Although there are a few reasons to be optimistic, like increasing natural gas production and better-than-expected revenues for the state road fund, West Virginia’s 2014 budget year is shaping up to be a rough one.
Tax collections for October were about $8.1 million below estimates, leaving state revenues about $42.5 million behind its anticipated income through the first four months of the fiscal year.
West Virginia’s personal income tax collections ran about $35.4 million less than expected between July and October, and consumer sales tax revenues were down $3.3 million.
The state’s business and occupation tax, which is largely collected from utility companies, is running about $2.5 million short through October. Muchow said those revenues will continue to decline as coal-fired power plants shut down. Unlike most states that tax consumers for energy costs, West Virginia’s tax is based on utility companies’ energy-generating capacity.
Deputy Revenue Secretary Mark Muchow said those figures don’t bode well for the rest of fiscal year 2014.
The state would need to have 3.6 percent revenue growth through the rest of the year to meet expectations. Muchow said that’s possible. But is it likely?
“We’ll have to gauge how things occur in the coming months,” he said.
Some economic forecasts are pointing to improved growth in the second half of the fiscal year, Muchow said, although its unclear if those predictions might come true.
“It’s still a bit unsettled,” he said.
There are areas of growth, however. Severance tax collections were up $7.2 million year-to-date by Oct. 31. Severance tax collections also are $16.3 million ahead of this time last year, bringing in $138 million compared to $121.7 million in the first four months of fiscal year 2013.
Muchow said that’s because natural gas production continues to rise — it’s increased about 30 percent just this year — and natural gas prices have stabilized recently.
Last year, natural gas prices fell below $3 per unit. As of Monday, the price was hovering around $3.45, according to Bloomberg.
Muchow said increases in natural gas production are helping offset a drop in coal production.
It’s not enough to pull the rest of the state’s budget out of its downward slide, however.
Muchow said depending on what occurs, the state could be facing a budget shortfall of between $10 million to $60 million at the end of the current fiscal year next June.
That could mean mid-year budget cuts for state agencies.
Agencies cut $75 million from their budgets for the 2013 fiscal year, but still ended with a $93 million shortfall. Gov. Earl Ray Tomblin had to take $17.7 million from the state’s Medicaid reserve fund in late June to help balance the budget.
The state road fund, meanwhile, is more than $12.9 million above estimates for the first four months of the fiscal year, and more than $14 million above this time last year.
Those numbers are driven by strong motor fuel tax incomes — $164.3 million between July and October, compared to $156 million during the same four months in fiscal year 2013 — as well as an increase in privilege taxes and Division of Motor Vehicles registration fees.
West Virginia charges a 5 percent privilege tax each time a vehicle is purchased in the state. The state brought in $15. 4 million in privilege taxes last month, which is about $1 million less than in October 2012.
Collections are up more than $4.7 million between July and October, however, compared to the same period last year.
Last month’s vehicle registration fees were $900,000 above October 2012, putting year-to-date totals at $29.4 million. That’s $1.2 million above the first four months of fiscal year 2013.
The state road fund is used to pay for highway construction and maintenance projects.