State Budget Director Mike McKown apologized to lawmakers this week just before his briefing.  It was a sunny, pleasant autumnal day in the Mountain State, but McKown’s news about the state’s financial condition was gloomy.

According to McKown, the proposed state budget for next fiscal year (FY 2015, starting July 1, 2014) has a potential gap of at least $265 million.  That’s a huge number considering the general and lottery revenue portions of the state budget only total $4.5 billion.

By law, the state cannot have a budget deficit, therefore Governor Tomblin and lawmakers have to figure out ways to balance the budget.  Absent a surge in economic growth, which is not on the horizon, state leaders will have to cut spending, raise taxes or use a combination of both.

About 65 percent of state spending is written into state law—public education and Medicaid make up the largest shares—which means only 35 percent of the budget can be targeted.

Tomblin hasn’t said yet what he plans to do, but here are some possibilities.

The Governor has already asked state agencies to submit two budget plans; one holds the line on spending for next fiscal year while the other reduces spending by 7.5 percent.  If the Governor takes the cut, that will save about $80 million.

The long-term budget forecast for 2015, which was included in last year’s FY 2014 budget documents, includes a two percent pay raise for school teachers and public employees.  Eliminating that will save another $50 million.

The remaining $135 million could be made up by sweeping one-time money that is socked away in a variety of government and legislative accounts.  Additionally, Tomblin could dip into the Rainy Day emergency fund, which has $900 million.

Historically, the Governor has refused to open up the Rainy Day fund for fear it would trigger a run on the account by lawmakers anxious to find money for a variety of wants and needs. Additionally, the flush account helps maintain a high credit rating for the state, holding down interest rates on borrowed money.

Tomblin or legislators could also decide to raise taxes to offset the deficit, but that’s politically dangerous territory.  For Tomblin, an increase would be a retreat on his campaign promise of lower taxes.

State House Republicans oppose any tax increases. Some Democrats may be willing to get behind higher taxes—especially if it’s something like a tobacco tax increase—but that could be used against them in the next election.

Meanwhile, the pressure on the budget will grow more intense when the legislative session begins in January.  School teachers and public employees believe they are overdue for a raise and Senate President Jeff Kessler wants to set aside a portion of the growth in tax collections on the natural gas industry to create a fund for economic development or tax breaks in the future.

No wonder McKown gave lawmakers a warning Monday before he made his presentation.  Still, it could have been worse. The Budget Director could have also talked about FY 2016, where the state budget is expected to be at least another $200 million short.

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Comments

  • rog

    Reinstate the 6% sales tax on food. Its the only fair tax; everybody has to pay it.

  • rog

    Should have kept the 6% sales tax on food. Every one percent brought in 50 million. Every time we remove this tax, we pay for it in reduced services or higher taxes!

  • David Kennedy

    I'm sure the State Budget has come fat that can be rendered.
    If I remember correctly the state budget was 3 Billion when Gov. Joe took over...he waved the 'magic money wand and it instantly became 10 billion dollars...
    then present Gov. Tommy finished the job by adding one more Billion to the pot.
    How can we justify such an increase in such a short time period?
    Efforts have been made to bloat the state government in every single manner.
    It's time for auditing...accountability and a plan to offset the problems that we will have in the future from the Federal Government to the east of us.
    We have one time to do this and I hope that our elected in Charleston have a mind set for this.
    Too much is at stake...we have the interstate now and can get to them if we have too.

  • Martinsburg Resident

    The Obama train wreck keeps killing the WV economy... coal was demonized and thanks to his jackbooted thugs at the EPA is going the way of the dinosaurs and now we have jumped all in on the Medicaid expansion it will further place an overwhelming burden on all the WORKING people, while the fraudulent Social Security bums and welfare cheats continue to game the system. In the meantime, our national debt continues to rocket out of control and we just keep electing these fools / socialist. Welcome to the fundamental transformation of America! The destruction is nearly complete!

  • Bob

    Could we discover a way to cut rather than tax, tax and tax? With more taxes the crew in Charleston will find additional places to spend any surpluses
    I am surprised the legislature hasn't emptied the State of WV account with $900 million.

  • Benthere

    West Virginia is headed into the same situation as Detroit. There is no escaping the future, the thing that we most hate will be forced to to run the state. ie. the federal government. One third payout on state pensions and ten cents on the dollar to monies owed.

  • vashti

    i am just wondering how many times Mr. McKown has rpesented this gloomy outlook? it seems like every year. perhaps the doom and gloom would be more effective if it were not for the fact that he has played this card so many times before. now like the boy who cried wolf he may not be heeded.
    just wondering if there was ever a year that did not include this same warning in the last 20 years?

