Coal slowdown hits state budget hard

The West Virginia Economic Outlook for 2016recently published by WVU’s College of Business and Economics, began with this ominous news: “After consistent and healthy job growth between 2010 and mid-2012, the state has seen employment decline for most of the last three years, with a cumulative loss of nearly 8,000 jobs.”

The WVU researchers said a significant portion of the job losses have come because of weaker than expected construction activity and the downturn in the coal industry.  “Coal output has fallen by around one-third since 2008 [emphasis added], with the losses occurring in the state’s southern coalfields.”

That report foreshadowed what came this week from the Tomblin administration. The Governor announced Monday a series of budget and spending cuts because revenue collections are falling short of projections, largely because of the steep decline in coal severance taxes.

Most state agencies have to reduce spending by four percent, while public education will take a one percent cut. The state government hiring freeze will continue, nonessential travel is canceled and even the annual holiday parties have been called off.

But those measures still won’t cover the entire $250 million projected shortfall this fiscal year.  Tomblin will ask lawmakers when they return in January to eliminate some one-time appropriations and dip into the Rainy Day Fund to cover the rest.

Tomblin says the state’s finances have not been this bad since the 1980s when a protracted state recession left the government unable to pay mounting bills, while falling behind on state income tax refunds.  The crisis led new Governor Gaston Caperton to raise nearly $500 million in taxes.

Governor Tomblin, who has a long history of fiscal prudence, has no such tax increase plans.  Instead, he’ll continue belt tightening, while reluctantly tapping the Rainy Day Fund, which has a balance of $869 million and was established for just such downturns.

Meanwhile, state agency heads continue to try to find ways to do more with less.  This is the third year in a row their budgets have been reduced during the fiscal year (7.5 percent in FY 2014, 7.5 percent in FY 2015 and now 4 percent in 2016).  And they should not expect any improvement for the 2017 budget year. .

To West Virginia’s credit, however, the state continues to pay its bills, anticipates no delays in upcoming income tax refunds, and is keeping up payments to its pension programs. For example, this fiscal year, the state budget includes a $400 million payment to lower the unfunded liability to various teacher and public employee retirement programs.

Contrast that with neighboring Kentucky, which had its credit rating downgraded last month because it has failed to address its chronically underfunded pension programs.

So it could be worse.

Clearly, the biggest yoke on West Virginia’s economy is the dramatic slowdown in the coal industry.  Historically, the industry has always had valleys, but they have been followed by peaks.

However, the energy glut from the shale boom combined with the oppressive environmental regulations from the Obama administration have devastated coal… and that’s hitting home. State officials say $190 million of the projected $250 million budget shortfall this year is a result of the precipitous drop in coal severance tax collections.

Coal has a checkered legacy in the state, which is why you will hear many West Virginians say they are ready to move away from coal.  There’s a serious flaw with that logic; that’s where the money is.

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