A crisis like the coronavirus outbreak creates an immense amount of pressure on state and local government finances. Demand for vital public services escalates just as the revenue to support those services takes a major downturn.
West Virginia is already in a tight budget situation, with resources stretched thin. Before the effects of the crisis were really felt, state revenue for the current fiscal year was already $18.7 million below estimates, with little growth anticipated in the coming fiscal year. The state already is facing multiple years of budget gaps, including $170 million in fiscal year 2022 and $158 million in FY 2023, under current projections.
There is no doubt, with factories and restaurants closing, layoffs occurring and most economic activity at a standstill, state revenue will see a dramatic decrease in the coming months. Sales, personal income and corporate income tax revenue are all likely to decline as people cut back on spending, businesses temporarily or permanently close their doors and employees see reduced hours or lost jobs.
Even shifting the deadline to file taxes from April 15 to July 15 will affect state finances. As people stay home, gas tax collection also will plummet, making it more difficult to pay back the road bonds issued over the past two years.
How much of an impact there will be is still unclear, but will it be significant. Estimates show that West Virginia could lose as many as 25,000 jobs by the summer, even with a moderate economic stimulus bill from the federal government. To put that loss into perspective, West Virginia lost about 22,000 jobs during the 2009 recession, but those losses happened over a period of 15 months. The impact from the coronavirus would be nearly as large in a fraction of the time. Already, we learned this week that the state’s weekly initial unemployment claims have spiked from 1,003 to 17,000.
During the recession, state revenue plummeted. Personal income taxes fell by more than 7% between FY 2009 and FY 2010, dropping by more than $110 million. West Virginia should expect losses of that magnitude and more in the coming months. Local governments, relying on local sales taxes, should expect major losses, as well.
Without adequate revenue, West Virginia will be forced to cut back on its investments in health care, the safety net, education and countless other services at a time when they are needed most.
Which is why it is imperative that any stimulus package from the federal government contain significant fiscal aid for state and local governments. While West Virginia has a healthy Rainy Day Fund, with a balance of more than $800 million, it’s not enough.
West Virginia weathered and recovered from the 2009 recession in large part because of financial assistance from the federal government. The 2009 Recovery Act provided West Virginia with $728 million in federal aid, including about $462 million in enhanced Medicaid funding, $218 million for K-12 and higher education, and $48 million for general government services.
Later actions provided an additional $136 million in fiscal relief, protecting the state’s investments in health care and education as the economy recovered. Already, the National Governor’s Association has called on Congress to provide $150 billion in immediate direct aid to the states.
Given the severe threat to the economy — and the resulting threat to state finances — aid of that magnitude might very well be necessary in the coming months if West Virginia wants to avoid laying off teachers and other workers and cutting services in other ways that will further harm the economy and put public health at risk.