Member's Press Release

Release Date: 03/15/2016
Contact: Delegate Mick Bates at (304) 340-3240

Mick Bates

The State of the State Budget

Charleston, WV - There is one piece of legislation that the Legislature is constitutionally required to pass during the 60 day legislative session: the budget bill. The 2016 Legislature couldn’t get the job done. At a time when everyone at the Capitol knew about the revenue shortfall West Virginia was facing for the current fiscal year, getting our state’s finances in order for Fiscal Year 2017 should have been a priority. It wasn’t. I feel that the citizens of West Virginia deserve an explanation.

Energy states, like West Virginia, tend to rely more heavily on severance taxes on oil, natural gas and coal for income for state operations and services. Severance taxes are a source that is volatile in nature. There are good years and bad years, and projections are not always accurate. Over the past year, we have had a very bad year with natural gas and coal prices and production plummeting. As a result, the loss of severance tax revenue blew a $800 million hole in the budget. The majority of this budget hole was closed with 4% across the board cut in expenses, several supplemental appropriations bills and some other adjustments that left approximately $150 million gap to fill for FY2017. The Governor proposed fixing this hole with revenue enhancement measures including taxes on tobacco and telecommunication services.

The Senate adopted a tobacco tax – but neither the House nor the Senate considered the telecommunications tax proposal. The House voted down the tobacco tax proposal and refused to consider any other revenue measures, instead choosing to fill the budget hole with short term money and seizing balances of unspent money in a number of accounts from agencies. This plan was not thoroughly vetted with those agencies and could have resulted in layoffs or major disruption in services. The House plan to supplement our budget with these swept monies failed in the Senate. The proposed House budget plan was not a forward-thinking or sustainable approach. It was a one-time fix.

So, the Legislature will adjourn without a budget. The House and the Senate could not agree on an alternative proposal that would meet approval by the Governor, so we are in a Mexican standoff.

Why won’t the Governor approve a budget that relies on one-time monies and drawing from our state’s savings account? West Virginia’s bond rating. West Virginia has a strong bond rating. This rating was established because of fiscally responsible decisions by executive and legislative leaders over the past 20 years. Previous legislatures have been able to build up a healthy revenue rainy day savings account of approximately 18% of the General Revenue budget.

Why does this matter? It matters because just like the biggest bill in your family’s budget that you pay each month is the mortgage- and you want a good interest rate on your mortgage. The state borrows money to build and improve roads and schools. A lower interest rate means you get more money for schools and roads and pay less in interest.

This interest rate is established by the rating companies. They calculate the state’s credit score by looking at 4 things:

1. what outstanding debts a states have.

2. the current year’s budget, income and expenses - do they match?

3. the projected budget over the next 5 years- is it structurally sound? Does it anticipate the growth in expenses that occur with inflation each year?

4. the balance of the states’ savings account- does a state have enough money (typically at least 15% of its general revenue) to take care of any unseen problems that might arise?

The rating agencies have recently downgraded our neighbor Pennsylvania for a failure to address its budget in an appropriate manner, and now they are looking closely at West Virginia.

West Virginia is at crossroads. Energy prices and production are not likely to rebound anytime soon and remain volatile for number of reasons. Responsible leadership recognizes this and looks to find a balanced approach to balancing the budget. This balanced approach must look not only at where we can save money and be more efficient in state government but also new, stable sources revenue. To not do so places not just our rainy day savings fund at risk, but also our credit rating – all at the expense of the taxpayer.

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