Fitch rating reveals deeper concerns about W.Va. economy

The Fitch Rating service downgraded West Virginia’s bond rating from AA+ to AA. That shift alone is not such a huge deal. AA is still a solid rating and by Fitch’s own analysis the downgrade will have only a modest impact on interest rates when the state borrows money.

However, the fundamentals behind the move are troublesome.

“Fitch believes long-term headwinds are significant, as coal production remains a key input to the state’s economy there is significant domestic and international momentum to reduce coal utilization,” the analysis revealed.

“Fitch expects financial stress will persist until such time as the decline in coal production bottoms out and is replaced by an expansion of the state’s other natural resources or another positive development.”

Marcy Block, Fitch Ratings’ senior director, said conditions here warrant a “Negative Outlook” for West Virginia, particularly as state government attempts to balance the annual budget without draining the Rainy Day reserve fund.

“Our concerns are that the state has used the Rainy Day funds to balance the budget,” she said during a “Talkline” appearance Thursday.  “You don’t want to see that go down too far.”

The rating service is generally agnostic about the best way for West Virginia to achieve a balanced budget — it just wants to see a solid balance sheet without draining the savings. “If you don’t adjust your budget to recognize that structural shift then eventually the Rainy Day fund is going to be depleted,” Block said.

That’s the immediate challenge facing the next governor and the next Legislature after the November election. The outgoing Tomblin administration projects a shortfall of $300 million for next fiscal year out of a General Revenue budget of $4.2 billion. That means state leaders will have to cut spending, increase taxes or both.

The Fitch report is not encouraging, but it does represent an independent expert view of West Virginia’s economy. Charleston inevitably will get caught up in the politics of what to do about these headwinds, but there’s no denying these fiscal challenges are real and they will be significant for at least the next several years.





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