WV State and Local Workers Rank Almost Last in Pay

There’s been considerable press over the last couple of years about the costs associated with the retiree health care subsidy (affectionately know as OPEB or Other Post Employment Benefits) offered to state and local employees. I’ve written about it several times in the past.

The basic story is that this subsidy is too generous and that it’s costing the state too much now and into the future. While I agree with the second part of this argument, I think some policymakers and the media have failed to recognize just how little we pay public employees in West Virginia. In fact, how many people know that we rank almost dead last in average annual pay in the nation?

Source: BLS, 2009 QCEW: www.bls.gov/cew/

Cost of the Recession: 35,000 Rural Jobs in West Virginia

Here is an article done by the folks at the Center for Rural Strategies, which I may have stolen the title from, about the impact of the Great Recession on rural counties. West Virginia was one of four states, the others being Michigan, Alabama, and Georgia, that lost over 10 percent of their rural jobs. Since July 2007, rural counties in West Virginia have lost 35,267 jobs. The unemployment rate in rural West Virginia counties has more than doubled, from 4.46% to 8.99%.

The article discusses that while overall, rural counties experienced job losses, the results were not uniform. In fact five states saw increases in the number of rural jobs. While no rural county in West Virginia saw job increases, the losses varied greatly from county to county.
 
Source: Dailyyonder.com and U.S. Bureau of Labor Statistics
 
Jackson, Grant, and Hardy counties were hit particularly hard, losing over 18% of their jobs, with their unemployment rates almost tripling. 
 
West Virginia’s unemployment rate was 8.6% in July 2010, slightly lower than the 8.99% for rural counties. Over half of West Virginia’s rural counties have a higher unemployment rate than the state rate, with rates ranging from 6.53% in Monroe county to 14.55% in Mason County.
 
Overall, 1.2 million rural jobs have been lost since he recession began in 2007.

News Flash: The 2008 US Recession Officially Ended June 2009, What…No Applause?

This might come as a bit of a news flash, but did you know that the 2008 US Recession officially ENDED in June 2009.  Some may question the accuracy of such a statement given the recessionary hangover we’re all feeling.  According to the “Business Cycle Dating Committee,” of the National Bureau of Economic Research, the 2008 US Recession officially lasted 18 months, which makes it the longest recession on record since World War II.  The previous record was held by the two recessions of 1973-1975 and 1981-1982, which lasted 16 months apiece. 

The unemployment rate is now twice as high in the US and in West Virginia than before the recession began.  The graph below depicts US initial claims for unemployment benefits and shows that they are about 140,000 above their pre-recessionary levels; claims averaged around 320,000 throughout 2007, today, weekly jobless benefit claims are now average 460,000, seasonally-adjusted.  

And the public mood is just nasty.  Don’t tell Main Street or even Wall Street for that matter that good times are just around the corner.  It seems today that everybody is mad as hell including the 1% of Americans that actually prospered during the recession as they now own 25% of all the wealth in the country, while the top 10% own nearly 50% of all the wealth.  In today’s economy, celebrating the end of the 2008 US Recession feels a lot like waking up the morning after a New Year’s Eve party and all your friends are gone and blowing your horn welcoming in the New Year by yourself (BTW, this has never happened to me).    Ever. J

According to the Business Cycle Dating Committee,

“A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Recessions are measured from peak to trough; that is, from the start of the decline in economic activity to the start of an ascent of economic output.  The peak and trough of economic output is best thought of as phases in a business cycle, generally indicating a swing down then up in economic activity broadly measured by GDP, income, employment, production and sales. 

A huge jobs deficit remains in the US as nearly 15 million workers are now unemployed, up from about 7 million before the recession began.  The graph below shows that the US unemployment rate has more than doubled from pre-recessionary levels, increasing from about 4.4 percent to now over 8.8 percent. 

And in West Virginia, the economy won’t feel like it has recovered until many of the nearly 70,000 unemployed West Virginians find work. 

The 2008 US Recession may have officially ended, but until unemployed workers and idle factories find each other again in the haze of this recessionary hangover Americans will not feel much like partying.  The economic environment we’re in never bodes well for the political party in power – American’s are mad as hell as the November electoral winds of change begin to swirl. 

