or the $460 million personal income tax reserve fund. The only increase in spending is a $40 million allocation for economic development aimed at site development for potential businesses and workforce training.

As a result of these changes, Morrisey’s fiscal year 2026 budget is balanced, and projected gaps in future out-years shown on an updated six-year budget forecast show narrower gaps going forward. The largest drivers of future general revenue budget expenses are a planned 3% average pay raise for public employees in future budgets, expected increases in the state’s share of public employee health insurance, and the Hope Scholarship educational voucher program.

When all West Virginia students become eligible for the Hope Scholarship in fiscal year 2027, the program’s cost is expected to balloon to more than $300 million annually. The cost of the Hope Scholarship in the proposed fiscal year 2026 budget is $110 million, up from $45 million in the current fiscal year.

The Hope Scholarship gives parents the option to use an equivalent portion of the per-pupil expenditure for their children from the state School Aid Formula – approximately $4,921 for the 2024-2025 school year – for educational expenses, such as private or religious school tuition, home school, tutoring, learning aids and other acceptable expenses.

Morrisey’s fiscal year 2026 budget fully funds programs, such as Medicaid, social services, corrections, and the state school aid formula. It provides 100% of the required annual funding for the state’s share of retirement contributions. It also fully funds the Public Employees Insurance Agency for the first time in state history without needing to tap reserve funds.

Nelson, McKown, and other Department of Revenue officials provided the same briefing to the state Senate Finance Committee Thursday afternoon.