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Budget director urges lawmakers to re-fund tax refund fund

CHARLESTON, W.Va. -- State budget director Mike McKown urged legislators Tuesday to help replenish a fund used to pay state income tax refunds in a timely manner -- after the fund was emptied in June to help balance the 2012-13 budget.

For several years, the Income Tax Refund Reserve Fund has kept a balance of $45 million, but McKown told the Council of Finance and Administration the account was drained to help close a $91 million revenue shortfall in the past fiscal year's budget.

"Hopefully, we can build that back up," he said. "That is a very important fund."

The fund was set up in 1990, following several years in the 1980s when taxpayers had to wait months for their refund checks, because of state budget deficits.

In addition to raiding that fund, the Tomblin administration imposed $28 million of midyear budget cuts and transferred $17.7 million from the Medicaid reserve fund to balance the 2012-13 budget.

"It's a time of no growth in general revenue," McKown said.

Key culprits for the year were severance tax collections, which came in $51.8 million, or 11 percent, below estimates. Also, corporate net taxes fell $10.57 million, or 4 percent, below projections.

Personal income tax collections for the year came in at $1.74 billion, or 1 percent above estimates.

However, June income tax collections plunged $19.7 million below projections, as car buyers rushed to take advantage of a major tax break on buying hybrid or alternative fuel vehicles -- a credit that the Legislature closed off in April.

Meanwhile, tobacco tax collections were 2 percent below estimates for the budget year, at $107 million.

Sen. Brooks McCabe, D-Kanawha, asked whether that downturn is ongoing, and deputy tax secretary Mark Muchow said projections are for tobacco consumption to fall about 1 percent each year.

"It's because more people are quitting smoking over time," Muchow said. "We have a stagnant population that's aging in place."

On a positive financial note, McKown said the state's Rainy Day contingency funds currently total $914.46 million, equal to about 21 percent of the state's general revenue budget.

"Only Alaska and Wyoming have bigger rainy-day funds as a percentage of state revenue," he said. "Being a natural-resource state, we need a larger Rainy Day Fund, since our revenue sources are volatile."

The funds were set up to help keep state government running in the event of a major natural or economic disaster. Keeping the large cash reserves also helps the state's bond rating, allowing state agencies to borrow funds at comparatively low interest rates.

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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