State officials confident tax increases not necessary
West Virginia does not yet need to consider increasing taxes or eliminating tax credits to fill a budget gap of more than $250 million ahead of the 2015 fiscal year, state budget officials said Thursday.
The head of the West Virginia Center on Budget and Policy, a left-leaning West Virginia think tank, believes the state should at least examine its tax levels and current tax credits.
Revenue Secretary Bob Kiss sent a letter Monday to state agencies asking them to prepare two budgets for 2015: one with no cuts, and one with a 7.5 percent budget reduction. If implemented, it would be the second straight year the state has required a 7.5 percent cut.
Gov. Earl Ray Tomblin ordered the cut last year, but Wednesday his spokeswoman Amy Shuler Goodwin said this year's request is a precaution. State Budget Office Director Mike McKown said agencies should expect the cut.
McKown and Deputy Revenue Secretary Mark Muchow said Thursday the state can handle the budget hole without considering tax hikes or eliminating more tax credits.
"If I had to balance the budget today, we could manage it," McKown said.
The state faced a $390 million budget gap last year. Officials took the $75 million from the 7.5 percent cut, $88 million from a previous budget surplus and monies not appropriated from state accounts to fill the gap.
The state made a few last-minute moves to balance the 2013 budget. Days before the end of the budget year, the state cut $17.7 million in Medicaid reserve funding and emptied $45 million from a special account used for paying income tax returns.
McKown said similar accounts could be swept if such a situation arises at the end of the current fiscal year.
The gap facing the state for the 2015 budget year is hovering around $265 million right now. Muchow and McKown expect another $75 million from the 7.5 percent cut.
Muchow said rising natural gas production and prices for natural gas should mean increased revenue from severance taxes associated with the industry too.
For July, the first month of the 2013 budget year, the stated collected $45.8 million in severance taxes. That's 33 percent more than the same time period last year.
There's no guarantee severance tax collections will remain high, and they repeatedly fell below expectations during the last fiscal year. In his letter, Kiss said he doesn't expect revenues to keep pace with the cost of state programs, blaming "the recent sluggish national economy and a slowdown in the mining of coal."
He also points to the additional $100 million the state anticipates it's going to need to fully fund Medicaid, a problem budget officials faced last year as well.
The state was able to balance the budget for the current fiscal year without taping into the Revenue Shortfall Reserve Fund, commonly known as the rainy day fund. Administration officials said using money from the fund was an option last year. Muchow and McKown agreed the state might need to dip into the more-than $900 million account.
Using money from the rainy day fund is a first step in addressing long-term financial woes, said Ted Boettner, executive director of the West Virginia Budget and Policy Commission.
Many agencies were exempt from the 7.5 percent cut last year: the school aid fund, corrections, child protective services and more. Higher education was not: Boettner said the state should consider taking money from the rainy day fund before cutting millions from money meant for colleges.
Blaming Medicaid or a sluggish economy doesn't account for the full financial picture either, Boettner argued. He pointed to cuts in corporate and business tax rates, the elimination of the food tax and tax incentives as other reasons the state doesn't have as much money as it did in the past.
"It's an empirical fact that when you cut taxes and remove a significant amount of revenue, you're going to see budget cuts unless you increase taxes," Boettner said.
Boettner pointed out the state collected less business taxes during the last budget year than it did in the 1999 fiscal year. Companies mining coal from "thin-seamed" mines-seams of less than 45 inches in average thickness-received $75 million in tax relief in 2011, compared to about $23.5 million in 2006.
"Nobody wants to say, 'Hey, wait a minute, wait a minute, some of our budget problems are self-inflicted,' " Boettner said.
Boettner said he doesn't necessarily think the state should increase corporate or business taxes. But he thinks examining tax credits and subsidies to see if they are functioning as intended could potentially help the state find new revenue.
He does thinks the state should increase its tax on tobacco. West Virginia taxes 55 cents per pack, putting it at 44th in the nation, according to the Federation of Tax Administrators.
There's a reduced tax rate for mining thin-seamed coal, but Muchow said even with the reduced rate the state collects about three times more from coal severance tax now than 10 years ago.
More broadly, Muchow said the back-to-back budget cuts don't reflect the trend. The state anticipated the 2014 and 2015 budget years would be lean, and Muchow said they'd balance the books with the resources they have.
The state is required to pass a balanced budget. Kiss called on agencies to submit both budget plans by September 3. The state will meet with each agency in the fall, hashing out budget details.
Tomblin will present the budget to the Legislature in January 2014. Legislators have the final say on passing a budget.