Virus takes toll on economy
Gov. Jim Justice and West Virginia legislators will have an ace up their collective sleeve when the new fiscal year begins Wednesday. My guess is the card will be worth $105 million to $140 million.
State personal income tax collections for the first five months of 2019 totaled about $932 million. For the January-May period this year, they were down to $794 million. Why?
COVID-19. Much of the personal income tax revenue during the first five months is people paying state income taxes with their tax returns. Normally, returns have to be filed by April 15.
But this year, because of the coronavirus pandemonium, West Virginia officials emulated their counterparts in Washington in changing the deadline for filing 2019 income taxes. It is July 15. That means some income tax revenue Charleston normally would have collected in the spring won’t be seen until after July 15 this year.
Obviously, that creates a problem for the fiscal 2020 general revenue budget, which cuts off at midnight Tuesday. Just how bad it was will be learned during the next week or two, when revenue figures for the full 12 months become available.
West Virginia’s economy was strong, leading up to the COVID-19 business shutdowns. Personal income tax collections are a good indicator of that. During the first 11 months of this fiscal year, that source produced $1.89 billion in revenue — about $156 million than during the same period in fiscal 2019.
Bear in mind, those collections included income tax withholding during several weeks of this year when tens of thousands of West Virginia workers had been laid off or furloughed and there was little or no income tax revenue from them.
Once the business slowdown began and the filing deadline was changed, income tax collections plunged to the five-month numbers noted above.
As much as $140 million the state otherwise would have received by April 15 now will come in during early July, for the new fiscal year. The first month of fiscal 2021, may look good for the state’s general revenue fund.
There are variables, of course. Some people went ahead and filed their 2019 tax returns, rather than waiting until July 15. Still, the July revenue figures should be significantly higher than normal.
Gov. Jim Justice and legislators will need the fiscal 2021 help. COVID-19 has taken a toll on our economy and will continue to do so. Some businesses won’t recover. Some already have closed their doors. Others have had to cut back.
By the end of May, the state’s general revenue budget already was $236.4 million below what had been projected. Expect the deficit for the full year to be substantially higher — though our constitution doesn’t permit deficit spending, so some means of filling the gap will have to be found. A massive transfer from the $842 million “Rainy Day” fund will be needed, and that’s just to balance the books for the year ending Tuesday night.
Even more emergency funding will be necessary for fiscal 2021 — and spending cuts may be required, too. COVID-19’s unpleasant side-effects are going to be with us for a long, long time. Don’t be deceived by those seemingly rosy, but artificially high, income tax revenue numbers for July. They will be offset by lower income tax collections later in the year, as well as by trouble in other areas, such as severance tax collections.
— Myer can be reached at: email@example.com.