Budget Beat – December 19, 2014

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With the last Budget Beat of 2014, we wanted to take a moment and wish everyone a wonderful holiday season and a happy, healthy and prosperous 2015.

We leave you with two of the major policy priorities we are ready to tackle in 2015:

First up, paid sick days for West Virginia workers. Over 250,000 of us do not have access to a single paid sick day. We hope to change that this year at the state legislature. Check out this op-ed by health policy analyst Erin Snyder on why workers, employers and the state’s economy would all benefit.

Wages for male workers have not kept pace with inflation, making it even harder for working families to keep up. With talk of repealing the state’s prevailing wage, the situation could grow worse, since this would impact construction workers at public projects. For more on the big-picture impact, here is Ted blog’s post “Is it a Good Time to Reduce Male Wages in West Virginia?” and his interview with WOWK-TV on the problem and possible solutions.

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Happy New Year! Boost in State’s Minimum Wage on 1/1/15 Will Also Provide Economic Growth

Thanks to the raise in the state’s minimum wage on January 1, 2015 from $7.25 to $8.00/hour, 88,000 West Virginia workers will see their wages increase. This means $50 million more in wages for the state’s lowest-paid workers. The Economic Policy Institute estimates this will also mean a bump up in the state GDP by $31 million in 2015.

Also helping keep working families out of poverty are two important tools: the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). According to the Brookings Institute, together they keep millions out of poverty. In West Virginia also, they lift 38,000 people out of poverty, including 18,000 children. A state EITC, successful in many other states, could do even more for West Virginia’s low-income families, were it to be approved by the state legislature in 2015.

Racial Equity Work Continues into 2015

The next Race Matters meeting will be January 8 at 11:30AM at the Fifth Quarter Restaurant in downtown Charleston. Please plan to join the group for continuing conversation on racial equity in West Virginia.

Plan are underway for mini-summits in other parts of the state including Clarksburg and Martinsburg. Details to follow.

Check out this interesting article, “3 Elements of a Successful Diversity Initiative in Appalachia: Community, Perspective and Story,” on why the folks behind making the film “Cracking the Codes“, by film maker Shakti Butler, are giving November’s Summit on Race Matters in Appalachia high marks, in large thanks to Reverend Ron English, lead of the event’s planning committee.


Budget Breakfast: Early Bird Discount Expires 12/31/14!

Join us for the next Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton, downtown Charleston. Please register by 12/31/14 to get the Early Bird discount! Panelists include Senators Jeff Kessler and Mike Hall who will take questions on the state’s fiscal future under new legislative leadership.

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Is it a Good Time to Reduce Male Wages in West Virginia?

As the legislature considers repealing the state’s prevailing wage for public construction projects, it is important to recognize that it could further depress wages. This is especially true for male workers, who typically hold over 90 percent of construction jobs.

Since the late 1970s, male hourly wages have declined by more than $3 in West Virginia after adjusting for inflation. In many ways, the collapse in male wages over the last several decades is at the heart of many of our state’s social and economic problems. When families’ wages stagnate or decline, those families struggle to make ends meet, save for retirement and college, spend time with their kids, and help make their communities a better place to live. This also means less tax revenue to invest in the important public structures like education and infrastructure that provide a backbone for strong economic growth and poorer health.

Males Wages

The decline in male wages over this period has to do with a several factors including the decline in unionization, the collapse in blue-collar jobs such as manufacturing and coal mining in the state, the wage gap between educational attainment, and federal and state policies that have put downward pressure on wages.

Unions play a vital and substantial role in pulling up wages not only for their members but also other workers. As we noted in a previous report, union members in West Virginia earn $5 more per hour than non-union workers and are more likely to have benefits like health and pension coverage. Historically, males made up a much larger share of the union workforce (65% in 1983) but today women now account for about half of all union members (48% in 2013). 

As the chart below highlights, union membership in West Virginia and the United States has declined dramatically over the last 50 years. At its peak in 1981, nearly 40 percent of all workers in West Virginia were members of a union compared to just under 13 percent today.

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A recent study by scholars at Harvard University and the University of Washington found that declining unionization was responsible for about a third of the wage inequality for men between 1973 and 2007. The same study found that the educational pay gap accounted for another third of the increase in wage inequality for men. While workers in West Virginia have made substantial progress in acquiring post-secondary degrees since the late 1970s, West Virginia continues to lag behind most states in having a smaller knowledge-based economy. With a lower share of workers with college degrees, the result is lower wages

Another reason for the decline in male wages is the collapse of goods-producing jobs like manufacturing and coal mining and the transition to lower-paying service jobs. As we documented in the 2013 State of Working West Virginia, in 1979 Weirton Steel was the largest employer in the state with 14,000 employees. Today, it’s Wal-Mart where average wages are fraction of what they were at Weirton Steel.

