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W.Va. Department of Revenue Prepares Lawmakers for Tax Collection Downturn

CHARLESTON — The deputy secretary of the West Virginia Department of Revenue told lawmakers Tuesday that September tax revenues will come in above estimates, but don’t expect the rest of the fiscal year to be as positive.

Deputy Revenue Secretary Mark Muchow briefed the West Virginia Legislature’s Joint Committee on Government and Finance, made up of Republican and Democratic leaders from both the state Senate and House of Delegates – on the health of the general revenue and state road funds.

“In September we’ll see a little bit better revenue picture,” Muchow said. “Not to say that we don’t have some issues. We have some issues, but a revenue picture should improve a bit in September.”

After more than a year of tax collections above estimates, the last month of fiscal year 2019 and the first two months of fiscal year 2020 came in below estimates. For July and August, revenue collections came in 6.8 percent below estimates when compared to the same period last fiscal year.

The down months resulted in tax collections coming in $50 million below estimates, which Muchow attributes to a decrease in coal and natural gas severance tax revenue.

“It’s no secret that there’s a big slowdown in the energy sector,” Muchow said. “Natural gas prices are lower…we needed an improvement on his natural gas prices.”

Muchow said severance taxes for natural gas and natural gas liquids were down 48 percent compared to the same period last year. Coal severance revenue is down by 30 percent over the same period.

“That’s the big drop,” Muchow said. “We should see a little better performance in September, but there are still some headwinds out there on the energy sector.”

According to the Department of Revenue, a global slowdown in steel making is driving the decrease in metallurgical coal mining. This has already caused the temporary idling of metallurgical coal mines and prep plants, including a Murray Energy facility in Fayette County.

“Folks are selling less steel, and if you’re selling less steel you need less metallurgical coal,” Muchow said. “So that’s affected net market.”

Muchow also blamed the slowdown in natural gas pipeline construction, which has contributed to a 4,000 decreased in construction jobs.

“Their fortunes would improve if we had some additional pipeline investment,” Muchow said. “There’s a row for two on pipeline investments in the forecast. We expected one of those two pipelines to resume. So far that hasn’t occurred.”

The reason September revenues will look better is because of the month of August ending on a Saturday, some tax collections that would otherwise show up in August numbers will show up on September revenue collections instead, Muchow said.

House Minority Leader Tim Miley, D-Harrison, asked Muchow about plans by the administration of Gov. Jim Justice asking executive branch departments and agencies to prepare to cut their budgets by as much as 4.6 percent in case of a further decrease in tax collections.

“They’ve asked agencies to consider the possibility of a mid-year budget cut,” Muchow said. “I think it’s just good policy to be cautious on the spending side.”

“I guess, but my concern is when you come out…so early in the fiscal year calling for the prospect of a 4.6 percent budget cut across the board and all the agencies,” Miley said. “Why would you do that and unnerve, to some degree, the agencies if you didn’t have a real concern that it would be needed, it would need to happen.”

“We do have a concern that we’re going to have a greater chance – I’d say it’s greater than 50 percent chance – of ending up below estimate for the year,” Muchow said. “This wasn’t meant to cause a big panic. It was just say, for planning purposes, let’s put together a plan of ‘what if.’ Hopefully this is a worst case scenario.”


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