West Virginia heads into the new fiscal year with some trepidation.
Yes, the previous fiscal year ended June 30th with good news; personal income tax collections rose a robust 10.4 percent in FY 2015, after declining 2.2 percent the previous year. The Consumer Sales Tax generated $1.228 billion, slightly below estimates but still $55 million higher than FY 2014.
Those numbers prompted state Revenue Secretary Bob Kiss to suggest consumer confidence is gradually returning following the 2008-2009 recession.
“That tells me, to some extent, the economy is finally rebounding from the doldrums we have seen for too many years,” Kiss told reporters last week when he released the numbers.
But any positive news is overshadowed by the dark cloud hanging above the energy sector. The energy glut, while good for consumers and likely a factor in any rising consumer confidence, is cutting deeply into state tax collections.
An average decline of 10 percent in coal prices and a whopping 30 percent decline in natural gas prices in FY 2015 contributed to a 15 percent drop in severance tax collections, down from $489 million in FY 2014 to $414 million last year. That contributed to an end-of-year budget shortfall of $60 million, which had to be made up through a hiring freeze (which continues into the new fiscal year), a mid-year budget cut and a sweep of state accounts to collect almost $13 million.
“We are seeing less severance tax than we anticipated,” Kiss said. “If that continues, it could be a double-whammy in the sense that it’s not only being driven by reduction in prices, but at some point will cause a reduction in production.”
Exactly. We’ve already heard reports of natural gas drillers slowing down operations because of lower prices, while coal is battling low prices as well as protracted regulatory challenges from the Obama administration and the EPA.
All this will make for a tough FY 2016, and that’s even before lawmakers gather for their regular session in January, when pressures will grow for teacher and public employee pay raises and more money for road building and repairs.
True, the Governor and lawmakers can always work harder to find ways to spend less money, but government services all have constituency groups that know how to bring political pressure to protect their budgets.
But a growing, vibrant economy is the best solution. On that front our state faces considerable challenges for the new fiscal year and beyond, from energy prices that are beyond our control, to the unyielding fixation of the growing anti-coal forces, to the dearth of skilled workers and our worsening drug problem.