When politicians take credit for economic growth it’s a little bit like the weatherman accepting praise for the sunshine.
Of course, government policies have a direct impact on the economy. However, there are many factors beyond the control of the government, especially in a free market system, and also because economies around the world are interconnected.
That is particularly true for West Virginia. The state’s economy is heavily dependent upon production of coal and natural gas and their many related industries. Their growth helped state government surge to a significant budget surplus for the fiscal year that ended last June 30.
Technically, the state ended the fiscal year with a surplus of $37 million. However, Governor Jim Justice adjusted revenue estimates upward four times during the year. All tax collections were actually $511 million above initial projections. That additional money was allocated to other state needs, including secondary roads.
“When I came in the door we were dead flat bankrupt. We were 50th in every category imaginable and we had a budget crisis every single year,” Justice said when the figures were released. “Now, my plan to bring our economy back to life is working, with the help of our state Senate, House and many others.”
But what happens when the numbers aren’t so good? We’re about to find out.
The state has missed projected revenue collections for the first two months of the new fiscal year and we’re now $50 million behind. Tax and Revenue Secretary Dave Hardy said on Talkline Wednesday that preliminary numbers for September look better, so the state could soon be back on track.
However, there are some troubling signs. Half of the deficit so far is from a dramatic drop in severance tax collections. The rest is from lower than expected personal income tax collections.
Hardy explained coal production and prices are both down. The value of nonmanufacturing exports—primarily coal—is down by about $1 billion since January.
Hardy said natural gas production is up slightly, but the price is depressed because of a glut in supply. Ira Joseph, head of global gas and power analytics at S&P Global Platts, told the Wall Street Journal last month, “It was inevitable. There is simply too much supply coming into the market at one time.”
West Virginia’s economy has also been hurt by court-ordered interruptions in the construction of two major natural gas pipelines—Mountain Valley Pipeline and Atlantic Coast Pipeline.
The Justice administration is planning for the possibility of a shortfall. Hardy said agency secretaries and department heads will be told later this month during budget planning sessions to prepare.
“They should at least consider the idea that they would have to cut their budget by 4.6 percent,” he said, adding that this is a “precautionary” move.
And that brings us back to Justice. The state may well hit the tax collection projections, but the early indications are the “rocket ship ride” economy promised by Justice when he took office is feeling the gravitational pull of factors beyond his control.
When you take credit for economic growth, you are also going to get the blame when the news is not so good.