Coal, natural gas slowdown affects W.Va. budget

Keeping a tight grip on the state budget of West Virginia is like hanging on to the reins of a bucking bronco; it’s hard to know what’s going to happen next.

There are predictable factors and long-time Deputy Revenue Secretary Mark Muchow has become particularly adept at economic forecasting.  Those revenue projections are vital because the state’s budget is based on how much tax money Charleston believes it will collect.

The coal and natural gas industries are critical to the state’s economy, but as commodities, they are subject to significant market swings, and right now the trend is downward.

Coal and gas severance tax collections for the first three months of this fiscal year are running 26 percent below estimates and 39 percent below the same period last year.  That translates into $59 million in severance tax collections for July, August and September, or $26 million less than expected.

Additionally, these drops do not happen in a vacuum.  Price declines and production slowdowns have an impact on suppliers and other related businesses.

The Justice administration wants to get ahead on this by asking state agencies to prepare to cut a $100 million from this year’s general revenue budget.  “We like pro-active,” said Revenue Secretary Dave Hardy.  “The governor said do not wait until this becomes a problem.”

Hardy said if the numbers improve later in the fiscal year then the spending can be restored. “It’s just getting ahead of the numbers,” he said on Talkline.

That precautionary measure also extends to the next budget year.  The administration has told department heads to cut their spending plans for next fiscal year by 4.6 percent.  “We’ve asked them to tell us how they propose to cut their budget,” Hardy said.

These are prudent steps by the Justice administration.  It’s much better to trim spending early in the budget year as a safeguard than try to cut costs substantially as the budget year nears an end.

However, politically this a problem for the Governor.  Justice, who is given to hyperbole, promised an economic “rocket ship ride” for the state, and the state’s economy has improved over the last several years.   But it’s difficult to tout economic accomplishment when revenues fail to meet projections.

Additionally, we are now in an election cycle and his opponents—both Republican and Democrat—will be quick to point to the numbers as a sign of unfulfilled promises on the part of the Governor.

Politicians always talk about the economy because that’s usually the number one concern of voters.  That’s especially true in West Virginia.  Political leaders also want to take credit for economic gains, but much of what happens is beyond their control.

That’s especially true when the economy is heavily dependent on industries like coal and natural gas that are subject to the ebbs and flows of a global market.

But if you take credit for the good numbers, then you are inevitably going to be blamed for the bad ones.


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