CHARLESTON, W.Va. — State agencies are preparing to trim $100 million from current spending while also planning to carry those cuts into the coming fiscal year.
State officials have been considering those cuts for weeks and confirmed today that a current revenue slowdown means they must go ahead. West Virginia has faced slower tax collections over the past few months, particularly as energy markets have slowed.
“We like pro-active. The governor said do not wait until this becomes a big problem,” state Revenue Secretary Dave Hardy said today on MetroNews’ “Talkline.”
“If we do this and the revenues end up being higher in the spring, we’re in a much better position to go back and restore. It’s just us getting ahead of the numbers.”
.@DaveHardyWV, Secretary of the State Department of Revenue, talks with @HoppyKercheval about budget cut plans for this year and next year and how those reductions will be achieved. WATCH: https://t.co/wkudfIAoe1 pic.twitter.com/BlAVcq6nVA
— MetroNews (@WVMetroNews) October 25, 2019
State revenue has been less than anticipated the past few months as natural gas prices and markets for coal have slowed, Hardy said.
“I can summarize it in two words: severance tax,” he said.
“It’s the price of natural gas, the price of coal. When those numbers come way down, we get a percentage of the sales price. Those revenue sources are volatile and they go up and down very quickly.”
Hardy said state leaders began examining the $4.7 billion General Fund and acknowledging that about two-thirds of that amounts to statutorily required or nondiscretionary spending items.
That left about $1.7 billion that could be subject to cuts.
Of that, state officials estimated they need to trim about $100 million.
Hardy said officials had 21 budget hearings, starting just after Labor Day. “We’ve asked them to tell us how they propose to cut their budget,” he said.
The estimated 4.6 percent cuts are somewhat flexible, meaning that they can be reviewed based on the agency’s situation, he said. In most cases, agencies will be limiting hires or foregoing capital expenses that they had previously planned, he said.
“We want to hear from the agencies on what we think would be the appropriate reduction,” Hardy said. “There’s no magic formula each agency or cabinet secretary has a different idea.”
Last year, state officials passed a severance tax phaseout for steam coal that represents an estimated $60 million.
Hardy stood by that decision today, saying the tax cut was necessary to keep miners employed.
“If you don’t make these competitive cuts then the very coal mines we’re talking about might very well shut down,” Hardy said.
State Senate Finance Chairman Craig Blair praised the administration for planning ahead to trim the budget.
Signs of trouble started to appear early this fiscal year.
The state collected $32.9 million less in taxes than anticipated in July, the first month of the fiscal year. Collections again missed projections in August by $16.8 million.
So that was a total of $49.7 million below what was anticipated right at the start of the fiscal year.
“I actually went to the Governors’ Office after the first two months of the fiscal year was down and said ‘Hey guys we need to be more proactive on this because the severance tax may get us,'” Blair said in a telephone interview.
Blair said he believes there is funding to agencies that can be cut, and he was pleased that Hardy acknowledged flexibility to alter the amount, depending on the situation of each agency.
“This is prudent behavior,” Blair said. “Every household out here if they see their income is down would have the same behavior.”
The Legislature approved some spending increases last year, including pay raises for state employees, greater spending on roads and a $1.5 billion savings account for the Public Employees Insurance Agency.
But Blair characterized much of that spending — aside from the pay raises — as one-time investments that would not be ongoing budget expenses.
“There was a lot of prudent fiscal behavior taking place even when we had a surplus,” he said.
But Blair said the state should establish a habit of being more cautious with severance tax revenue.
“We must get our state off of the severance tax rollercoaster. We should be building our budget on the expected low of what severance tax should be instead of the highs,” he said. “When you do have these high points that money can go to roads or other one time spending.”
Gov. Jim Justice has often pointed to state revenue gains as evidence of economic success in West Virginia.
As positive revenue reports came in over the past year or so, Justice has led celebratory press conferences that sometimes included luau apparel.
At the end of the last fiscal year, the Governor’s Office issued a press release touting revenue growth of $511 million, describing it as the greatest single-year revenue growth total in West Virginia history.
“To think where we were when I came in the door – bankrupt – after special sessions trying to determine how much to cut and how many more people to run out of West Virginia,” Justice stated on July 1.
“We had budget crisis after budget crisis every summer. It just shows that my plan to bring our economy back to life is truly working, even beyond everyone’s wildest dreams.”
Delegate Mick Bates, D-Raleigh, is the ranking minority member of the House Finance Committee. He said there’s not a lot of time now to make adjustments for the current fiscal year. But, more than that, Bates is concerned about coming years.
“We have a governor who is really good at overpromising and under-delivering. This rocket ride has come to a crash landing,” Bates said.
“We’ve ridden the roller coaster of the energy sector and once again we’re back where we were before. The fundamentals have not shifted.”
Bates noted that estimates for future budget years reflected anticipated growth of about 3.5 percent. Bates, speaking in a telephone interview, cast doubt.
“The longer this goes on, the harder it gets to fix,” he said. “What gives you the impression that this isn’t going to be the new norm?”