Gov. Jim Justice’s proposal Tuesday evening to give West Virginia teachers and school service personnel a 5 percent pay raise and other state employees a 3 percent raise, effective July 1, has caused considerable confusion and consternation.
How much more will the front-loaded raises cost, as opposed to the pay raise plan enacted last week, with a three-year, 4 percent raise for teachers, and a two-year, 3 percent raise for service personnel and other government employees?
How could Gov. Justice suddenly increase 2018-19 state revenue estimates to cover his new pay proposal? If the Legislature enacts the latest pay proposal, what happens to the raise legislation that Justice signed into law on Feb. 22?
How much more will the new proposal cost?
The original pay plan would have taken about $43 million from general revenue in the upcoming budget year to give 2 percent raises, an additional $21.5 million to give all employees an additional 1 percent raise in 2019-20 and another $9.5 million for a 1 percent raise for teachers in 2020-21.
That works out to about $43 million in 2018-19, $64.5 million in 2019-20, and $74 million in 2021-22.
Justice’s latest proposal, with a 5 percent raise for teachers and school service personnel, and a 3 percent hike for other state employees this year would cost about $86.9 million a year.
Over three years, the cumulative cost of the pay plan passed last week (Senate Bill 267) would be about $181.5 million, compared to a $260.7 million cumulative cost for the governor’s new proposal.
The new plan would cost about $43.9 million more than the original pay package this budget year, about $22.4 million more in 2019-20, and $12.9 million more in 2020-21.
How can the governor change revenue estimates in mid-stream?
Setting estimates for how much tax revenue the state will collect in an upcoming budget year is an inexact science.
The initial revenue estimate, prepared last fall, projects that tax collection will grow by $128 million in the 2018-19 budget year. The six-year budget plan goes on to project that state revenue collection will grow by about $134 million, $138.5 million, $143.2 million and $148 million in each of the next four budget years.
On Tuesday, chief of staff Mike Hall indicated that the $58 million increase in the revenue estimate was influenced, in part, by fiscal stimulus driven by federal tax cuts and by potential new state Lottery revenue, from pending legalization of sports betting at state casinos.
However, the original revenue estimate already assumed federal tax cut stimulus, projecting, “Federal fiscal stimulus in the form of tax rate reductions and capital expensing will stimulate additional short-term economic growth.”
Similarly, the sports betting revenue depends on a lot of things happening, namely passage of the measure (Senate Bill 415) in the House of Delegates, as well as a favorable opinion from the U.S. Supreme Court on a case challenging federal law that bans sports betting in most jurisdictions.
The Lottery Commission has conservatively estimated that the state will receive about $5 million in revenue on an estimated $1 billion of wagering in the first year of sports betting, while consultants retained by the Lottery Commission have estimated the state’s cut of sports betting should eventually grow to as much as $18 million to $30 million a year.
The Supreme Court is expected to issue a decision later this spring or summer, which likely would preclude having sports betting underway when the new budget year begins July 1.
The revised revenue estimate that Justice submitted to the Legislature Wednesday afternoon does not cite increased revenue from sports betting. It simply projects that “anticipated road construction activity from future bond sales and positive feedback associated with federal tax reform” will result in a $43 million (2.2 percent) additional uptick in income tax collection, and a $15 million (1.2 percent) increase in sales taxes.
Interestingly, the revised estimate does not presume that road building and federal tax cuts will increase any other state taxes.
Because setting revenue estimates months in advance is an imperfect science, it is not uncommon for governors to adjust revenue estimates during the course of the year. Most recently, in March 2016, then-Gov. Earl Ray Tomblin revised estimates downward by $92.4 million — effectively launching a budget impasse that was not resolved until mid-June.
Governors generally prefer that revenue estimates be conservative, to increase the likelihood that the state finishes the budget year with a revenue surplus.
Overly optimistic revenue estimates can have the opposite effect, as the state experienced in the late 1980s, when the Legislature feuded with then-Gov. Arch Moore over the governor’s overly inflated revenue estimates, including 1987, when the initial revenue estimate was overestimated by $98 million — at the time, equal to about 15 percent of the total general revenue budget.
That budget trickery ultimately led to deficits that forced Moore’s successor, Gov. Gaston Caperton, and the Legislature to pass nearly $400 million in tax increases in 1989.
If the Legislature passes Justice’s latest pay raise proposal, what happens to the pay raise bill that the Legislature passed on Feb. 20, which Justice signed into law a day later, on the eve of the teachers’ strike?
Under legislative rules, if two bills are passed that affect the same sections of state Code, the bill passed last takes precedence.
So, if the Legislature adopts the 5 percent/3 percent pay package, it would effectively replace the original pay plan.