Government Jim Justice has reiterated an idea to set aside financial “surplus”, built on the strength of federal relief dollars, in a “bucket” while proposing its income tax cut proposal that could leave a big hole in the state budget.
Analysts say it is doubtful that West Virginia can use the federal relief money in this way – and it does not appear to be in line with the federal intention.
“The state’s fiscal assistance under the CARES Act and the US rescue plan is intended to cover the costs specifically related to the economic and public health crisis,” said Kelly Allen, executive director of the West Virginia Center on Budget & Policy, a brainstorm.
‘It would be unthinkable and probably not permissible to use relief funds intended for families and communities to pay tax cuts. It is unsustainable and fiscally irresponsible to use one-off funds to pay for permanent tax cuts. ”
For the covid-19 relief package currently being considered by Congress, language is being tossed around that would prevent states that have adjusted their revenue mechanisms over the past year from qualifying for any additional funds.
As far as West Virginia is concerned, the elimination of income tax could prevent the state from being eligible for any money moving forward.
The House of Representatives passed the $ 1.9 billion bill. The U.S. Senate is expected to take it up in the coming weeks.
West Virginia received $ 1.25 billion in state pandemic relief last year. By the middle of this month, the state still had about half of $ 660,874,770, according to the state auditor’s website for transparency. Justice administration has allocated most of it to expected unemployment benefits.
The upcoming budget package, the US bailout plan, is expected to include $ 350 billion in direct aid to state and city governments.
West Virginia is queuing up to receive another $ 1.259 billion.
Justice, who has spoken to state and national reporters, has made it clear that he wants the government and the Biden Congress to grow.
“At this stage, try to be fiscally responsible for what we are doing in this country, if we throw money away now, what then?” the governor told CNN.
But in recent public remarks, the governor also spoke about setting aside the results of the West Virginia federal relief.
His remarks come in the context of his proposal to halve the state’s annual personal income tax of $ 2.5 billion. Justice says the population growth spurred by people drawn by the initial income tax cut will enable the state to reduce the rest.
The income tax represents about 43 percent of the state’s General Fund and pays for services such as education and health care.
Should unforeseen financial problems arise, the governor said he would like to count on a reserve. And federal relief may just be the way to fill it.
Justice only described it earlier this month during his state of the nation address.
‘What do you think is going to happen to the Biden stimulus package? What can happen? “They can forgive all the dollars we spend on unemployment,” Justice said in his speech.
“What if? What if we had hundreds, hundreds, hundreds of millions of dollars more? Put it in the bucket. Do not spend it. For God’s sake, do not throw it away, for you will turn five times, awake. become and say ‘Where are we?’ “You will not even know what happened. Put it in the bucket.”
Then, during a town hall hearing on the income tax proposal, Justice answered a question about what he meant. He was also asked if his proposal is in line with the Biden government.
‘In the state of West Virginia today we have a cash surplus. In 2019, we had an incredible surplus. In 2020, we ran across the finish line with a surplus in a cute year like no one else’s business. In 2021, we have a significant surplus at this time. And just behind here, there are still stimulus packages. And we did not dig into the deep dive where we could draw money from the existing stimulus we already have that could increase the surplus and increase the cash even higher.
“Now we can do one of two things. We could only spend the money. Or we can just throw the money away. Or we have the opportunity to set it aside and somehow fix something – maybe it’s a vehicle I don ‘t think about – but maybe it’s a second Rainy Day Fund. And use it to fill any deficiencies. Or choose it but we choose it. But from the point of view of our bondholders and so on, I really believe that this is something that they will immediately welcome and will welcome. I think this would be a great way to not just throw away a lot of money. ‘
A large portion of the current fiscal surplus described by the governor was produced after providing a grace period for filing income tax last year. Millions of dollars came in after the new financial year began on July 1, providing a financial cushion to start the current financial year.
Justice describes the build-up to the budget surplus. He envisions the possibility that the federal government will forgive the money that West Virginia has allocated to unemployment, as well as compensation for pandemic-related costs.
With all that, and on the strength of millions of dollars in the coming federal relief, West Virginia could have enough in the short term for the basics of government.
Any sauce can be set aside in what Justice calls a bucket.
Except for everything that coincides with his proposal to phase out the income tax, which makes up almost half of the state’s General Fund. Justice has proposed several measures, including an increase in the sales tax and a new luxury tax as well as some reductions, to reimburse the income tax. But he admits it may not be enough.
The bucket must therefore possibly be on hand to fill a financial gap of its own creation.
One of the criticisms of federal aid to states is often described as a ‘blue state bailout’, largely referring to Democratic states such as Illinois, New York and California that could benefit from the money to ease their strained retirement programs.
Justice shares the criticism.
“I’m not a proponent of rescuing failed pension funds that have decades and decades of bad history,” Justice, a Republican, told USA TODAY. ‘But we need to do things to address the needs of states and local governments that have been affected by this incredible pandemic. There are many needs within states. ”
Justice told the national newspaper earlier this month that the federal government should not cure ‘past sins’ of poor state funding, but that it should help states ‘endure the storm’.
“This is a burden that many states cannot possibly bear,” Justice said, adding that states could not cut their way out of the problem. “You have to grow out of the problem.”
But a move to reduce the state’s personal income tax against the millions of dollars in state and federal aid could also be problematic.
Some U.S. senators are concerned that some states may reduce local taxes rather than spend federal relief on needs related to the coronavirus pandemic, The Washington Post reported this week.
“We can hand out billions to the states, and they turn around and lower taxes – there are governors talking about it, and that’s not the point here … there should be a ban on voluntarily reducing the revenue,” he said. Sen. Angus King, Maine. , told The Post.
According to the House Bill, states must use the money to:
(A) responds to or mitigates the public health emergency related to Coronavirus Disease 2019 (COVID – 19) or its adverse economic consequences; ” (B) cover costs due to 6 such emergencies; ‘(C) replace the income lost, delayed or decreased on 27 January 2020 (as determined on the basis of the revenue projections for the state, tribal government or territory); or (D) address the negative economic consequences of such emergencies.
Justice’s recent statements could raise questions about whether states even need more federal relief, said Neal Osten, senior adviser to MultiState Associates, a government relations firm. Easterners often consult state tax policy programs.
“With the comments of the Governor on West Virginia ending the fiscal year 2020 with a surplus and currently having a surplus for fiscal year 2021, I’m not sure how he could have used funds from the federal incentive package to cover the deficits due to to cover the pandemic, “Osten told MetroNews.
West Virginia would be entitled to compensation for any money spent on mitigating the pandemic for which the funds have not already paid in the 2020 CARES Act, including compensation from West Virginia for the additional $ 100 per week that the state has agreed to pay unemployed workers under President Trump’s executive. he ordered last year, but it was only for a short time.
That does not even mean that West Virginia can set aside even more federal money as a safety net for the tax cut. The approach with the Coronavirus Relief Fund is a mystery, Osten said.
“I’m not sure how the Treasury will see CRF funds paying into a ‘rainy day’ fund for a future tax cut that is contrary to the purpose of the CRF,” he said.
Justice suggested at his most recent city hall event that using the federal lighting to establish a ‘bucket’ would be just fine.
‘And from the point of view of Biden’s government and that we’re using that money for certain things – I think, at the end of the day, while receiving the stimulus dollars and everything, because we choose to dive and recoup the revenue and that the revenue comes on our balance sheet as a surplus and we get a supplement from the legislature to put it in the bucket, ‘he told the citizens of West Virginia,’ I think it’s absolutely feasible. ‘