WV Economic Growth by Gubernatorial Administration (1941-2009)

Often when analysts or journalists look at economic growth over a long period of time, they tend to break things down by decade, comparing the 2000s to the 1990s and so on. Sometimes they will look at economic trends by presidential administration, often to tie economic growth or decline to particular administrations and their policies. I decided to have some fun and look at certain economic indicators by gubernatorial administration in West Virginia. While who’s governor of a state is only a very small factor in a state’s economy, it’s still a good way of putting these numbers in a historical and social context. Another reason why it is good to look at economic growth by administration is that voters tend to reward an incumbent for prosperity and punish him or her for economic distress.

These next three charts show the annual average growth of West Virginia’s real GDP, real per capita personal income, and total non farm employment. GDP numbers were available for 1965 to 2008, personal income numbers were available from 1961 to 2009, and employment numbers were available from 1941 to 2009.
 
Source: U.S. Bureau of Economic Analysis
 
Source: U.S. Bureau of Economic Analysis
  
Source: U.S. Bureau of Labor Statistics
 
So what does all of this tell us? One clear takeaway is that the recession of the early 1980s, represented in these charts by now Senator Rockefeller’s administrations, took a heavy toll on West Virginia. Even twenty years later both real GDP and real per capita personal income have not recovered to their pre-recession growth rates. And since the decline of the coal industry in the 1950s, job growth has been anemic for every administration, with almost no job growth for the past decade. 
 
Most of this data was collected before the current recession really began to take hold in West Virginia. And if the effects of recessions that ended 30 years ago are still being felt in West Virginia, then hard times are almost certainly in store for the future. But, to quote Robert Kennedy, “And if our times are difficult and perplexing, so are they challenging and filled with opportunity.”  
 

Shale gas development is poised to play a major role in West Virginia’s future.

Natural gas is quickly becoming one of the most important contributors to the nation’s energy portfolio. Natural gas is a very versatile energy source and emits lower levels of carbon dioxide and other air pollutants than coal and oil. Natural gas will likely be an integral part of the nation’s energy future.

Natural gas production from shale formations is one of the fastest growing sources of domestic energy production today. One of the hotspots of this activity is the Marcellus shale, an area of 95,000 square miles that encompasses almost the entire state of West Virginia. While Marcellus shale gas development in West Virginia is still in its infancy, it is expected to develop rapidly, with far reaching impacts on the state. The state has already seen rapid growth in the production of natural gas. Severance tax collections from natural gas increased from $19 million in 1999 to $75 million in 2008.
 
A recent report by the National Energy Technology Laboratory, part of the Department of Energy, projected the increase in Marcellus shale gas production in West Virginia, as well as its economic impact. According to the report, in 2008 299 gas wells were drilled, which contributed to $371 million in gross economic output, 2,200 jobs and $68 million in taxes. These numbers include the direct spending and jobs created by the industry, as well as the indirect impacts created as the spending circulates through the economy.
 
Due to projected increases in Marcellus shale gas production, these numbers are expected to skyrocket in the coming years. By 2020 the pace of drilling in expected to grow to 900 wells per year. The increase in drilling activity and accompanying industry expenditures is expected to generate an economic output of $2.9 billion, 17,000 jobs, and $872 million in state and local taxes.
 
While natural gas production may be a boon economically, it is not without its issues. Currently the state Department of Environmental Protection has only 18 inspectors, which according to DEP Secretary Randy Huffman, is not enough to keep up with the pace of new wells. Huffman also suggests that the state needs a new regulatory system to properly permit and monitor the growing number of new wells. This comes as concern grows over the environmental problems linked to shale gas development, including air and water contamination, blowouts, and the environmental impacts of the hydraulic fracturing process, in which millions of gallons of water, sand, and chemicals are pumped into the ground to break up the shale and release the gas. 
 
Its clear that natural gas production is poised to play a significant role in West Virginia’s economy for many years to come, with many positive benefits. Less clear are the risks posed by further development to the environment and local communities. Therefore, it is very important that the natural gas industry, government agencies, environmental groups, and local communities work together to improve communication about, and develop regulations and practices that reduce, the environmental risks and impacts associated with shale gas development. 

Capito’s “False Choice” on Bush Tax Cuts

Congresswomen Capito argued in the Gazette on “Labor Day”  (of all days…) to renew Bush’s tax cuts for the wealthy. In the op-ed, Capito resorted to presenting voters with a “false choice” about the Bush tax cuts and by presenting the facts in a way that would make Orwell blush.

