Governor-Elect Morrisey warns of tight budget for next fiscal year

CHARLESTON –With the first six months of fiscal year 2025 in the rearview mirror, tax collections in West Virginia remain close to estimates, though Governor-Elect Patrick Morrisey warned Thursday that the state may need to tighten its belt for fiscal year 2026.
According to the monthly general revenue report released Thursday morning by the state Senate Finance Committee, West Virginia tax collections of $575.2 million for December were 6.81% more than the Department of Revenue’s $538.5 million estimate for the month, providing the state a $36.7 million surplus.
December was the halfway point of fiscal year 2025 which began in July 2024. Fiscal year-to-date tax collections of $2.67 billion was 1.58% more than the $2.63 billion revenue estimate, resulting in a $41.7 million surplus six months into the current fiscal year.
State revenue officials in the administration of outgoing Gov. Jim Justice have said they expect West Virginia will end fiscal year 2025 at the end of June with approximately $80 million in surplus tax collections, fulfilling the state constitutional mandate that West Virginia maintain a balanced budget in the black. However, the incoming Morrisey administration is looking ahead to fiscal year 2026.
The Justice administration has already begun work on the general revenue budget for fiscal year 2026, which it will then hand off to the Morrisey administration when he takes office on Monday, Jan. 13. Morrisey will then have a month before then presenting the West Virginia Legislature with the budget bill on the first day of the 60-day regular session on Wednesday, Feb. 12, when Morrisey gives his first State of the State address.
Morrisey held a press conference Thursday morning to announce members of his incoming administration and cabinet. Those officials include former State Budget Office director Mike McKown as director of budget, former Department of Revenue official Douglas Buffington II as senior advisor, and former House Finance Committee chairs Eric Nelson and Eric Householder as cabinet secretaries for the Department of Revenue and the Department of Administration.
During that press conference, Morrisey warned that the budget bill for fiscal year 2026 might involve some cuts, encouraging state departments and agencies to prepare to streamline and right-size themselves.
“We’re going to have some challenges afoot in terms of some budgeting issues,” Morrisey said. “This is not the same era that we’ve been operating under, and we know we may be subject to some financial challenges that the state hasn’t seen in a long time. I want to make sure that we’re armed and we have the best and brightest people looking at the issues.
“We have a budget shortfall that’s coming, and we’re going to have to do more with less. I think we can do that,” Morrisey continued.
West Virginia had two personal income tax cuts go into effect on Wednesday. The Department of Revenue determined last August that the state would see a 4% personal income tax cut at the beginning of 2025, 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 is also going into effect now and will return $46 million to taxpayers when fully implemented.
While Morrisey said he supports these tax cuts, he also said Thursday that the tax cuts would have effects on the fiscal year 2026 budget that still haven’t been fully factored in.
“We have to find money to pay for the tax cuts that were passed. I’m prepared to do that,” Morrisey said. “I’m eager to have deep tax cuts. I’m a believer when you have tax cuts, you have to pay for them. So, that hasn’t really been done yet. We’re going to take the time and we’re going to make sure that that happens and we’ll do that.”
Personal income tax collections were what helped carry the state into the black. December personal income tax collections of $227 million were 5.3% more than the $215.6 million revenue estimate, providing a $11.4 million surplus for the month. However, fiscal year-to-date personal income tax collections of $1.08 billion were 1.25% below the $1.09 billion revenue estimate.
December corporate net income tax collections of $54.7 million were 5.93% below the $58.2 million estimate. But fiscal year-to-date corporate net income tax collections of $177.8 million were 11.6% above the $159.4 million estimate, resulting in a $18.4 million surplus.
December consumer sales tax collections of $169.1 million were 1.7% below the $172 million revenue estimate for the month. But fiscal year-to-date sales tax collections of $888.9 million were 2.16% above the $886.8 million revenue estimate, providing the state a $2.1 million surplus six months into the fiscal year.
December severance tax collections for coal, oil, and natural gas came in at $40.3 million, which was 10.67% below the $45.1 million revenue estimate. Fiscal year-to-date severance tax collections of $127.6 million were nearly 20% below the $159.5 million estimate for the first half of the fiscal year.