The Times West Virginian

Opinion

November 8, 2009

$100M budget deficit not so alarming

While national economic experts predict that this country is coming out of The Great Recession, we all know there will be aftershocks for fiscal years to come.

And while West Virginia has fared better than most states when it comes to budget deficits, administration cutbacks and unemployment, it was bound to happen that the state would see some kind of effect from the worst economic storm the nation has seen in decades.

And it appears that has come in the form of a $100 million shortfall by the start of the 2010 fiscal year.

This has led to a “cautious but not alarmed” attitude within the Manchin administration, top officials have told newspapers across the state once the budget shortfall was announced.

And there are obvious reasons to be “cautious.”

The biggest hits the state has faced in revenue collection is personal income and sales taxes. Those numbers aren’t the kind that magically return to normal overnight. Consumer spending is certainly down, and even though West Virginia’s unemployment levels are way below the national average, the 3.3 percent job loss has still been an issue in the Mountain State — a bigger number than the 2 percent projected.

Interest rates are still hurting the state as well, and the federal reserve has yet to increase rates to what state officials had projected. Severance taxes were also down by 35 percent.

But there are even more reasons why the state should focus on “not alarmed,” even with a projected $100 million budget shortfall.

Even with the economy at its worst, West Virginia ended last fiscal year with a budget surplus of $68 million. While much of that is the result of fiscal conservatism and some cutbacks, the financial plan through the worst of the storm seemed to work for this state. The Manchin administration was cautious during the “fat” times to prepare for the “lean” times.

That has led to a $500 million Rainy Day Fund, which represents in the neighborhood of 12 to 14 percent of the state’s annual budget. And consider how West Virginia compares to other states with contingency funds — the average is about 2 to 3 percent put aside.

And speaking of money put aside, the full amount of the Obama stimulus funds given to West Virginia has yet to be spent. While many states used the funds to fill revenue gaps that opened as early as 2008, West Virginia hasn’t had to dip into those federal funds to pay the bills and has spent at a much slower pace than others. Officials report that only $250 million of the allotted $1.8 billion was spent between February and September.

October revenue has also exceeded estimates. Corporate net income, business franchise and natural resource severance taxes all beat October estimates.

And also stop and consider what a $100 million shortfall means for an overall state budget of $4 billion — 2.5 percent. That isn’t too shabby.

And the Manchin administration is already making plans to lessen the impact of potential shortfalls to come. The governor has already asked all of state government to trim their planned spending for the next fiscal year — by 4 percent for the Department of Education, and 5 percent for everyone else.

This country is not out of this economic storm yet, but there has been some measured improvement in most categories. So proceeding with caution in West Virginia is just one more example of this administration’s fiscal responsibility.

But we most certainly have to agree that a $100 million shortfall, all things considered, is anything but “alarming.”

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