Since 1979, West Virginia has lost over 77,000 manufacturing jobs and 42,000 coal mining jobs. These jobs are still primarily held by males, according to the Bureau of Labor Statistics.

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 Federal and state policies have also resulted in the decline of male wages. As economist Heidi Shierholz noted last year:

Unlike the postwar period, when economic policy supported the expansion of good jobs, for the last 35 years, the focus has been on policies that were advertised as making everyone better off as consumers through lower prices: deregulation of industries, the Federal Reserve Board’s prioritizing low inflation over full employment, weakening of labor standards including the minimum wage, a “stronger” dollar — which costs manufacturing jobs by making our goods relatively more expensive around the world and imports relatively cheaper to US consumers — and the move toward fewer and weaker unions.

Males wages in the state could decline further in the upcoming years as the legislature considers repealing the state’s prevailing wage law for public construction projects and by making it much harder for workers to join unions by becoming a “right-to-work” state. Instead of pursing policies that will further depress wages, the state should be investing more in education, early childhood development, and projects that diversify our economy and lead to higher wages for all.

Budget Beat – December 12, 2014

Budget Breakfast: Register Today to Take Advantage of Discount!

Join us for the next Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton, downtown Charleston. Please register by 12/31/14 to get the Early Bird discount! 

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Join Us to Announce the 2015 Our Children Our Future Platform

Monday’s forecast is beautiful! Join us during your lunch hour as the Our Children Our Future Campaign to End Child Poverty in West Virginia releases its top priorities for the coming legislative session.

Monday, December 15 at 12:30PM, Governor’s Conference Room, Secretary of State’s Office, State Capitol.

The press conference will include statements by families directly impacted by state policies.

Safe Water System Leadership Training

It is a year after the water crisis, and little progress has been made towards an improved water system. WV American Water has not taken any steps to fix its infrastructure, and the Public Service Commission’s investigation has been delayed.

Advocates for a Safe Water System (ASWS) is building an organized base of citizen leaders to push for the changes needed in our water system.

More than 120 people attended the ASWS safe water system panel discussion and community conversation in November. Join them for a January leadership training to turn what was learned at that forum into action. (You are welcome to join even if you were not about to attend the November meeting.)

Saturday, Jan 17th, 9am-1pm (lunch provided)
St. Marks United Methodist Church (900 Washington St E., Charleston)

Please register to reserve your lunch!

Budget Beat – December 5, 2014

Shout-Out to Evidence Counts, the WVCBP Blog

As a Budget Beat reader, you are familiar with the WVCBP blog, Evidence Counts. We are proud to be one of the top blogs followed by West Virginia Focus as mentioned in its Sept/Oct issue! Our work on broadband access is also cited on page 24.

Read the latest West Virginia Focus at www.wvfocus.com.


Summit on Race Matters – Stay in Touch

The Summit on Race Matters in Appalachia brought together over 200 people from across the state last month. Let’s keep the conversation going! The next meeting will be January 8, 2015 at 11:30 am at the Fifth Quarters Restaurant, 201 Clendenin Street, downtown Charleston.

Please like the new Race Matters in WV Facebook group to learn more!

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Budget Breakfast, January 21, 2015

The WVCBP will hold its second annual Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton in downtown Charleston. Please consider a sponsorship to our once-a-year fundraiser. More information in next week’s Budget Beat!

Our Children Our Future Platform Decided

The ballots are in and here are the unofficial Top 10:

#1: Protect and Provide a Secure Funding Stream for Family Support Programs
#2: Expanding Quality Early Childhood Programs
#3: Juvenile Justice Reform
#4: Drinking Water Protections
#5: Defend Medicaid and CHIP, While Expanding Medicaid Access to Mental Health Therapy
#6: Past Due! It’s time for Tobacco to pay its fair share
#7: Retiring Old Laws so Nurses (APRN’S) can meet health needs for WV families
#8: Stopping Meth Labs in WV
#9: Erin’s Law: Preventing Childhood Sexual Assault
#10: Providing Earned, Paid Sick Days for Workers and Schedules that Work

Learn more at www.wvhealthykids.org and plan to attend Kids and Families Day on Wednesday, January 14, 2015 at the state Capitol. Register here.

Safe Water System Leadership Training

It is a year after the water crisis, and little progress has been made towards an improved water system. WV American Water has not taken any steps to fix its infrastructure, and the Public Service Commission’s investigation has been delayed.

Advocates for a Safe Water System (ASWS) is building an organized base of citizen leaders to push for the changes needed in our water system.

More than 120 people attended the ASWS safe water system panel discussion and community conversation in November. Join them for a January leadership training to turn what was learned at that forum into action. (You are welcome to join even if you were not about to attend the November meeting.)

