Gov. Jim Justice’s proposed 2021-22 budget is so flat that it actually is about $4.8 million smaller than the current general revenue budget, West Virginia officials said Wednesday.
That means no new programs or spending initiatives, and no across-the-board pay raises for state employees, teachers or school service personnel, officials said during the annual budget briefing for state media.
“You might want to call it a zero-growth, flat budget,” Revenue Secretary Dave Hardy said of the proposed $4.569 billion 2020-21 general revenue budget, down from the current $4.574 billion spending plan.
Including state Lottery profits, the proposed budget is $4.92 billion, also down from the current budget year.
“The governor was very adamant with us,” Hardy said, “in that he wants this budget to be a flat budget.”
Because inflation in recent years increases costs by about 1% to 2% annually, a flat budget effectively requires state agencies to reduce spending, he said.
“Almost without exception, they did stay within last year’s budget,” he said of state agency spending requests.
A flat budget proposal also effectively erased state Budget Office Director Michael Cook’s part of Wednesday’s budget presentation, since it means a budget that features practically no new spending or improvement packages.
“There’s really not a lot of highlights with this budget,” Cook said.
The budget does fully fund PEIA, the public employee health insurance program, and makes full contributions to all public employee and teacher retirement systems, he said.
Also, for the fifth straight year, the state will not have to raid Rainy Day emergency funds to balance the budget, he said. As of Jan. 30, the Rainy Day funds have a balance of $930 million, equal to about 20% of the general revenue budget, Cook said.
The governor’s proposed budget also does not account for any tax cuts the Legislature might take up this session, including discussions of phasing out the state income tax, which produces roughly $2.1 billion a year in revenue — about 43% of the entire general revenue budget.
Deputy Revenue Secretary Mark Muchow said Wednesday any tax cuts would require rewriting the budget bill.
“That’s a new deck of cards, and we would have to substitute a new deck of cards for the cards we have today,” he said.
Muchow noted that the current budget has fared well in the midst of a pandemic, because of an infusion of federal stimulus money and a pushback of the income tax filing deadline from April to July 2020, the latter moving about $200 million in revenue from 2019-20 into the current budget year.
That funding shift has revenue running about $123 million ahead of the same point last year. Without it, he said, the state would be down about $77 million.
That also has helped push one of the two main pillars of state revenue, personal income taxes, into the black, Muchow said.
The other key source, consumer sales taxes, also are running about $42 million (5.2%) ahead of the same point last year, as an infusion of federal funds — mainly in the form of stimulus checks and enhanced unemployment compensation benefits — pushed up personal income and consumer spending during the spring and summer of 2020.
Muchow said federal stimulus funds accounted for 15% of all income in West Virginia from April through June 2020.
While stimulus funds bolstered parts of the economy, Muchow noted, the same can’t be said of the energy sector, as state severance tax collection is down 37% from last year because of plunging natural gas prices and coal production.
“The energy sector was weak to start with, and then the pandemic caused even greater weakness,” he said.
However, he said, projections are for severance taxes to have a small bounce-back in 2021-22, as rising natural gas prices nationally should cause a temporary increase in demand for steam coal used in power plants, and a recovering world economy should increase demand for metallurgical coal exports.
“Long-term, I think the downward pressure on steam coal is going to be around forevermore,” Muchow added.
He said economists are hopeful that, if COVID-19 vaccinations continue to ramp up and cases continue to decline, the national economic rebound should continue, making a full recovery by the end of 2022.
While he said he is hopeful most sectors of the economy, including hard-hit leisure and hospitality industries, will make a full recovery, that probably won’t be the case for brick-and-mortar retail.
“That was a trend going on ahead of the pandemic,” he said of the shift to online shopping, “and the pandemic accelerated it.”