BRADENTON, Fla. – The West Virginia Legislature resumed a special session Monday after a 10-day break triggered by an ongoing dispute over the state budget and tax cuts.
Gov. Jim Justice, a Democrat, called lawmakers back to Charleston May 4 after vetoing their $4.1 billion spending plan that closed a $497 million gap with agency cuts and $90 million from reserves.
As they considered the budget, the GOP majorities that control both chambers failed to reach agreement over income tax cuts coupled with an increase in the state sales tax, leading to a recess.
“We are in a heck of a mess and a catastrophe for West Virginia is about to happen. I’m trying to stop it,” Justice said Monday as the special session resumed.
Justice called on lawmakers in the House to advance the budget he negotiated with the Senate, a plan that would raise the sales tax to 7% from 6% and eliminate certain sales tax exemptions to raise about $260 million, and cut income taxes.
The plan would also increase motor vehicle fees and the state gas tax to raise $138 million to pay for a bond-financed road construction program, which the House finds objectionable because they are tax increases.
“The choice before the Legislature in the special session is either recovery or death for our state,” Justice said. “There was a good bipartisan plan on the table, and it’s past time for us all to work together for the good of all West Virginians to deliver a great budget.”
Some members of the GOP have expressed a desire to pass a budget that eliminates deficits and the need for future mid-year cuts.
On Monday, Justice also proposed that lawmakers adopt legislation that would shield benefits of the state's workforce if no budget is in place by the July 1 start of the fiscal year and furloughs are required.
“We have to prepare for the worst case scenario, and if that day comes I want to ensure all of our state workers are protected,” he said. "It’s not right for our state workforce to lose their health insurance coverage or see their benefits disappear on July 1 if there is no budget in place."
West Virginia does not have a mechanism for a continuing resolution to fund state operations beyond June 30 should the stalemate between the governor and lawmakers continue into the next budget year.
Bondholders are protected if a budget is not passed in time.
When a similar problem delayed adoption of the budget last year, the Legislature passed House Bill 116 authorizing the governor to continue making debt-service payments on debt issued by the state, its agencies, boards and commissions if a budget bill was not passed by June 30.
HB 116 was signed by then-Gov. Earl Ray Tomblin.
West Virginia could still face further rating downgrades if lawmakers don’t make progress on rectifying the state’s ongoing budget imbalance.
The state has seen a multi-year trend of declining revenues and employment due to the economic volatility associated with its natural resources, especially the coal sector.
Last year, Fitch Ratings maintained a negative outlook on the state when it downgraded its ratings on West Virginia’s $393.6 million of general obligation bonds to AA from AA-plus.
The negative outlook “reflects uncertainty as to the time frame by which the state will achieve budgetary equilibrium and the magnitude of the economic turmoil resulting from these trends,” said analyst Marcy Block.
In February, the state’s budget problems led Moody's Investors Service to downgrade the GOs to Aa2 from Aa1, while revising the state’s outlook to stable from negative at the new, lower rating.
S&P Global Ratings downgraded the state’s GOs to AA-minus from AA in April 2016, also revising the outlook to stable.