    • The bookman

      Although I am new to this MB, I have been listening to hops show since it's beginning...Walt Helmick and most recently Roman Prezioso have used this coming shortfall as their primary reason to hold the line on spending for years...even in years of surplus they have squirreled the fluff into the rainy day fund as they knew the day was approaching...give credit where credit is due..the dems run this state and although they own the state of our economy...it cannot be said that they haven't done a good job managing our finances...could teach Washington a lesson or two about living in the real world

  • Conchop

    No need to cut anything. It will be all right when we legalize medical, recreational, and industrial hemp cannabis.

    NOTE: Industrial Hemp is already legal in WV - law just needs tweaked ...

  • wvman75

    Only democrats could have their biggest budget shortfall be Medicaid, and go ahead and expand the program. Well done.

  • C.H

    Yes, the food tax appears to have been a ploy to help get votes and make political talking points. But was irresponsible, knowing there was a buget short fall coming. Lets hear from those who are responsible. Take responsibility for this decision.

  • Walsingham

    Agreed cut entitlements and social services! Except for "boomers" who want the benefits from every available federal and state program, but don't want to pay to fund them for future generations.

  • Interesting123

    "Would prefer not to raise taxes; perhaps we could look at our tax code and see if there are areas where we are needlessly giving away tax dollars without any economic benefit"

    There are many areas like this. Go to the Tax Departments' website look at their Tax Expenditure Studies. They are done yearly. Then ask yourself are the dollars given away worth the benefit? For many I would argue there is little to no benefit at all. So get rid of them. They cost a bunch of money to administer and provide little benefit.

  • mntnman

    We find ourselves where all governments in the US now find themselves -- too little revenue and too much expense. We have put ourselves in this situation by failing to have a lean government, while at the same time cutting taxes when we could see the problem coming our way. As the economy has faltered we have also seen tax revenues decline. So, we find ourselves in the midst of the perfect storm.

    Most of this was foreseeable. A great deal of our costs are fixed and we can calculate them. Yet we chose to cut taxes, failed to reduce government where we could and lacked the foresight to diversify our economy. (Something we have failed to do for, oh 50 years.) All the tax cuts, and other giveaways to business have not caused a rush of businesses into our state. (Every time we change one law to be more "business friendly", we are then told there is something else that has to change. Yet, no matter what, businesses don't' come.) Bottom line is our leaders have failed us, and we the people have failed us by not making our leaders accountable.

    So what do we do? I wish I had a great plan. Would prefer not to raise taxes; perhaps we could look at our tax code and see if there are areas where we are needlessly giving away tax dollars without any economic benefit. We need to make government leaner, but so much of our costs are fixed (education, health care) that it will be difficult to do it in that area alone. We need to attract business, without giving away the farm -- but other states are doing the same. Like Bowles-Simpson told us for the federal government, it will likely take both cuts and revenue for state government.

    One area we cannot afford to skimp on -- education. It is the single most important key to our future. In many cases, companies don't come to WV because we have an undereducated work force. Education can solve that problem. Having said that, even in education, we can become leaner and smarter with our dollars. There are always ways to save. And it all adds up.

    I sure wish some really smart person out there had an answer. Unfortunately, I haven't seen that person running for office. Mostly I see partisan hacks, ideologs and self-aggrandizers run for office. (It cold, raining and I am not in a good mood today.) I refuse to believe there are no solutions to our problems; but it will take a different kind of elected official than we are currently getting to make the necessary changes. And it will require sacrifice on all our parts. We will elect the right kind of people? Are we prepared to sacrifice? Time will tell.

    • The bookman

      Sorry to say but I have no sunshine for you today...agree with you however...going to start to sell umbrellas and boots!

      • mntnman

        Well, your funny comment made me smile a little. And it has stopped raining.

  • MoMoney

    The WV Department of Tax & Revenue employs well over 1000 people. Maybe if we had a flat tax income tax, there would be no need for some many employees. No need to print up hundreds of thousands of income tax return booklets and manuals. No need to mail them out to save on postage.
    And all Tomblin has to do is reverse his ObamaCare stance and have WV opt out of the ObamaCare mess that is crippling our nation. WV just cannot afford this debacle. These two simple measures will have the WV budget in the black very quickly and on a yearly basis.

  • rick

    Short term vs long term:
    http://www.reuters.com/article/2013/09/12/us-china-coal-pollution-idUSBRE98B01N20130912

    • The bookman

      http://m.huffpost.com/us/entry/4095221

      Stated goal in the story you cite vs reality in the story I cite...even the story you cite explains that China has no real options in replacing coal and that the details of their plans have been left up to the provinces to work out...if you read the story you cite, then you knowingly misled this MB!