MORE STRAIN – A lawmaker flips through a presentation Monday by the state Department of Commerce looking at future increased strains on the general revenue budget. -- Photo Courtesy/WV Legislative Photography

CHARLESTON — West Virginia is set to meet its constitutional obligation to wrap up the fiscal year on June 30 in the black, though state revenue officials are watching a number of issues that could put a strain on tax collections in the future.

Members of the West Virginia Legislature’s Joint Standing Committee on Finance heard a report Monday morning on fiscal year 2025 budget matters from Peter Shirley, deputy secretary for the state Department of Revenue, during the second day of June interim meetings at Stonewall Resort in Lewis County.

As of the end of May, fiscal year-to-date tax collections for the general revenue budget of $4.9 billion were 5 percent more than the $4.7 billion revenue estimate, leaving West Virginia with $236.9 million in surplus tax collections before fiscal year 2025 ends on June 30. Much of that surplus has already been appropriated.

According to Shirley, personal income tax collections and the consumer sales and use tax make up nearly 80 percent of the state’s total general revenue collections this fiscal year. Personal income tax collections exceeded estimates by $92 million, due in part because people did not claim as much for the motor vehicle tangible personal property tax credit as originally budgeted.

Despite being ahead of estimates, personal income tax revenue growth from fiscal year 2024 to 2025 was down approximately $85 million, or about 4 percent. Shirley said this was due to three cuts in personal income tax rates that went into effect in 2023 and 2025 of more than 27 percent.

“I will remind everyone that … is not entirely unexpected as we continue to have personal income tax cuts that took place last year, with the child and dependent care credit and as we continue to phase out Social Security (tax credits),” Shirley said.

Lawmakers cut personal income tax rates by 21.25 percent with a tax reform package passed in 2023. That package included a trigger mechanism for future cuts, with a 4 percent reduction going into effect in January. During a special session last fall, lawmakers further cut personal income tax rates by another 2 percent.

During that special session, they also passed a bill delaying the effective date of the next personal income tax trigger from tax year 2026 to 2027.

To determine whether there will be a trigger for additional personal income tax rate cuts, the Department of Revenue compares general revenue collections in a previous fiscal year minus severance tax collections compared to the base year of fiscal year 2019 and tied to the non-seasonally adjusted consumer price index. State code limits the maximum cut that can happen in a single calendar year to 10 percent, but Shirley said, “We don’t think there’s going to be a trigger for next year.”

The Legislature passed a balanced budget bill setting the fiscal year 2026 general revenue budget at $5.318 billion. Gov. Patrick Morrisey signed it after issuing 29 line-item vetoes that reduced the budget to $5.28 billion. That budget kicks in on July 1.

The new revenue team under Morrisey projected a nearly $400 million gap in fiscal year 2026 spending versus revenues when Morrisey took office in a new six-year budget forecast. The “hole” was attributed to the influx of federal funding due to COVID-19 and other monies, combined with overreliance on one-time monies.

The fiscal year 2026 general revenue budget is balanced, but expenses outpace revenues beginning in fiscal year 2027 and going forward. Major expenses include the Hope Scholarship educational voucher program, which will be open to all public, private, and home school students in the state in fiscal 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. Shirley said the Hope Scholarship could go up by an additional $190 million in fiscal year 2027.

“I believe the deadline to apply for that and get full-year funding has recently passed,” Shirley said. “Hopefully, we’ll be able to refine those numbers in the not-too-distant future now that we know what the actual enrollment, at least to receive a full-year scholarship, will be going forward.”

Another drain on future state tax collections is the Public Employees Insurance Agency, which provides health care benefits to state and participating county and city employees. The cost is shared, with the state and employers taking on 80 percent of costs and employees covering 20 percent.

The PEIA Finance Board approved premium increases at the end of last year for state employees of 14 percent beginning July 1, as well as a 16 percent for local government employees participating in the plan, and 12 percent for retirees – a total increase of approximately $113 million.

The PEIA Finance Board also approved an increase of 40 percent in out-of-pocket maximums for state and local government employees, as well as hikes in co-pays. The monthly spousal surcharge approved a few years ago by the Legislature will go from $147 to $350. Administration fees for state and local fund employers will also increase by $2.50.

According to the six-year budget forecast, the estimated additional base build for employer premiums for PEIA is $49 million for fiscal 2027 and $56 million for 2028. Plans are being considered for a special session later this summer for PEIA to limit future cost increases.

“PEIA is obviously something that there’s a lot of discussions regarding,” Shirley said. “A lot of work is being done to try and think about the long-term future of how we stabilize PEIA.”