Here’s Capito: 
 
Contrary to popular belief, the tax hikes set to kick in in less than four months affect more than those who drive exotic cars and own multiple homes. In fact, nearly every tax-paying West Virginian will see taxes increase if Congress does not step-in. That’s the plain and simple truth.” 

As someone who spends half of her time in Washington, DC, Capito knows full well that NO ONE is talking about letting all of the tax cuts expire in 2011. What’s on the table is 1) extending the Bush tax cuts to those making under $250,000 ($200k for single filers) and renewing all of the Bush tax cuts. So there is absolutely no reason for Capito to confuse voters the a “plain and simple truth” that presents a false choice. 
 
Perhaps more egregious is the “plain and simple truth” that West Virginia benefits the least from extending the Bush tax cuts to the wealthy. Approximately 0.9% or about 8,000 tax filers in West Virginia have AGI over $200k or are married have AGI over $250k. While this isn’t a good thing, West Virginia has the smallest percentage of tax filers that meet these criteria in the nation. Since this reality gets in the way of her story, Capito has to deceive voters and conveniently leave out important information that might make them second guess their own interests,  This is the only way to sell plutocracy. 
 
The truth is, if your income is $250,000 per year and you live in West Virginia you can “drive exotic cars and own multiple homes.” Just ask this guy. 
 
Capito also asserts falsely that letting the tax cuts for the wealthy expire will hurt small businesses: 
 
Our nation’s small businesses will once again bear the brunt of ill-thought policies. On the first of the year, small business income will be taxed at higher rates and their ability to expense capital investment will be reduced to nearly one-fifth of the current rate. It seems like our nation’s job creators can’t catch a break.” 

How many small businesses will pay higher taxes under Capito’s plan? 

Answer: 3% 
 
The irony in this debate is that the wealthy will benefit more in dollars terms from ending the tax cuts for the wealthy than middle class tax payers. 
 
 

Best Two Months Cash Flow Report Since 2006

There is bright news coming from the West Virginia State Budget Office August cash flow report.  General Revenues collected in August are ahead of schedule, most likely due to increased sales in back-to-school purchases and improvements in business activity due to stimulus spending. 

General Revenue collections were up $31 million dollars at the end of August 2010, 11% ahead of projections.  During the first two months of the SFY2011 budget combined, West Virginia is currently 9% ahead of projections with a $55.2 million dollar surplus. 

A big surprise in the WV State Budget Office cash flow report was the sudden turnaround in Severance Tax collections.  While Severance Tax collections were initially down in July 2010 by $185,000, 3% less than expected, Severance Taxes have since rebounded and are now $12.5 million dollars ahead of schedule. 

But perhaps the biggest surprise of all was the dramatic increases in Consumer Sales and Personal Income Taxes from the previous month.  These two taxes are $21 million dollars ahead of estimates, up from $6 million dollars in July.  West Virginia public and higher education schools began their 2010 fall semester and this partly explains the increase in Consumer Sales tax collections. 

This is especially good news for two reasons:  first, Consumer Sales taxes and Personal Income taxes are generally thought of as lagging indicators of the effects of a recession and second, these two taxes make up 70% of the states entire General Revenue collections.  Previously, Consumer Sales and Personal Income taxes were $123 million dollars behind estimates at the end of SFY 2010.  Maintaining a positive cash flow during the first two months of SFY2011 is good sign the state maybe avoiding the worst of the effects of the US recession. 

The first two months of SFY 2010-2011, represented by the yellow bars in the graph below, represents the best two month start in the state’s fiscal year since SFY 2006-2007, the two red bars below. 

Still, there are other bright spots in the cash flow report as well.  Business & Occupation Tax revenue, Corporate Income and Business Franchise Tax revenues continued its path of remaining ahead of estimated revenues by $7 million dollars.  These two revenues make up about 10% of the state’s total revenues, or $336 million dollars out of an estimated $3.741 billion dollars. 

Assuredly, the state’s nascent recovery hasn’t made its way to reducing unemployment, but it has certainly not created a budget crunch for West Virginia.  West Virginia was only one of four states in the country to have avoided cuts in services to its SFY 2010 budget.  The other three states were Alaska, Montana, and North Dakota, all states with economies based largely on its natural resources like West Virginia.