Sluggish W.Va. economy curbs tax collections

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By Phil Kabler 
The Charleston Gazette

With the state’s economy growing at a slower rate than hoped, revenue collections for the first month of the new budget year came in about $17.4 million below projections, Department of Revenue officials said Monday.

Deputy Revenue Secretary Mark Muchow said the state’s economy needs to grow by about 4 percent in 2014-15 in order to balance the state budget, and the July figures instead showed sluggish growth, with the two biggest taxes — consumer sales tax and personal income taxes — coming in below estimates.

“It tells us sales tax and personal income tax, in particular, are still growing much slower than we hoped,” he said.

“We’re not seeing the turnaround we were hoping to see earlier rather than later,” Revenue Secretary Bob Kiss said of growth in the state’s economy.

Sales tax collections of $95.6 million were about $1.4 million below estimates, while income tax collections of $119.9 million were about $11 million off estimates.

However, income tax collections were up almost 7 percent over July 2013, in part because generous tax credits for buyers of alternative fuel vehicles are on the decline after the credit was repealed in 2013.

Muchow said the state gave $13 million of credits against personal income taxes this July, down from $19 million last July. Ultimately, the credit will cost the state more than $100 million in lost income tax revenue.

“In future months, the alternative fuel credit becomes less and less of a factor,” he said.

Severance tax collections finished $1.19 million in the red for July, after $23 million of severance taxes were transferred to the state Infrastructure Bond Fund, and $1.1 million was transferred to local governments in coal-producing counties.

Normally, those transfers are made in June, but Muchow said the state’s switchover to the wvOasis computer system on July 8 necessitated the delay.

Severance taxes are projected to bring in $474.6 million in fiscal 2014-15, down about $14 million from 2013-14 collections, as growth in natural gas production is expected to continue to roughly offset declines in coal production.

Muchow noted that natural gas production was up 57 percent in fiscal 2014, and taxes collected jumped 115 percent, spurred by drilling in the Marcellus Shale fields.

Kiss noted, “We’re seeing significant growth in oil and gas and a significant decline in coal.”

Coal production is much more labor-intensive than oil and gas production, Muchow said, so a decline in coal production affects other tax collections, particularly income taxes and sales taxes, as coal jobs are lost.

Kiss said another major revenue source for the state, gambling at the state’s four racetrack casinos, is also experiencing a significant drop in revenue because of competition from new casinos in bordering states.

Those factors led Gov. Earl Ray Tomblin to make the “prudent decision” in July to continue indefinitely a state government hiring freeze imposed last December, Kiss said.

The freeze reduced state payroll costs by $33 million over six months, and could provide more than $60 million of savings, if needed, over the course of the budget year, he said.

Overall, the state collected $274.17 million of tax revenue in July, compared to $297.17 million collected in July 2013.