Most of the coverage of the recent bond rating report from Standard & Poor’s focused on the bad news—the downgrade of the state’s bond rating from AA to AA-minus. But the report has more information that provides an independent and informed view of the negatives as well as the positives of West Virginia’s economy.
On the negative side:
—Mining employment declined nearly 13 percent between December 2014 and December 2015. Those job losses have contributed to an overall decline in the state’s employment of 1.5 percent and a jobless rate of 6.5 percent in February (The second highest in the country after Alaska at 6.6 percent).
—The impact of EPA regulations on coal is real. “Ongoing federal clean air initiatives and a heightened regulatory environment for coal production will continue to dampen demand for mineral and ore exports, which account for over 50 percent of West Virginia’s international shipments,” the S&P report said.
—The report predicts “West Virginia’s economy will continue to experience contraction” because of the decline of coal.
—Coal’s collapse is being felt not just in the precipitous fall in severance tax collections, but also in other revenue producing sectors. Income and sales tax collections are falling below estimates. (Last week, state Revenue Secretary Bob Kiss confirmed that when new revenue figures are released they will likely show another shortfall this fiscal year of approximately $100 million.)
On the positive side:
—S&P says the state maintains “Strong Rainy Day Fund balances that provide flexibility to weather temporary revenue shortfalls.” (That explains Governor Tomblin’s reluctance to dip too deeply into the fund for fear of another rating downgrade.)
—The rating agency says the state has “demonstrated willingness and ability to tackle large-scale financial challenges, as evidenced by the progress made in addressing West Virginia’a unfunded pension liability and other post-employment benefits.”
—S&P took notice of Macy’s and Procter & Gamble opening large operations in the eastern panhandle. The agency sites a report by IHS Global Insight noting that “the state’s cost of doing business is among the lowest in the country,” which helped attract those two projects.
These are challenging times for our state, and course corrections are necessary. However, during tough times it’s also important to take note of the positives; we have money in the bank, current bills are being paid on time and long-term obligations are being met.