Governor Tomblin’s speech Wednesday night was rather short, as State of the State speeches go. One of the reasons may have been that beyond education reform and prison overcrowding, the Governor didn’t have much new to talk about.
That’s because things like pay raises for school teachers and public employees or new programs cost money, and West Virginia simply doesn’t have any extra right now.
Unlike the federal government, West Virginia can’t print money or run a budget deficit. The budget must be balanced. That is more challenging for next fiscal year because of growing Medicaid costs and increases necessary to keep the state’s retirement programs actuarially sound.
To accomplish that, Tomblin cut spending in some state agencies by 7.5 percent (he excluded Medicaid, public education, the State Police and mine safety) and rounded up one-time monies of $275 million in surplus funds from various accounts to balance the budget.
But the biggest problem is that the state’s economy just isn’t growing right now.
The state Department of Revenue projects a drop of three-tenths of one percent in employment this year, before it starts to trend upward again in 2014.
The decline in the coal industry accounts for most of the problem. A report by the WVU College of Business and Economics shows that employment in the mining sector fell by 5,900 people between January and August last year.
There were modest employment gains in other sectors, such as health care and construction, but those jobs typically don’t pay as much. As a result, the state’s tax collections have flat-lined at $4.1 billion.
Historically, West Virginia could count on steady increases in gambling profits to prop up the budget. However, increased competition from surrounding states has cut into sales. Gambling revenues have peaked and are now declining.
In 2013, state government took in $410 million in gambling revenue. For next fiscal year, that is projected to drop to $365 million.
There is some good news.
West Virginia has $914 million in the Rainy Day account. That money, set aside for an emergency, helps prop up the state’s credit rating and keep down debt service costs on borrowed money.
Tomblin, and before him Joe Manchin, resisted the temptation to dip into the Rainy Day fund. West Virginia needs to maintain that discipline going forward.
What West Virginia really needs is economic growth. Unfortunately, the long term future of the coal industry is uncertain. The regulatory environment and competition from natural gas mean the domestic market for coal may continue to decline.
Republican lawmakers want to eliminate the taxes businesses pay on inventory, machinery and equipment. They rightly say that every time the state puts together an incentive package to try to lure a business it includes a break on the inventory tax, so why not give every business that benefit.
It’s a valid argument, but Tomblin doesn’t want to give up that revenue when the budget is so tight. Republicans will have to wait until they hold the Governor’s office or have a majority in one of the two chambers to push that through.
In the meantime, the belt tightens a little bit more.