CHARLESTON (AP) — West Virginia state agencies are reviewing their options for complying with a 7.5 percent cut sought by Gov. Earl Ray Tomblin for the upcoming budget year, but they face a Sept. 1 deadline set by state law for submitting their tightened spending plans.
Less painful choices include a halt to hiring, eliminating unfilled job slots and not replacing employees who leave or retire. But Revenue Secretary Charles Lorensen also didn’t rule out other staffing changes or an end to programs or services in his Aug. 3 memo to agency chiefs.
“No one has mentioned layoffs to me yet,” Rob Alsop, Tomblin’s chief of staff, said Friday.
Cutting programs created with the recent federal stimulus funding is another option, if agencies have tried to continue them with state dollars, Alsop said. The administration has already targeted two such programs, which address workforce training.
A dozen or so agencies, programs or spending areas are exempt from the cuts. These include two major consumers of the annual budget: state aid to schools, which accounts for $1.8 billion of the $4.1 billion in general tax revenue spending this year; and Medicaid, which requires $860 million from state revenue sources.
Agencies might be facing a 2 percent cut were it not for these spared items, Alsop said. But 7.5 percent cuts alone also won’t ensure a balanced 2013-2014 budget, he added.
“We didn’t want to propose a cut that was too deep that would cause too much harm, and we also knew that cuts would be one part of a mix,” Alsop said.
The general revenue surplus from the just-completed year, estimated at $101 million, won’t be much help as much of it has already been pledged toward spending needs. The surplus, which reflects money left unspent by agencies as well as revenues above the year’s forecast, will help with Medicaid needs for the next two budget years. It will also top off the state’s main emergency reserve so it equals 13 percent of general revenue spending.
That rainy day fund — one of the healthiest among the states — could help close the gap, but Alsop said Tomblin is hoping to rely on other options. Those include the unexpected surplus in lottery proceeds, estimated at $81 million. The state may also see savings from a plan to change the way Medicaid covers people with disabilities, and from the ongoing study of the state’s criminal justice system, Alsop said.
State officials have been warning of a potential deficit threat for the upcoming budget year since 2010. Then, as now, officials cited Medicaid cost increases as a major culprit. The state started looking ahead several fiscal years as part of the budget planning process in 2005.
The state also began gradually cutting taxes around that time. West Virginia’s corporate net income tax rate has dropped from 9 percent in 2007 to 7.75 percent this year, and is on track to decline to 6.5 percent by 2015. The state is also erasing the business franchise tax. Scheduled to disappear after 2014, its rate has shrunk from 0.7 percent of net equity to 0.27 percent since 2007.
But administration officials downplay the role these cuts play in the projected budget gap. Deputy Revenue Secretary Mark Muchow cited figures showing that annual collections from these two taxes have gone up or down by as much as 55 percent since the late 1980s. The reasons vary, but include such federal tax policies as the recent temporary credit meant to encourage business investment. The state also adopted combined reporting, a policy meant to deter corporations from shifting income from one component to another to avoid paying taxes, in conjunction with the scheduled cuts.
The Great Recession and subsequent recovery efforts loom large as recent factors as well. The wild revenue swings for these taxes since the cuts began have ranged from a 30 percent rise in 2011 to a 37 percent plunge during the just-completed budget year.
All told, Muchow said he is hard-pressed to estimate what revenues might be available in the absence of those cuts.
“Revenues for corporate net income taxes have always been volatile,” Muchow said. “These are some of the most complicated taxes in our code.”
But Muchow has put a price-tag on another ongoing tax cut. He estimates that consumers will save — at the expense of state revenues — $160 million annually once West Virginia abolishes the sales tax on groceries next year. The state has whittled down its rate from 6 cents per dollar spent in 2005 to 1 cent last month.
Alsop questions whether the state would not face such a deficit threat were it not for the food tax cuts. He noted how lawmakers converted a onetime bonus-like payment to state employees into permanent pay raises, encouraged by revenue growth.
“You can’t look at these things in a vacuum,” Alsop said.
West Virginia did not raise other taxes or create new ones to offset or otherwise accompany these various cuts. Officials instead cite the combined reporting, and hoped-for economy growth from making tax rates more competitive. Tomblin plans no changes to that course, Alsop said.
“We have made the determination, last year and continuing into this year, that now is not the time to be raising taxes on people,” Alsop said. “The better course is to have the state tighten its belt and balance the budget that way. We need to do more with less.”