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Budget Talk Ruffles Some Legislative Feathers

Apparently, my column last week upset a few lawmakers, and understandably so. I was trying to convey what people on the street see and feel when they see state tax coffers filled with more than $1 billion when they’re struggling with inflation and high gas prices.

Should the state be proud that its financial house appears to be in order? Of course. But I would also argue that while it’s bad to have multiple years where revenues come in below estimates, bringing in $1 billion and more of tax revenue above estimates should leave you scratching your heads as taxpayers.

One of my first jobs growing up was working the front counter and drive-thru at McDonald’s in St. Marys. When I started my shift, I had to count my drawer and make sure I had $100. When my shift was over, I had to count my drawer to make sure it still had $100.

I remember one time I got put on suspension because my drawer came up significantly short. I couldn’t explain it, so my managers had to investigate. It turned out that a shift manager who worked his last day the same day I worked had taken money out of my drawer. My suspension was lifted since it was clear I had not stolen money out of the drawer.

But just like having fewer dollars in your drawer can get you in trouble in retail or restaurant work, it’s not a good thing if your drawer is over either. That means you overcharged a customer and didn’t give back the correct amount of change.

There’s not much you can do about that after the fact, as the customer is long gone most likely by the time you count your drawer down. It’s still not good, though, and if you do it enough times, you’re probably going to get taken off the register.

Our state is required to end each fiscal year balanced, meaning it legally can’t go into the red. At the beginning of a fiscal year the Department of Revenue releases monthly revenue estimates based on what state officials expect the state to bring in via tax revenue. Those revenue estimate are amended throughout the year to account for changes in the economy and other factors.

The way our system works, you pretty much have to run a surplus every month in order to stay as close to the estimate as possible and end each month and the fiscal year in the black. You can also run below estimates as long as it is not a constant thing. If it is, you’re talking about mid-year budget cuts, using the Rainy Day Fund to fill the deficit (it’s literal name is the “revenue shortfall fund” after all), or even raising taxes in order to not end the year in the hole.

But because our general revenue budget is based on revenue estimates, they are pretty easy to manipulate depending on what you want to do. One would think if you had one year where revenues come in below expectations, the revenue estimates for the next fiscal year would take that into account and be more modest.

That didn’t happen during the administration of former governor Earl Ray Tomblin, when for three years the Department of Revenue kept overestimating projected revenue. When that revenue didn’t come in, the administration tried to put pressure on the new Republican legislative majority in 2015 and 2016 to raise taxes. They chose to cut the budget instead.

Since about 2018, revenue estimates have been underestimating tax revenue. That’s fine to an extent, because again, you need to come in above estimates to stay in the black. That resulted in some modest tax surpluses at the end of the last several fiscal years. And until this year, half of any end-of-fiscal-year surplus went into the Rainy Day Fund.

But when we end the fiscal year this year on Thursday, June 30, we’re coming in at well over $1.1 billion in surplus tax revenue, with more than $793 million of that already spoken for. If my drawer was over by $100 more than the $100 already in it, I’d have some explaining to do. That $1.1 billion represents nearly a quarter of the entire $4.495 billion general revenue budget we’re currently in until July 1.

So, should we be finding new ways to budget and estimate tax revenue? I plan to put that question to some officials next week and see what answers I get. Because I’m telling you, people out there don’t understand why we are so far off on our surplus numbers. Whether it’s a pause in the gas tax, property tax reform, or a personal income tax cut, people I talk to on the street want some form of relief.

***

One area that the lawmakers I talked to pushed back on from last’s column was that the $793 million of surplus shouldn’t be added to the total of the FY2023 budget since it includes one-time expenditures and doesn’t base-build into the budget. I think that’s a fair push-back.

It’s nice that we had $1.1 billion to pay for those $793 million worth of one-time items. But I have a feeling lawmakers won’t be able to repeat this in FY 2024.

***

Lastly, as I allude to above, there are Republicans in legislative leadership working on some ideas to provide tax relief. I suspect we will be hearing about these plans as the November general election gets closer.

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