Another $100 million may be needed for 2016 budget hole

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Another $100 million may be needed for 2016 budget hole
By Shauna Johnson, WV MetroNews

CHARLESTON, W.Va. — It may take an additional $100 million, possibly more, to balance West Virginia’s current budget before the close of the 2016 Fiscal Year on June 30, though state Revenue Secretary Bob Kiss is not confirming exact numbers at this point.

Previously, state lawmakers were told roughly $354 million in extra funding would be needed because of lower than projected revenue collections dating back to the start of the fiscal year last July.

On Friday’s MetroNews “Talkline,” Kiss indicated that number was getting larger. It’s going to be a significant” amount more, he conceded.

In a year when severance tax collections tied to energy have dragged down the budget, there were indications the biggest projection problem areas in April will most likely be in income tax collections, including nonresident withholdings for gas workers from outside of West Virginia.

Sweeping accounts for more money to fill that kind of hole, Kiss said, is really not an option.

“This late in the fiscal year, your flexibility is very limited there. We’re looking at everything, as we always do,” Kiss said. “We’re also looking, first and foremost, at other one-time revenues, things that are not in the Rainy Day Fund.”

The possibility of a more than $450 million shortfall this fiscal year comes ahead of a 2017 fiscal year when it’s already projected that West Virginia will need an additional $270 million for state government to operate at current levels.

A 2017 budget has not yet been finalized.

On Thursday, Standard & Poor’s, one of the big three credit rating agencies, lowered West Virginia’s bond rating from AA to AA- for its general obligation debt and from A+ to A- for its appropriation and moral obligation debt.

“The downward revisions reflect our view of structural changes to the state’s economy due to weakness in the energy sector, specifically coal, which in our view is a long-term challenge rather than a cyclical setback,” said Nora Wittstruck, a Standard & Poor’s credit analyst.

The outlook for all of the ratings remained stable.

In a statement, Governor Earl Ray Tomblin called the Standard and Poor’s announcement “disappointing,” but said it was “not entirely unexpected” since other state economies that are largely dependent on the energy sector have seen similar actions.

“During my State of the State Address, I acknowledged the unprecedented shift that has taken place in our state and our nation and its impact on our state’s coal industry. Across the country and around the world, the coal industry — an economic driver that has supported West Virginia for generations — is facing serious challenges,” Tomblin said in his statement.

“This is not a typical downturn. This one is different and even the most optimistic among us realize it is unlikely that coal will ever reach the production levels of the past.”

What West Virginia needs, Tomblin said, is a “responsible, structurally sound budget” for the coming fiscal year.

He continued, “If we don’t take proactive steps to develop a stable path forward that does not rely on one-time monies and even deeper cuts to cover long-term and recurring needs, the economic and budget challenges facing our state will only get worse.”

Despite ongoing talks, no Special Session dedicated to budget work ahead of the start of the next fiscal year in July has been called yet.

For months, Tomblin has said that budget must include new revenues, either from hikes to tobacco taxes or even the consumer sales tax.

Such revenue generating steps, Kiss said, would ensure West Virginia stays on solid financial footing.

“We can’t control the international economy. We can’t control the international energy economy, but we can control our fiscal management policies — passing structurally sound budgets and keeping large reserves,” Kiss said Friday.

West Virginia does continue to get high marks from Standard and Poor’s for its Rainy Day Fund which has a balance of $748 million.

After already drawing $65 million from the Rainy Day Fund this year for the current budget, though, Kiss said the Rainy Day Fund is likely not going to be enough of a funding source to help balance the 2017 budget without further jeopardizing the bond ratings.

In addition to Standard & Poor’s, there are two other rating agents, Moody’s Investor Service and Fitch. Thus far, those two agencies have not adjusted West Virginia’s numbers.