Saturday, Jan 17th, 9am-1pm (lunch provided)
St. Marks United Methodist Church (900 Washington St E., Charleston

Please register to reserve your lunch!

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Budget Beat – November 21, 2014

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We Are Thankful for You

As we enter the holiday season we would like to pause to express how thankful we are to you, our supporters. Happiest of all holiday seasons to you and your families!

Save the Date – Budget Breakfast, January 21, 2015

The WVCBP will hold its second annual Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton in downtown Charleston. Please consider a sponsorship to our once-a-year fundraiser. More information to come!

Our Children Our Future Platform Vote Underway

If you’ve attended an Our Children Our Future event this year, you are eligible to vote on the 2015 platform to help choose which ten proposals will be the campaign’s focus during the upcoming legislative session. Online voting is open at www.ocofwv.org or you can go here to download and mail in a ballot by Tuesday, November 25.

Shameless plug: WVCBP policy priorities for the next legislative session include Paid Sick Days and Family Leave, and Voluntary Employee Retirement Accounts (VERA).

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West Virginia Coal Losing Steam to Natural Gas and Renewables

Over the last several years the amount of coal used to generate electricity in this country has declined. This trend holds true for West Virginia as well where the state is exporting less coal to its neighbors for them to meet their power needs. Both Ohio and North Carolina in particular are relying more on natural gas and renewables, and less on West Virginia coal, than in the past. For more on how natural gas is becoming a more competitive force in the region, read Ted’s blog post, part 4 in a series on why coal is declining in West Virginia.

“Not what we say about our blessings, but how we use them, is the true measure of our thanksgiving.”
- W.T. Purkiser

7 Things You Need to Know About Why Coal is Declining in West Virginia (4 of 7)

In the last post, we looked at how West Virginia – especially southern West Virginia -  is being out-competed by other coal regions because of the decline in coal mining productivity that makes it cheaper to produce coal in places like Illinois and Wyoming. Not only do West Virginia coal producers face stiff competition from other coal basins, they see growing competition from large deposits of shale natural gas out west and in West Virginia and, to a lesser extent, from renewable energy.

#4 West Virginia coal is losing steam to natural gas and renewable energy

Over the last several years the amount of coal used for electricity production at power plants in the United States has dropped considerably, from just about 2 billion megawatt hours in 2008 to about 1.6 billion megawatt hours in 2013. This trend is largely driven by the nation’s recent development of shale natural gas. Electricity generated from natural gas grew from about 639 million megawatts in 2011 to over 1.1 billion megawatts in 2013 – growing from 17 percent to 27 percent of the country’s net electricity generation. Coal, on the other hand, has declined over this period from 51 percent to just 39 percent of total electricity generation. Renewable energy has also grown over this period, from about 8 percent in 2001 to over 14 percent in 2013.

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The shift away from coal and toward natural gas electricity generation is also evident by looking at surrounding states that have relied heavily on West Virginia steam coal for electric power generation. Between 2001 and 2012, West Virginia’s largest domestic customers for steam coal (outside of West Virginia) were North Carolina, Ohio, and Pennsylvania. However, over the last several years West Virginia exported far less coal to North Carolina and Ohio. Meanwhile, Pennsylvania has shifted toward relying more on natural gas for electricity generation.

For example, in 2008, West Virginia shipped approximately 17.7 million tons of coal to North Carolina for electricity production compared to 11.6 million in 2012. Ohio received approximately 13.6 million tons of West Virginia coal in 2008 compared to just 5.1 million tons in 2012. While Pennsylvania imported more steam coal from West Virginia between this period (9.5 million tons in 2008 compared to 11.2 million in 2012), coal used for electricity generation in the state has declined.

From 2008 to 2013, Ohio, Pennsylvania, and North Carolina saw substantial drops in the share of coal used for electricity generation. In Ohio, the share of electricity generation from coal has declined from 85.5 percent to 67 percent since 2008, while in Pennsylvania it has declined from 53 to 40 percent, and in North Carolina it has dropped from 61 to 44 percent over this six-year period. Renewable energy has also grown in these states, from about 3 percent to 6 percent in North Carolina, 2.3 percent to 3.4 percent in Pennsylvania, and 0.4 percent to 1.4 percent in Ohio.

major coal fuel type

As shale development expands with new pipelines and with new natural gas utilities added in the region, the share of electricity from natural gas will likely grow over time in these states, putting more downward pressure on the ability of West Virginia to export coal to other states. As we shall see in the next post, natural gas is also becoming more competitive as the federal government implements rules around the problems associated with global climate change.

Budget Beat – November 14, 2014

Change in Leadership Likely to Bring New Policy Priorities

West Virginia’s historic election last week will mean a change in leadership in both the Senate and House, and likely new policy priorities for both. GOP control will mean new perspectives on state tax and budget issues. With more on what we might expect during the 2015 Legislative Session and beyond, here is Ted’s recap of new potential legislative priorities we’ll be watching for.

