West Virginia’s budget problems getting worse

There is yet another obstacle for lawmakers and Governor Tomblin to overcome as they try to reach agreement on the FY 2017 budget; it’s the FY 2016 budget.

Tomblin administration officials are increasingly concerned about the worsening financial condition of the state as the impact of the coal industry decline cuts even more deeply into the economy.  The resulting continued drop in tax collections means another multi-million dollar hole is opening in this year’s budget.

That will force Tomblin to again dip into the state’s Rainy Day emergency fund and sweep money from a variety of state accounts to come up with as much as $100 million (depending on the amount of the shortfall) to ensure the state ends the fiscal year June 30th without going in the red.

The problem, however, is that many lawmakers–and at one point even those in the administration–were counting on the Rainy Day money and sweeps to make up a significant portion of the $270 million shortfall in next fiscal year’s budget beginning July 1st.

Those monies are considered part of what’s called the 90-90-90 plan–$90 million from tax increases, $90 million from cuts and $90 million Rainy Day and account sweeps—to fix next year’s budget.  That compromise appeared to have some chance for bi-partisan approval.

However, the deepening shortfall this fiscal year now has Tomblin recalibrating for next fiscal year. His latest proposals are an increase in the consumer sales tax of one percent (to seven percent) and a 45-cent per pack increase in the cigarette tax or a one-half of one percent increase in the consumer sales tax (to 6.5 percent) and a $1 per pack increase in the cigarette tax.

Tomblin appears to be opting for higher taxes because he does not want to draw down even more money from Rainy Day. It has a current balance of $748 million, but more will be withdrawn this fiscal year and Tomblin is concerned about the impact on the state’s credit rating.

In fact, the state’s financial troubles are being noticed on Wall Street.  Just yesterday, Standard & Poor’s downgraded West Virginia’s bond rating from AA to AA-minus.

Raising the consumer sales tax will be a tough sell in the legislature. Yes, the state Senate approved a one cent increase in the consumer sales tax earlier this year for road repairs, but many Republicans went along with that knowing the House would kill it.

The Republican majority in the House has consistently pushed for deeper cuts in state spending and no new taxes. More recently, it appears a number of House Republicans would be willing to support the 45-cent cigarette tax increase, but a higher consumer sales tax would be an extremely difficult proposition.

As we have said before, these are difficult decisions—both political and fiscal—and now with worsening budget problems this fiscal year, next year has become even more challenging.





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