CHARLESTON – The fiscal year in West Virginia ended June 30, and the state’s budget was finally balanced, thanks to a special legislative session and a combination of cuts, a tobacco tax increase and borrowing from the state’s Rainy Day Fund, to the tune of more than $400 million.
But getting there was a significant challenge, thanks to a major drop in the state’s energy economy and a subsequent shortfall in tax revenues, including coal. Gov. Earl Ray Tomblin, who described it to the Metro News as “one of the most challenging budget years I have dealt with in my 42 years of public service.”
The sentiments were echoed by Revenue Secretary Bob Kiss who, speaking to the Charleston Gazette-Mail, called it the most difficult budget year of his more than 25-year career.
When it comes to state revenue from energy, the numbers are quite ugly.
“Overall severance tax revenues declined by nearly 43 percent. Coal revenues declined by nearly 30 percent,” Mark B. Muchow, deputy secretary of the West Virginia Department of Revenue, told the West Virginia Record. “However, natural gas revenues declined by 62 percent and oil and natural gas severance tax revenues combined accounted for nearly 70 percent of the total shortfall of severance tax compared to original estimates.”
Muchow, however, expressed optimism that the energy revenue declines are neither permanent or irreversible – though higher gas prices at some point in the future may be part of the solution.
“Coal revenues should bottom out this year and natural gas revenues should rebound a bit as prices recover from lows not seen since the 1970s,” Muchow said.
“Significant pending investment in pipeline infrastructure should gradually help West Virginia natural gas prices slowly recover toward the higher national average," he added. "In a period of less than 10 years, natural gas production increased more than sixfold. Infrastructure is now playing catch-up. Higher natural gas prices will also help stabilize the coal industry.”
Muchow also acknowledged that similar budget methods will likely be necessary in future years, and he said that while natural resources will continue to be major factors in the West Virginia economy, he expects greater energy diversity over time.
Whether severance tax revenues rebound or not, managing next year’s version of the state budget will fall to the next West Virginia governor. With Tomblin leaving office after two terms, Democratic businessman Jim Justice and Republican Senate President Bill Cole are vying to succeed him. Justice, in fact, is a veteran of the coal industry, having inherited the Bluestone Coal Corp. from his father in the early 1990s and run that and other businesses in the years since. Justice has reopened shuttered coal mines and even promised in a radio interview in April that coal mining in West Virginia will reach higher levels than ever before.
Each year, the coal industry in West Virginia pays a severance tax, with all counties receiving some funds from it, although 75 percent of the proceeds from that tax goes to coal-producing counties, with the remaining 25 percent distributed to all counties and cities in the state.