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State at risk of budget changes

CHARLESTON, W.Va. -- A top official in Gov. Earl Ray Tomblin's administration said the state could face mid-year budget cuts or a hiring freeze if budget numbers don't start improving.

"We haven't taken anything off the table," Tomblin Chief of Staff Charlie Lorensen said.

Tomblin doesn't have many options to balance the budget, however. The state is required to maintain a balanced budget, revenues aren't increasing and Tomblin has pledged to avoid tax increases.

Lorensen said there are still alternatives to digging into the state's rainy day funds, however.

He said the state could make mid-year budget cuts to agencies that could afford it, as Gov. Joe Manchin did in 2009, or institute a hiring freeze, as Tomblin did in March of this year.

He said there are also accounts set up by the Legislature that could be used to balance the budget if the need should arise. The Governor's Office would need legislative approval before digging into those pockets, however.

"We'll take corrective action," Lorensen said. "It'll be painful, but it'll bear fruit."

According to the November revenue report, released Tuesday, the state tax collections are about $57.4 million behind estimates after the first five months of fiscal year 2014.

That's mostly driven by lackluster personal income tax collections, which are $37 million behind estimates year to date.

Severance tax incomes also contribute to that shortfall, bringing in about $7 million less than expected through December.

Deputy Revenue Secretary Mark Muchow said the sluggish severance tax collections were partially caused by the Thanksgiving holiday and will likely be remedied in December.

The state collected $14.9 million less than expected in November, mostly because of a $14.2 million shortfall in coal and natural gas severance tax collections.

"If it weren't for severance tax, overall we'd be close to estimate," he said.

Muchow said November is the "most unusual month of the year" for budget reports, because of the Thanksgiving holiday.

While the holiday is always on the fourth Thursday of the month, the date changes each year, which sometimes skews tax collection numbers.

In November 2012, the last business day was Nov. 30. This year, it was Nov. 27. Muchow said that created some uncertainty about when people needed to pay their business and occupation, motor fuel and severance taxes.

Because of that confusion, the state collected only $20.7 million in coal and natural gas severance taxes, missing estimates by $14.2 million.

Muchow expects to see severance tax collections rebound in December and is already seeing that prediction come true.

"We've collected more in the first couple days of December than in all of November," he said.

As of Tuesday evening, the state had collected $27.8 million in severance taxes.

There are other budget problems on the horizon.

Sales tax collections continue to perform below expectations. Lorensen and Muchow blame the expiration of a two-percent federal tax break that went into effect earlier this year.

Many budget gurus, including Muchow, believed Congress would not allow the tax breaks to expire and took the cuts for granted when making their 2014 projections.

Muchow said the state also could see millions more in losses due to an alternative fuel vehicle tax created by the Legislature in 2011.

The credit allowed car buyers up to $7,500 off the purchase of natural gas, liquefied petroleum gas, or ethanol-powered vehicles, as well as cars equipped to run on mixed fuels like gas and ethanol.

The tax write-off proved costly for the state, which processed around $60 million in credits for 2011 and 2012.

While state lawmakers have since repealed the tax credit, some people can still claim those credits.

Muchow expects another wave of tax credits coming between February and June as people realize the program is ending for good. He still does not know how much those will cost the state, but hopes it will be less than $50 million.

Contact writer Zack Harold at 304-348-7939 or zack.harold@dailymail.com. Follow him at www.twitter.com/ZackHarold.


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