A spike in severance taxes has fueled a jump in state revenue collections, but that increase likely will be temporary, given the on-going roller coaster effect of energy prices and production, Deputy Revenue Secretary Mark Muchow told legislators Monday.
Muchow said that while energy prices and production are currently on the upswing, after state coal production fell to a 102-year low in 2020, he noted, “the roller coaster goes in both directions.”
He said that, after a one-year absence, the state Budget Office will produce a six-year budget forecast in January, adding, “I wouldn’t be surprised if we end up with a down slope during that six years.”
Through October, state natural gas severance tax collections are up 203% over the same point in October 2020, as worldwide demand for energy has soared as pandemic shutdowns have eased, Muchow told the interim Joint Committee on Finance.
Quadrupling natural gas prices has increased demand for steam coal for electric power plants, contributing to a 49% jump in coal severance tax collections, Muchow said.
He said 80 million tons of coal has been mined in the state year-to-date, up from 65 million tons in 2019-20, which he said was the lowest coal production in the state since 1918.
Year-to-date, overall state tax collections are running $181.4 million ahead of estimates, and are up 13% over 2019-20, but are up only 2.4% over the pre-pandemic base year of 2018-19.
One of the two main pillars of state revenue, year-to-date sales tax collections are running $5.9 million over estimates, and up 6.3% over 2019-20, and up 4.5% over 2018-19, he said.
“Certainly, all the federal stimulus dollars have helped out, as well as a strong recovery in incomes in the state,” Muchow said.
Likewise, he said income tax collections are up 3.4% over the base year, driven by notable salary increases, particularly in the health care industry.
Also Monday, the Pew Charitable Trusts released studies showing that West Virginia suffered the second-highest drop in the U.S. in personal income, adjusted for inflation, from the second quarter of 2020 to the second quarter of 2021, with a decline of 9.3%.
That was primarily the result of a 27.8% drop in federal government transfer payments during that time periods, with the loss of pandemic stimulus payments, enhanced unemployment benefits, and other payments to the state for pandemic relief.
Meanwhile, Muchow said proposed legislation for the 2022 regular session to cut severance taxes from 5% to 3% over three years would cost the state somewhere between $159 million and $182 million over that time, based on current price and production levels.
He noted that the state has already enacted a number of reduced severance taxes, including 2% to as low as 1% tax rates on coal mined from low coal seams, 3% on coal sold to electric power plants, and 2.5% for waste coal.
The joint committee is scheduled to discuss the draft bills during December interim meetings.
Phil Kabler covers politics. He can be reached at 304-348-1220 or philk@hdmediallc.com. Follow
