Photo courtesy of WV Governor's Office Gov. Jim Justice said he would be willing to cut state spending in order to achieve another personal income tax cut.

CHARLESTON – When then-Democratic Gov. Jim Justice first took office in 2017, one of the first big fights with the Republican-controlled Legislature was how to fill a nearly $500 million hole in the fiscal year 2018 budget being considered.

Speaking Wednesday afternoon at his weekly administration briefing from the State Capitol Building, Justice said the general revenue budget that will be handed off to incoming governor Patrick Morrisey will have no holes that require either budget cuts or tax increases to fill. But decisions made next year by the Morrisey administration and the new Legislature could affect what the next budget bill looks like.

“For all I know, we do not have a hole for (fiscal year) 2026 at all,” Justice said. “The next budget will surely depend on decisions that are made by the next folks that come in and the Legislature and on and on and on.”

On the first day of the 60-day regular session of the Legislature, Morrisey will hand the next Senate president and speaker of the House of Delegates the budget bill setting the revenue estimates and laying out Morrisey’s priorities for the fiscal year 2026 budget that will go into effect at the end of June 2025. But the current Justice administration and the state Department of Revenue – under incoming state Treasurer Larry Pack – are working on that budget before handing the baton to Morrisey when he is sworn in on Monday, Jan. 13.

The House and Senate passed Senate Bill 200, the budget bill, on the last day of the 2024 regular legislative session on March 9. SB 200 set the general revenue budget for the current fiscal year – beginning on July 1 – at $4.996 billion, 5% less than Justice’s introduced version of $5.265 billion.

The Department of Revenue set the revenue estimate for fiscal year 2025 at $5.265 billion. So far, with seven months left in this fiscal year, tax revenue is at $2.101 billion, which is just 0.24% above the $2.096 billion estimate for July through November. While previous fiscal years have ended with record-breaking tax revenue surpluses due to artificially low revenue estimates and flat budgets, state revenue officials predict an $80 million tax revenue surplus at the end of this fiscal year.

“We have – for all practical purposes – tried to keep a flat budget,” Justice said. “We – for all practical purposes – didn’t do a bunch of just pet projects. We didn’t spend our money. … We kept almost a flat budget, and we grew the revenue.”

The average economic growth in the state year-over-year combined with maintaining a flat general revenue budget and the revenue estimates were the basis for Justice and lawmakers to consider cutting personal income tax rates.

The 2023 tax reform package lowered personal income tax rates by 21.25% retroactive of January 2023, returning nearly $500 million to taxpayers and reducing personal income tax collections, which account for nearly 40% of general revenue fund collections. A 4% personal income tax cut will go into effect next month thanks to a trigger and tax cut formula within the 2023 tax reform package which will return $92 million to taxpayers when fully implemented.

Justice and the Legislature also agreed on an additional 2% personal income tax cut in a special session at the beginning of October, which will also go into effect in January 2025 and return $46 million to taxpayers when fully implemented. But lawmakers balked at Justice’s original plan to cut personal income tax rates an additional 5%, raising concerns that future expenses on the next budget could outpace tax revenues.

Justice famously vetoed the Legislature’s version of the budget in 2017, presented on a silver platter with cow dung. The Legislature passed a different budget bill in a special session later that year that Justice allowed to become law without his signature. Justice, who is wrapping up his second term and preparing to take a seat in the U.S. Senate, said he is leaving the state in a better financial condition than he inherited.

“When I walked in the door … we had a little bit of money in the Rainy Day fund, and we were getting ready to have our bonds derated,” he said. “Today, we’ve got over $2 billion in accounts sitting all over the place. Do you think … with over $2 billion in accounts right now that we’ve got a hole for 2026? Come on, I don’t see it.”