CHARLESTON, W.Va. (October 5, 2015) – Gov. Earl Ray Tomblin today announced an across-the-board cut of 4 percent for most West Virginia government agencies, a move made necessary largely due to unexpected and unprecedented drops in the state’s severance tax collections.
“This is a difficult decision that results from several factors beyond our control,” Gov. Tomblin said. “We are taking this action based on trends we see in the first three months of the fiscal year that we expect to continue throughout this budget cycle. While the cuts we’re enacting today will not be easy, we must maintain a balanced budget and this will help us do that.”
State aid to public schools, which has not been subject to budget cuts in recent years, will see a 1 percent reduction.
In addition to the spending cuts, Gov. Tomblin announced the state hiring freeze will continue, nonessential travel for state employees will be eliminated, and the annual holiday parties will be canceled. The governor met with legislative leaders Monday afternoon to discuss the situation.
The projected deficit for Fiscal Year 2016 is currently more than $250 million, in large part due to a $190 million shortfall in severance tax collections. As of Sept. 30, general revenues are more than $60 million behind estimates, a figure that has grown quickly from a $12 million deficit at the end of August.
In addition to cuts that represent more than $100 million, the state will use one-time appropriations to close the budget gap. An appropriation from the Rainy Day Fund is possible, although Gov. Tomblin pledged to keep that figure as low as possible. The Rainy Day Fund was created in 1994 under the leadership of then-Senate President Tomblin and has grown to $869 million, a figure about 5 percent higher than the 15 percent bond rating agencies have suggested is necessary to keep the state’s high bond rating that reduces borrowing costs.
“We have been prudent in our use of the Rainy Day Fund, and adjustments prior to this budget year beginning resulted in us taking just $14.8 million from the fund rather than the $85 million initially expected,” Gov. Tomblin said. “We continue to have one of the best Rainy Day Funds in the country, and we created the fund for unexpected difficult times such as this.”
Severance tax collections rose 2 percent during the first nine months of Fiscal Year 2015 but dropped by 31 percent during the final three months of the last fiscal year and dropped 36 percent during the first two months of Fiscal Year 2016. Coal production is down 15 percent compared to last year. Although natural gas sales are up roughly 30 percent early this fiscal year, natural gas severance tax revenues are expected to decrease for the year because of significantly lower prices.
It is worth noting that a significant portion, more than $400 million of the state’s $4.2 billion budget, goes toward paying off old unfunded liabilities such as the Teachers Retirement System. The state has never missed one of these payments, which is critical to the long-term financial stability of the state, and Gov. Tomblin reiterated Monday that the state remains committed to making all appropriate payments toward paying off those liabilities.