Lawmakers reach budget compromise; pay raises, Social Security tax cuts included without triggers

Sen. Eric Tarr, R-Putnam, who chairs the Senate Committee on Finance, said Saturday, March 9, 2024, that he has “great concern” about what the state’s financial picture could look like later this year. (Will Price | West Virginia Legislative Photography)

Following hours of closed door back-and-forths, the West Virginia Legislature on Saturday approved 5% pay raises for school employees and other state workers, as well as the phase out of the Social Security income tax, allowing lawmakers to move forward and pass what was previously described as a “very skinny” budget for fiscal year 2025.

Looming over the implementation of those items, however, is the state’s ability to retain a balanced budget as a potential trigger could be hit in August that cuts personal income taxes — and the state’s revenue tied to them — by as much as $250 million over the next two years. Those cuts came from legislation passed in 2023 and would activate depending on revenue collections from fiscal year 2024.

Sen. Eric Tarr, R-Putnam, who chairs the Senate Committee on Finance, said Saturday that he has “great concern” about what the state’s financial picture could look like later this year.

Tarr — and the Senate, generally — wanted to see the pay raises and Social Security tax cuts tied to their own triggers. If revenue collections were low enough that the personal income tax cuts didn’t take place, then both pay raises and tax cuts for seniors would have been enacted.

Now, without the triggers, those are guaranteed but the overall budget may hang in the balance, Tarr said.

“The risk now becomes the trigger [for the personal income tax] itself. Having now done the pay raise, and having gone ahead and put in the tax cuts for seniors and not knowing where we end up in August on that trigger poses some risk,” Tarr said. “We need to make sure that we don’t hit that trigger, or we need to postpone that trigger in some way.”

Finding a solution to the issue, Tarr continued, will have to wait until a special session is called in May, where lawmakers are expected to adjust the budget. That special session — which has been promised by legislative leaders in recent days — will come in the wake of negotiations hopefully wrapping up between the governor and the federal Department of Education related to $465 million that lawmakers have said may need to be returned to the feds due to underinvestment in education in recent years.

The budget for fiscal year 2025 passed the Senate unanimously on Saturday and was approved 73-25 with two members absent by the House. It comes in at about $4.99 billion, and was a “compromise” between the two chambers.

While pay raises and Social Security tax cuts made it through unscathed, funding for several other initiatives flagged by Gov. Jim Justice as priorities before the session were adjusted and moved around to get those through.

The versions of the pay raises and Social Security income tax cuts passed on Saturday reflect those that the House sent to the Senate earlier in session.

Under the pay raise bill — House Bill 4883 — teachers and school service personnel can expect to see an average 5% salary increase reflected in their pay next fiscal year. For teachers, that means an additional $2,460 annually. Other school employees will see an increase of $140 per a month. The pay raises also apply to state police.

Dale Lee, president of the West Virginia Education Association, said the pay raises approved were “as good as could come” compared to other options that would have hung the salary increases on the state’s revenue collections and potential future cuts to the personal income taxes approved in legislation last session.

The Social Security income tax cuts — enacted through House Bill 4880 — passed by lawmakers Saturday will be phased out over the next three years. This year — retroactive to Jan. 1 — the taxes will be cut by 35%. In 2025, that will increase to 65% and by 2026, the tax cut should be phased out completely.

These cuts follow legislation from 2019 that eliminated the Social Security income taxes for the state’s lowest earners, also over a three-year phase out.

Gaylene Miller, state director for the AARP, said phasing out Social Security income tax cuts for all West Virginians was the organization’s largest legislative priority this session.

“We had about 90% of the folks we took a survey with who said this is the number one issue that we should exert our influence on this year,” Miller said. “We’re very pleased on behalf of about 50,000 West Virginians who will no longer have to pay income tax on their social security.”

Miller said that, while AARP would have liked to see the taxes “just eliminated,” the phase out plan was “the prudent way to go” given the uncertainty around the state’s finances.

“That’s the path I’m glad they chose,” she continued.

Correction: The House’s roll call for the budget’s passage was corrected.

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