CHARLESTON, W.Va. –State Deputy Revenue Secretary Mark Muchow told state lawmakers Monday to expect improving revenue collections for September when the numbers come out next week but he also cautioned them to prepare for a decrease in overall collections for the fiscal year.
Collections missed estimates by a combined $49.8 million in the first two months of the new budget year. Muchow said this month would be better but it won’t make up the entire difference.
“In the month of September we will actually have revenue growth as opposed to revenue decline. So that will cut into the shortfall for the year-to-date. It will also cut into the negative growth rate for year-to-date but we are still forecasting a negative growth rate for this year,” Muchow said.
The official revenue forecast for the current fiscal year is 1.2 percent less than last year. So far collections are off 6.8 percent.
Muchow said the drag is in the energy sector with severance tax collections.
“It’s pretty soft right now,” Muchow told lawmakers. “(Coal) exports have come down quite a bit. We peaked around January of this year and exports the last four or five months are off 50 percent from last year.”
Severance tax collections for natural gas production are down even more than coal.
“Revenues from natural gas and natural gas liquids combined were down nearly 48 percent from last year (during the fiscal year’s first two months). Coal revenues were down closer to 30 percent,” Muchow said. “So the decline is being lead by the natural gas industry at the present time. Part of it has to do with lower prices for natural gas.”
Muchow said a major driver for the lower prices is the glut of natural gas because two pipelines, Mountain Valley Pipeline and Atlantic Coast Pipeline, haven’t been completed. Both are tied up in the courts.
“We thought that we could have one of those two pipelines through the court system but so far we are 0 for 2 and that’s holding our income tax (collections) down,” Muchow said.
Approximately 4,000 construction jobs are being impacted by the pipeline legal challenges. Muchow said completion of the pipelines would send the price of natural gas higher and he said it would also help coal prices go up because of competition.
“But the softness is expected to persist in the markets before they get better,” Muchow said.
The Justice administration put out an advisory last week to state agencies to prepare for a possible four percent mid-year budget cut. Muchow said the agencies are used to it.
“Probably about once every two years you end up with that possibility. Half of the time we run above estimate and half the time below estimate,” he said.
Last year’s revenue collections set records but the chance for that seems slim the last 10 months of the current fiscal year.
“Not everything is negative,” Muchow said. “We still have positive employment growth but the problem is in the energy sector.”