West Virginia individuals, businesses and institutions are taking a serious financial hit because of the pandemic. The state’s economy has slowed dramatically, hundreds of non-essential businesses have closed, and tens of thousands of people have been laid off.
The number of people filing for unemployment continues at a record pace. WorkForce West Virginia reports nearly 36,000 claims were filed just in the first eight days of April. That’s nine times more than were filed in all of April last year.
West Virginia state government is not immune to the financial impact. The economic slowdown and the decision to push the state tax filing deadline to July 15 to correspond with the federal government are delivering body blows to the state’s finances.
The Justice administration is estimating a decline of $192 million in consumer sales, severance and income tax collections for April, May and June. Those numbers are based on a projected decrease of 25 percent in wages and a 20 percent drop in consumer spending in April and May.
If business does not begin to rebound in June, the numbers could be even worse.
The delay in the state income tax filing means income tax collections of an estimated $300 million will also be pushed into July, after the start of the new budget year. Another worry is that the economic downturn will be so severe that many West Virginians won’t be able to pay their tax bills to the state.
Fortunately, the state does have some options.
The first is the Rainy Day Fund. The state has $855 million in the combined Revenue Shortfall Reserve funds. You always hate to dip into your savings for everyday expenses, but that is why the fund was created and state leaders have been responsible at keeping it flush.
The second is more tenuous. The stimulus bill included $150 billion for state and local governments. West Virginia is in line to receive $1.25 billion. The key is how that provision is interpreted by the U.S. Treasury Department.
Under one interpretation, governments can only use the money to offset costs associated with fighting the pandemic. However, the nation’s governors are pushing Treasury for a more liberal interpretation that would let them use some of money to cover budget shortfalls.
The governors are anxiously awaiting the Treasury Department’s guidelines later this month on how the money can be spent.
West Virginia cannot end the year with a deficit. It also cannot borrow just to pay bills or print money in the basement of the Capitol. In the long term, that’s all good because it keeps our government from overspending.
But it also means West Virginia will have to find some way during these historic times to meet all of its financial obligations.