The Times West Virginian

West Virginia

February 2, 2013

West Virginia tax revenues again fall below estimate

CHARLESTON — State tax revenues may miss their mark for the budget year following a poor showing in January, just as Gov. Earl Ray Tomblin prepares to lay out a new spending plan to the Legislature, a senior revenue official said Friday.

Collections were projected to exceed $406 million last month, but instead totaled $394.5 million. That more than erased a slight gain reached in December, and caused revenue to lag by $7.9 million since the budget year began July 1.

While the shortfall is less than 1 percent of the $2.3 billion to-date estimate, Deputy Revenue Secretary Mark Muchow said that trend may continue.

“We’re treading water, and we’ve been treading water all fiscal year,” Muchow said Friday. “The seas are pretty rough out there. I don’t expect any surplus to speak of. There’s a chance we’ll end up below the estimate somewhat.”

A weak energy sector, particularly regarding coal, remains a drag on the state’s economy and resulting tax revenue. Just as strong coal prices and demand proved vital to the state budget during and after the recession, from 2009 through 2011, the drop in production is reflected in the current collection figures, Muchow said.

West Virginia taxes coal and other natural resources as they are extracted from the ground. This severance tax was supposed to bring in $36 million in January, but fell $9.5 million short. Severance tax collections are down $28.8 million below their year-to-date estimate, and are behind 17.5 percent when compared to this point during the 2011-2012 budget year.

“The best news so far is that it’s 10 to 15 degrees outside,” Muchow said. “A cold February can only help energy prices.”

The two chief revenue sources, taxes on sales and personal income, also reflect economic activity and missed their targets last month. Personal income tax collections totaled $182.5 million, just $400,000 below the estimate, and remain up by 2 percent for the budget year so far.

“That’s a fairly anemic growth rate,” Muchow said.

Those collections would have been worse, had Congress temporarily averted the so-called fiscal cliff before Jan. 1, Muchow said. Because of the various last-minute changes made by Congress to the tax code, the Internal Revenue Service did not process income tax returns — and any resulting refunds — until the end of January, he said.

Sales taxes brought in $133.5 million last month, or $2.2 million less than projected. That was below the estimates for the year as well as for where they were a year ago. But Muchow attributes much of that to the ongoing cuts to the sales tax on groceries.

January’s few bright spots included corporate net income taxes, which exceeded their $2.5 million estimate by $1.9 million. All told, the revenue picture suggests tough times for the next budget year, Muchow said.

Tomblin, a Democrat, has already warned of as much. He previously asked most state agencies to trim their spending plans for the coming year by 7.5 percent. The governor will submit his proposal for the next budget on Feb. 13, when the Legislature begins its regular 60-day session.

This budget year began with West Virginia tax revenues missing their monthly estimates in July and August, but then rebounded with four months of better-than-expected collections.

 

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