West Virginia tax and revenue officials hold their monthly briefing Thursday on the state’s financial condition. The news will likely be bad, if the recent past is any indication.
The January numbers show tax collections running $169 million below estimates through the first seven months of the fiscal year. The biggest reason for the financial woes is the decline in energy markets, particularly coal.
Severance tax collections were $111 below estimates for the year, and down by half since 2014 with no prospect for a rebound in the near future. The energy sector slowdown has a significant trickle-down impact on business and personal income taxes and sales tax.
Moody’s Analytics now categorizes West Virginia, North Dakota, Wyoming and Alaska as in recession. Bloomberg Business reports, “The common thread? They all have concentrations of energy companies.” The U.S. Labor Department reports West Virginia lost 11,800 jobs last year.
The grim realities are making the job of Governor Tomblin and the Legislature of keeping this year’s budget in line and crafting a balanced budget for FY 2017 beginning July 1 all that more difficult. The hole in next year’s budget is estimated to be around $350 million.
An increase in the tobacco tax appears inevitable. The Senate passed a $1 increase, to $1.55 a pack, along with an increase of the wholesale tax from seven percent up to 12 percent and a first-time tax on e-cigarettes. Governor Tomblin has proposed an increase of 45-cents and House Republicans are more inclined with the smaller increase, so we’ll have to see where they can find agreement.
But the tobacco tax increase won’t be enough to cover the hole. Lawmakers are also looking at more spending cuts, and those are getting tougher all the time since Governor Tomblin has already reduced spending 19 percent over four years.
Some House Republicans floated the idea of removing the sales tax exemption on professional services, such as those provided by lawyers, accountants, engineers and media advertising, while lowering the sales tax rate from six percent to 5.5 percent. However, the business community pushed back hard, giving bill supporters second thoughts and the proposal was quickly tabled.
Legislators may want to dip into the Rainy Day Fund to make ends meet next year, but that’s a tricky proposition as well. The fund contains $855 million and is a tempting target, but Governor Tomblin has let it be known that he will veto any budget that goes too deeply into the state savings account.
This is the current fiscal reality in West Virginia, and there is no sign of improvement in the short term. The natural gas industry is hoping for a price recovery in 2017, but who knows about coal, especially if the debilitating environmental pressures in Washington continue after the 2016 election.
Unfortunately, the signs point to the current struggle to balance the budget being the new normal in West Virginia.