CHARLESTON, W.Va. -- Budget officials plan to tap the state's $920 million Rainy Day Fund to close a hole in next year's budget.
Gov. Earl Ray Tomblin delivered his budget proposal to lawmakers as part of his State of the State address Wednesday night.
Though he didn't offer many details of the proposal during the speech, he admitted there were challenges.
"This is a year of tough financial choices for our state," Tomblin said. "Our budget is strained."
During a briefing with reporters earlier in the afternoon, Revenue Secretary Bob Kiss described next year's spending plan as "an austere budget."
While Tomblin said the budget contained tough choices, he did not let that fact stand in the way of offering raises to state employees.
The balanced budget includes a 2-percent raise for teachers and school service personnel as well as a $504 annual raise for state employees. But it also features a 7.5 percent spending cut and several one-time accounting moves designed to close a $265 million revenue gap without raising taxes.
While some of those moves will involve sweeping unused money from agency accounts, as well as temporarily diverting some special tax and fee revenue to the state's general fund, a significant portion of the gap will be closed by drawing $83.8 million out of the state's reserve fund.
Kiss, during a briefing with reporters Wednesday afternoon, emphasized the moves were a response to short-term budget shortfalls and did not represent any long-term structural problems with the state's tax and spending policies.
"Yes, we're going to use some one-time resources to get through the next couple years, but we're not going to build budgets over the long term using those one-time resources," Kiss said.
He said if current tax and spending policies remain in place, the state will budget will naturally return to surpluses by 2018.
The state, in recent years, has significantly cut several taxes. The food tax for consumers was eliminated, the business franchise tax is set to be phased out next year and the corporate net income tax has been cut from 9 to 6.5 percent.
Revenue officials said the tax cuts have reduced annual revenue by about $425 million.
However, officials said one of the major revenue problems of late has had less to do with those cuts and more to do with stagnant wage growth in the state. The bulk of revenue for the state's General Revenue Fund comes from the personal income tax.
Deputy Revenue Secretary Mark Muchow said the state was banking on wage growth this year that did not materialize. He said softness in coal prices and a 28 percent decline in exports of metallurgical coal last year put pressure on wages.
"The recent decline in the coal industry has really had an impact on wage growth," Muchow said. "Between calendar year '12 and '13, mining wages went down about 10 percent. That brought overall wage growth in state down to close to zero percent."
Excluding programs funded by the State Road Fund or federal tax dollars, Tomblin is proposing a $4.7 billion budget for the next fiscal year. It's roughly $86 million more than the budget he proposed last year.
The biggest driver of costs next year is $87 million in additional Medicaid spending.
Kiss emphasized this growth is completely unrelated to the governor's recent decision to expand the Medicaid program under the federal Affordable Care Act. The federal government will pick up the entire cost of additional Medicaid spending that resulted from the expansion through the 2009 fiscal year.
Officials said the increased spending next year had to do more with general increases in costs as well as the fact that the federal government is picking up a smaller portion of the overall tab of Medicaid spending.
Muchow said that was a function of the overall health of the state's economy. Under the federal-state Medicaid partnership, as a state's economy improves, the federal government picks up less of the tab (aside from the increased spending caused by the expansion).
Kiss said when he was in the Legislature in the late 1990s, the federal government typically picked up about in excess of 80 percent of the state's Medicaid costs. As of the last fiscal year, that figure was down to 72 percent.