An ongoing budget impasse that threatened to shut down West Virginia's government on July 1 had a chilling effect on consumer spending in June, which took a further hit later in the month from severe flooding in parts of the state, Department of Revenue officials said Thursday.
As a result, July sales tax collection - which reflects the previous month's activity - plunged 23 percent, compared to July 2015, coming in $22.1 million below estimates, at $64.6 million.
Revenue Secretary Bob Kiss said the budget impasse, which was not broken until June 13, appears to have had an effect on consumer spending for thousands of state government employees who faced the prospect of having their jobs terminated on July 1.
"That may have been a function of uncertainty over the budget and the status of state employees," he said of the drop in sales tax collections, which came in 25 percent below projections for the month.
Likewise, privilege tax collections on motor vehicle sales plunged 19 percent in July, compared to July 2015, as the budget impasse and June 23 flooding shook consumer confidence, according to Deputy Revenue Secretary Mark Muchow.
"Consumer confidence issues not only hurt the regular sales tax but [also] the motor vehicle sales tax," Muchow said.
Additionally, he cited a report from the Public Employees Insurance Agency showing that the health insurance provider saw a $21 million spike in medical claims at the end of the budget year. That was presumably because public employees scheduled medical procedures prior to possible severe cuts in PEIA benefits on July 1, had the gridlocked Legislature failed to come up with a budget plan that fully funded PEIA employer premium increases.
"If you're spending money on health care, you're probably not spending money on other discretionary items," Muchow said, noting that most health care services are exempt from sales taxes.
He said the June 23 floods also had a "significant negative impact" on consumer spending, closing businesses and affecting thousands of residents.
Overall tax collections for July of $225 million fell $32.6 million, or 13 percent, below projections, and were down $26.7 million, compared to July 2015.
One bright spot was tobacco tax collection, which also primarily reflects June sales, which came in 73 percent above projections, at $13.5 million.
Muchow said that was driven by "accelerated purchases by consumers at the tail-end of June," after the Legislature approved a 65-cent-a-pack increase in cigarette taxes on June 13, a tax hike that went into effect July 1.
Another bright spot, Kiss said, was that the state closed out the tumultuous 2015-16 budget year on June 30 with $28 million in unspent funds. By law, half of that surplus will go into the state's Rainy Day reserve funds, and $5 million was already committed by the Legislature to help balance the 2016-17 budget.
However, the remaining $9 million, combined with yet-to-be-finalized 2015-16 state Lottery surplus, should leave the state with $20 million to $30 million in surplus funds that can be put toward an anticipated September special session on flood relief, he said.
"A [total] cost for the flood in the range of $100 million to $200 million is not unreasonable," Kiss said.
If the costs come in on the lower end, the surpluses should cover the state's share of flood recovery expenditures.
"If the number is larger, one option would be to go into the Rainy Day Fund," Kiss added. "That's one reason the governor has been so insistent in protecting the Rainy Day Fund."
On June 8, Gov. Earl Ray Tomblin vetoed a budget bill that would have raided nearly $187 million from the Rainy Day reserve funds to help close the 2016-17 budget shortfall, a proposal Tomblin called "reckless and irresponsible."
Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220 or follow @PhilKabler on Twitter.