The Governor and legislators worked on and off from late last year until the middle of June to develop a budget for the new fiscal year that begins July 1st. It was an agonizing process marked by contentious public and private debates that focused on how to fill a $270 million hole created by declining tax collections.
Governor Tomblin and lawmakers finally settled on a combination of a tobacco tax increase, budget cuts and borrowing from the Rainy Day Fund. The Governor quickly approved the budget and exhausted lawmakers left town, relieved to finally have the spending document in place while avoiding a government shutdown.
However, the exercise was only a precursor. The new budget did not end West Virginia’s budget woes; it only tamped them down for fiscal year 2017. There’s more trouble ahead.
Revenue collections are expected to continue to lag, creating shortfalls in FY ’18 and ’19. It’s difficult to project the size of the shortfalls because of the volatility of the state’s economy, but they could be between $200 million and $300 million each year.
The state is prohibited from running a deficit, so that means the new Governor (Tomblin’s term ends in January 2017) and the next Legislature will be facing another series of difficult choices.
The state’s been cutting spending in some areas for several years now, while trying to avoid impacting public education, higher education and health care. These are three critical functions of government and they also constitute the largest expenditures of taxpayer dollars.
Will lawmakers and the new Governor look to those areas to save money? A better option would be to conduct a top down review of all functions of government and then prioritize; what are the services government must provide, what does the state want to provide and what would it like to provide if it had the money.
Lawmakers could always try to raise more revenue with higher taxes, but that will be a challenge, especially if Republicans maintain control of the House of Delegates and the Senate. Governor Tomblin struggled mightily to get enough Republicans and Democrats on board with a .65 cent increase in the cigarette tax, so a broader based tax increase next year seems unlikely.
The Rainy Day Fund is another option, but that account is supposed to be for emergencies and not an annual source of revenue to balance the budget. The fund has a balance of about $800 million, but $70 million is being withdrawn for the FY ’17 budget. Additionally, the Governor may have to dip back into the fund in the coming months if revenues fall below projections.
One of the reasons lawmakers needed a 17-day special session to craft the FY ’17 budget is that these are really difficult decisions, ones where deeply-held philosophical differences on the role of government collide.
This is the new normal for West Virginia, at least for awhile. Barring a dramatic economic turnaround, budget battles will dominate the Legislature for the next two years.