State 'cautious but not alarmed' over budget shortfall

Mannix Porterfield

Nov. 4, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Job losses and a decline in consumer sales tax revenues led to a $16 million shortfall in revenue estimates the first four months this year, and by the time the new year rings in, the number might soar to $100 million.

Even so, it's no time to hit the panic button, Deputy Revenue Secretary Mark Muchow says.

"Cautious but not alarmed" is the attitude Muchow agrees the Manchin administration is taking, given West Virginia's strong posture, contrasted with other states, and the fact this has meant few of the federal stimulus dollars have been spent.

"I'd rather be West Virginia than any of the surrounding states right now," Muchow said Tuesday.

West Virginia fell $1 million shy of revenue estimates last year, but no problems developed since the state sought more efficiency in government, he said.

Not all agencies exhausted their full allotments and the lottery yielded a $60 million surplus, giving the state an extra $68 million.

While some revenue producers are faring better this year, others have fallen short of expectations, notably personal income and sales taxes, Muchow noted.

"It's still to be fully measured," he said of the overall revenue picture, "but certainly a $100 million neighborhood is not out of the question."

Looking ahead a year ago, the administration envisioned a job loss of 2 percent, but so far, that number has crawled to 3.3 percent.

"Definitely, the employment numbers have deteriorated a little bit more than we projected," he said.

"And a whole bunch of other things have come to fruition. For example, interest income. We assumed the very, very low interest rates would be there a little while, then pick up because of the overall economy. It looks like it's going to be a while before the federal reserve raises the interest rates. Therefore, interest income, which is already about $3 million below estimates for the first four months, continues to be below estimates for the rest of the year."

Severance taxes are down 35 percent compared to a year ago, but that number is a bit deceptive.

Muchow said the administration had braced for a "major correction" in the tax, and even with the 35 percent decline, it remains $24.9 million above estimates through the first four months.

"Some of that $24.9 million is timing-related situations," he stressed.

"There was some severance tax, about $10 million, that should have been paid last fiscal year. For whatever reason, the taxpayers didn't pay it until the early part of this fiscal year and we ended up with a $10 million head start this year."

Muchow said his agency is still working on an income forecast for the next fiscal year, which begins July 1.

"We're actually in pretty good position relative to other states," he said.

"We were quite cautious during those good times because our revenues are very volatile in West Virginia."

The Rainy Day Fund stands at $500 million, reflecting some 12 to 14 percent of the state's budget, while the average account in other states makes up a mere 2.5 percent of general spending.

However, Senate Finance Chairman Walt Helmick told West Virginia MetroNews Tuesday the Rainy Day Fund should be used only as a "last resort" when it comes to making up budget shortfalls.

"The Rainy Day Fund, so far as I'm concerned, is off the table," adding the fund is for something catastrophic that can't be planned for.

Helmick said he thinks the projected $100 million revenue shortfall might be too low and that lawmakers will have to look at ways to reduce state spending, possibly through furloughs and layoffs.

Muchow said that aside from the Rainy Day Fund the state has $168 million in funds that have not been appropriated from the last two fiscal years.

"We're continuing to look for efficiency in state government. And policy has been to very closely scrutinize hiring practices so we hire new employees only when they're absolutely necessary. And those type of practices contributed to that $20-some million surplus in the revenue fund last year. And those policies will probably come to bear this year to help close any gaps we have this year. The gap right now is on the revenue side. We just have to bring the expenditure side into balance. We can do that a number of different ways."

Muchow said Gov. Joe Manchin's approach continues to be one of avoiding any cuts in vital services, but to seek more efficiency and look for unspent money.

In addition, the state still has some federal stimulus money in the bank.

"West Virginia has been spending those funds at a much slower pace than other states because most other states were in a recession and had revenue gaps, some going back to fiscal 2008," he said.

"There are still challenges ahead. But I think the important thing to recognize, that on the revenue side, as soon as we see an issue, we make adjustment and work on the expenditure side to look for efficiency and other means to balance the picture."

Besides, in a $4 billion state budget, he pointed out, $100 million is about 2.5 percent.

"That's not a tremendously huge amount," Muchow said.

"We have the means to work from a number of different angles without jeopardizing services."

-- E-mail: mannix@register-herald.com

Newstex ID: KRTB-0382-39445753