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Gov. Jim Justice is approaching fiscal year 2023 with caution, introducing a budget that is set as low as possible with the hope that lawmakers will be able to allocate surplus revenue to pay for certain government initiatives as the year goes on.

Justice proposed a $4.645 billion budget, a 1.6% increase from the budget proposal he gave last year, to lawmakers to start the 2022 legislative session.

That proposal paired with the celebration of three significant economic developments were the topics of Justice’s State of the State message, delivered in writing to the West Virginia Legislature Wednesday evening, one day after the governor tested positive for COVID-19.

House of Delegates Clerk Steve Harrison read the statement aloud Wednesday evening.

Justice’s budget includes a $114 million measure to put a 5% pay increase into effect for state employees. It also includes a $41 million to pay for a new contract for health care services for inmates in West Virginia’s regional jails and prisons.

“For the fourth year in-a-row, I am proposing an essentially flat budget, which includes a third historic pay raise ... for our state employees,” Justice said in his written State of the State address. “We are not dipping into the Rainy Day Fund, which I am proud to report now has over $1 billion in funding! We are blessed as a state with the flexibility to fund projects out of our surplus funds without building the base of our budget in the future.”

The Legislature ultimately adopted a $4.95 billion measure for fiscal year 2022, which began July 1, 2021, and ends June 30 of this year.

Justice’s proposal for fiscal year 2023 is $155 million higher than the measure the Legislature approved during last year’s legislative session. That difference largely includes the pay increase, jail health care contract, and budget adjustments made this fiscal year since the regular session ended.

Most state agencies don’t experience any substantial cuts or increases to their budgets, State Budget Office Director Michael Cook said.

The only exceptions to that were the $114 million increase to accommodate 5% pay raises to state employees and the increase in cost of the contract for health care services to inmates in West Virginia’s jails and prisons.

The increase from the 2022 to 2023 fiscal year was small, relative to the 7% inflation the state experienced Wednesday, Secretary of Revenue Dave Hardy said during a budget presentation before the governor submitted his budget to the Legislature.

The COVID-19 pandemic has made it challenging to curate a budget, because it’s difficult to predict the evolution of the coronavirus and how it will affect the economy, and inflation has increased amid the injection of federal COVID-19 relief funds into the economy, Hardy said.

The state’s revenue streams are unpredictable right now, he said.

“Just to say we’re in extraordinary times would be the understatement of the year,” Hardy said. “This is our third fiscal year that we have tried to work with our budget and, of course, it has been very difficult. I would say, basically, the Department of Revenue, along with the governor, we ride the lightning every day with our revenue, because everything can change and all the traditional models have changed, as well.”

The state’s revenue predictions are “cautious,” Hardy said because of the unpredictability of revenue. The state is taking a conservative base budget approach, with the goal of having the Legislature reconvene if revenue in excess of the state’s base budget becomes available.

“It leaves room for other expenditures as the fiscal year progresses,” Hardy said. “So, the worst thing that can happen is our actual revenue exceeds our projections, and we can go back to the Legislature and have other expenditures as the dollars become available, and that, of course, is the best-case scenario.”

West Virginia has fully recovered fiscally from the recession brought on by the COVID-19 pandemic in spring 2020, and Justice’s budget and revenue team expects the state to be on firm economic footing, in terms of business development and revenue support from that, in fiscal year 2023, even as the markets, inflation and one-time federal revenue remain unpredictable, Deputy Revenue Secretary Mark Muchow said Wednesday.

The rebound has, in large part, been because of a “tremendous rebound” to the energy sector, Muchow said. There’s an imbalance between supply and demand that doesn’t often occur in the energy market, he said.

“We still expect a pretty strong economy here in West Virginia, as well as nationally, as we try to bring supply and demand back into balance with each another and try to slow inflation down,” Muchow said.

Lacie Pierson covers politics. She can be reached at 304-348-1723 or lacie

.pierson@hdmediallc.com. Follow @laciepierson on Twitter.

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