Cuts, weak growth hem in W.Va. budget picture

CHARLESTON – The budget cuts previously called for by the governor have helped balance the next budget proposal, and any resulting pain to agencies or programs won’t include layoffs, according to the state’s budget director.

Gov. Earl Ray Tomblin has called for all state agencies to slash 7.5 percent, though large spenders including K-12 – not higher higher education – and corrections were spared. That amounts to $75 million in cuts to Tomblin’s 2013-2014 proposal, Budget Director Mike McKown said. While that’s less than 2 percent of West Virginia’s general revenue spending, the cuts also help future budget-setting by permanently reducing basic state spending, he added.

McKown was among several speakers who discussed the budget at The Associated Press’ annual Legislative Lookahead forum, hosted by Marshall University’s graduate campus. Tomblin told the forum earlier that he remains opposed to new or increased taxes. The governor also said his proposed budget and legislative agenda will address findings in recent, separate studies of the state’s public schools and its inmate crowding crisis.

Medicaid drives much of the state’s looming budget troubles, McKown said. He estimated that every 1 percent drop in federal funding for that health care program, mostly triggered by improving personal incomes, means the state must find another $30 million to keep it at current levels. West Virginia also faces a call from the federal health care overhaul to open Medicaid to more of the working poor. Tomblin said Thursday that he’s awaiting an audit of the program before he decides how or if to expand it.

The faltering coal sector also plays a role, Deputy Revenue Secretary Mark Muchow told the forum. Strong demand and prices buoyed state finances during the depths of the Great Recession, Muchow noted. But the industry recently suffered a 27 percent drop in production. He blamed a struggling global economy and electrical utilities shutting down mostly older coal-fired power plants while turning to cheaper natural gas, among other factors. Revenues from severance taxes, on coal as it’s mined, have plummeted as a result, Muchow said.

House Finance Chair Harry Keith White echoed Muchow’s concerns about the worsening coal sector. The Mingo County Democrat also joined Tomblin in touting the state’s brighter financial spots: it continues to cut the sales tax on groceries and the corporate net income rate; it has one of the healthiest emergency reserves among the states; it did not need federal loans to maintain unemployment benefits; and Wall Street agencies have upgraded the state’s bond ratings while eyeing downgrades of other states, including neighboring Kentucky.

Senate Minority Leader Mike Hall said the national economy can aid West Virginia’s picture if it improves more quickly. The Putnam County Republican cited how $460 million – more than 10 percent of the upcoming general revenue budget – will help shore up the state pension fund for teachers. Such pension funds make up the bulk of the state’s $13 billion investment portfolio. Those investments count on a 7.5 percent return to keep the pension programs properly funded. But the state earned only around 1 percent during the budget year that ended June 30, Hall noted.

Hall added that those funds would be doing much worse if the state invested only in bonds and not also stocks and other types of securities.

House Minority Leader Tim Armstead said the tight budget adds urgency behind acting on the recent education study. Many of its recommendations target the way West Virginia now spends school-related dollars. Armstead, a Kanawha County Republican, cited how public education now consumes 40 percent of the general revenue budget – and how that portion of the budget was exempt from cuts.

The legislative leaders all weighed in against tapping the state’s emergency reserves for anything besides the most pressing needs. Hall said lawmakers are continuously urged to dip into the reserves to complete a particular road project, for instance. But Hall also noted that the bond rating agencies carefully watch such reserves and how states spend them.

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