Revenue shortfall presents major challenge for W.Va. leaders

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Revenue shortfall presents major challenge for W.Va. leaders
By Jeremiah Shelor, Staff Writer, The Exponent Telegram

CLARKSBURG — With Gov. Earl Ray Tomblin announcing across-the-board midyear budget cuts for state agencies Monday, addressing the state’s revenue shortfall is shaping up to be a major theme in the 2016 legislative session.

On Monday, the governor’s office announced a 4 percent budget reduction for most state agencies and a 1 percent cut to the state aid formula for public schools, an area that had not experienced cuts in past years.

The cuts are in reaction to a projected shortfall for the current fiscal year of more than $250 million, largely driven by declines in severance tax collections.

Those lower-than-expected severance tax revenues are a result of a fall-off in coal production and sagging natural gas commodity prices, officials have said.

On Tuesday, the state Department of Revenue released figures for state tax collections through September, which show the state falling more than $60 million short of projections, a significant jump from the state’s $12 million deficit through August.

“Tax collections continue to be hurt by low energy prices and the consequences associated with the general lack of demand for natural resource products relative to their supply,” Revenue Cabinet Secretary Robert Kiss said.

“We have never seen this level of erosion in severance tax revenue at this rapid pace. August numbers had us $12 million below estimate, and 30 days later we’re behind by more than $60 million. It’s unprecedented,” Kiss said.

The governor’s decision to trim the budget now appears to be an acknowledgment of this growing gap between revenue and projections.

“This is a difficult decision that results from several factors beyond our control,” Tomblin said Monday. “We are taking this action based on trends we see in the first three months of the fiscal year that we expect to continue throughout this budget cycle.

“While the cuts we’re enacting today will not be easy, we must maintain a balanced budget, and this will help us do that.”

Harrison County Schools Superintendent Dr. Mark Manchin said the midyear cuts will reduce the county’s state aid by just over $600,000 on an annualized basis.

“I can’t remember the last time education actually got cut,” Manchin said, noting that the state will save about $16 million through the 1 percent reduction in state aid to county school systems.

Monday’s budget cuts come on the heels of significant budget cuts over the last few years.

“We’ve had cuts to state agencies over the past three years of anywhere from 5-7 percent,” House Minority Leader Tim Miley, D-Harrison, said. “Those people who want to say we need to reduce the fraud and waste in government, well, we’ve cut almost 20 percent where we can in the state budget, and at some point, you’re beyond cutting waste. You’re cutting necessary services, so it’s up to the governor’s office to determine where to make those cuts going forward.”

He added, “This 4 percent is a midyear budget cut in a year that we’ve already cut 5-7 percent.”

Besides the declines in severance taxes, Miley also pointed to a series of tax cuts enacted by the Legislature over the past decade as a major contributing factor to the current budget predicament.

“It’s due to several things. First, over the last 10 years, we have cut taxes. Between the food tax, the corporate net income tax and the business franchise tax, we’ve cut taxes that amount to about $300-$400 million a year out of our state’s revenue,” Miley said. “So while many people are happy that taxes are cut, that results in lower revenue coming in.”

If comments from local legislators are anything to go by, the Legislature’s budget discussions in 2016 will focus on how the state can spend less while getting more return on the money it does spend.

Del. Terry Waxman, R-Harrison, said the state is having to endure a difficult period created in no small part by regulatory pressure from the U.S. Environmental Protection Agency on the state’s coal industry. Waxman said she thinks state leaders must continue to focus on fostering a positive climate for business growth and job creation and look to that to generate revenue in the long-term.

In the short-term, Waxman suggested more budget cuts could be on the way.

“It’s a most unfortunate problem, but we can’t spend what we don’t have, and the state’s not allowed to go into debt. I hate to say this, but we’ll probably end up with more of it until it gets better and until we can get the EPA off the back of West Virginia,” Waxman said. “We need a diversified economy, and certainly in the last legislative session we worked hard to create an environment where more businesses of different types would come to West Virginia. It’s something that takes time.”

For his part, Miley said there’s no single “magic bullet” that will fix the state’s budget problems. He said the state may have to look at consolidation of services or find other solutions to increase efficiency in spending.

“It’s going to have to be a lot of different smaller activities, the synergistic effect of which will result in hopefully a broader-based, diverse economy with more efficiency in the services being provided by local, county and state government,” Miley said.