With December marking another dismal month for tax collection, West Virginia Department of Revenue officials are now projecting the Mountain State will finish the 2015-16 budget year on June 30 with a funding deficit of $353 million — a shortfall of nearly 10 percent of the general revenue budget.
Revenue Secretary Bob Kiss said Wednesday that Gov. Earl Ray Tomblin will offer next week a “courageous and responsible plan” for dealing with the budget deficit and to balance the 2016-17 budget. Tomblin will give his sixth and final State of the State address to a joint session of the Legislature next Wednesday.
“I think you’re going to see from Governor Tomblin an exhibition of leadership on how to get through this,” said Kiss, who declined to talk specifics, except to say that Tomblin does not intend to raid the state’s two Rainy Day reserve funds to close the funding gap.
“The easy thing to do might be to say, ‘Let’s take another $200 [million], $300 [million] or $400 million out of the Rainy Day Fund,’ but it’s not the right thing to do.”
In the 2015 budget bill, legislators proposed taking $22.9 million out of the Rainy Day funds to balance the budget, but Tomblin used his line-item veto to reduce that amount to $14.8 million.
The two reserve funds have a combined balance of $801.8 million.
Tomblin, whom Kiss noted has dealt with state budgets for most of his adult life — as Senate Finance chairman, Senate president and governor — maintains a “continued strong commitment to the fiscal stability of the state of West Virginia,” Kiss said.
Asked if Tomblin will propose tax increases to offset the budget shortfalls, Kiss said, “Obviously, anybody that follows this process knows that, if your income is less than your expenses, you’re either going to cut more or raise revenue. Those are basically your two options.”
As it became apparent the state would have a budget deficit, Tomblin in October ordered most state agencies to cut spending by 4 percent. That follows consecutive 7.5 percent spending cuts ordered for most agencies.
In recent years, the state erased nearly $450 million a year in tax revenue by eliminating the sales tax on food, phasing out the business franchise tax and reducing the corporate net tax, from 9 percent to 6.5 percent.
While those cuts are built into the revenue estimates, state Revenue officials had not anticipated the sharp drop in global energy prices, which has caused severance tax collection to plunge and also has dragged down income tax collection, as energy-sector employment and royalties have declined.
Deputy Revenue Secretary Mark Muchow said severance tax collection for December was $15.6 million below estimates and, for the first half of the budget year, collection is off by $94.4 million, or 47 percent below estimates.
That’s primarily because prices for coal, natural gas and oil have fallen 30 percent to more than 50 percent in the past year, he said. Currently, natural gas is going for about $1.20 per Mcf, while a year ago, it was running close to $4, he noted.
“We think this is a prolonged, several-years situation,” Muchow said of the weak energy market.
Overall, the state collected $335.1 million in taxes in December, $43.5 million below estimates, and 10 percent less than December 2014, Muchow said.
With the 2015-16 budget year at the midway point, overall collection of $1.85 billion is $158 million below estimates, and is down 6 percent from the same point last year, he said.
One bright spot in the revenue figures might be that beer tax and license-fee collections of $3.8 million, year-to-date, are 4 percent above estimates, and 10 percent above the same point in December 2014.
Muchow said part of that increase might be attributable to a new law that went into effect in June to promote craft breweries in the state.
Among the changes, the law allows the sale of 32- and 64-ounce growlers of beer at various retail locations. Previously, growlers could be filled only on the breweries’ premises.
“Certainly, the craft beer laws can’t hurt,” Muchow said, “and they probably are helping a little bit.”
Reach Phil Kabler at firstname.lastname@example.org, 304 348-1220 or follow @PhilKabler on Twitter.