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Marcellus Boom Has Provided Budget Boost

Business tax cuts have reduced the amount of revenue coming into the state budget, forcing decreased funding to higher education and other important programs. The natural gas boom and the increase in severance taxes it created, however, are filling some of the budget gap caused by these cuts. Sean’s blog post explains how this new-found revenue only masks the impact of tax cuts and whether or not they are really keeping their promise to increase economic development.

Ending Poverty

Want to end poverty? Give low-income people money. This might sound like a simple, perhaps crazy, idea, but it nearly became law in the 1970′s. Here’s how it would work.

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Summit on Race Matters in Appalachia

Over 200 people attended this week’s Summit on Race Matters in Appalachia, a two-day event taking place in Charleston. Here’s a recap in the Charleston Gazette and an op-ed from Reverend Ron English who was a leader in making the event a reality.

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Dr. Gail Christopher with the Kellogg Foundation, keynote speaker at the Summit on Race Matters in Appalachia, 11/11/14. Photo by Beth Spence.

If you were unable to attend but want to be involved in future events, please email Linda to be added to our list.

You can also catch much of the event, filmed by West Virginia Public Broadcasting. Here are clips:

Day one reception

Day two keynote: Dr. Gail Christopher

Day two keynote: Michael Wenger

Day two keynote: Dustin Washington

Thank you to all who attended and made the event a success!

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Can West Virginia Reduce CO2 Emissions?

This week saw international momentum in the push to reduce global CO2 emissions. Is it possible for West Virginia to jump on the band wagon? Improving energy efficiency and expanding use of renewable energy sources are two options the state has available, if the political will to enact them is there. For a full analysis, here is more from West Virginia Public Broadcasting.

What does the election mean for state economic policy in West Virginia?

Last week, to many people’s surprise, West Virginia’s legislature flipped from blue to red with the GOP picking up 18 seats in the House of Delegates and eight seats in the State Senate. It appears that Mercer County State Senator and car dealership owner Bill Cole will become the new Senate President and that current minority leader and lawyer Tim Armstead from Kanawha County will become the new Speaker of the House of Delegates.

The Senate and the House will also have new leadership in both chambers. On the Senate side, it looks like Senator Mike Hall from Putnam County will be the new chair of the finance committee and newly elected State Senator (and former House Minority Leader) Charlie Trump will become chair of the judiciary committee. Jackson County State Senator Mitch Carmichael could become the new majority leader and there have been rumors that newly elected State Senator Tom Takubo could head up the Senate health committee.

So far, it is unclear who will take leadership positions in the House. (If I had to guess, I would say Patrick Lane would be appointed chair of the  judiciary committee and either Eric Nelson or Ron Walters could chair the finance committee. Perhaps Daryl Cowles will be majority leader.)

As the graphs below illustrate, the shift from blue to red has been in the making for some time, especially over the last several years. Nonetheless, the drastic change in party composition was nothing less than a seismic shift that has left some feeling ‘shell-shocked.’ The shift in party composition also means a shift in the state’s political balance of power, with a Democratic governor and a Republican-controlled legislature.

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Before we get to the policy proposals we are likely to see in 2015, it’s important to look at the state’s procedural rules that could have a dramatic impact on policy outcomes. While the budget bill (or supplementary appropriations bills) requires two-thirds of each house to override a governor’s veto in West Virginia, it only takes a simple majority to override the governor’s veto of other bills (West Virginia is one of only six states that only requires a majority). Upon passage of a bill, the governor only has five days to veto it during the session (15 after the session ends). This means there could be a lot of bills passed early in the session if the legislature wants to ensure that they become law.

With that being said, what kind of economic policies should we expect during the 2015 Legislative Session? How will the new leadership impact the state budget next year and beyond? While it is impossible to know what the future holds – as Yogi Berra once said it is hard to make predictions, especially about the future – we can look at the policy priorities of the current leadership  prior to Tuesday’s election. (You can also look to Russ Sobel’s Unleashing Capitalism, which the GOP called its “party platform” for policy change in West Virginia in 2007.) 

Let’s start with a few:

Right-to-Work: This has been a policy priority for the Charleston Daily Mail and several GOP members of the House introduced right-to-work legislation in 2013, including Ron Walters and John McCuskey. It was also included in  the WV GOP party platform in 2012. Tim Armstead also serves on the National Right-to-Work Committee and has been very vocal in his support of the policy. As we’ve stressed, this law would give workers less freedom, depress their wages, erode pensions, and have no real impact on job growth.

Prevailing Wage: In 2014, Senator Cole was the lead sponsor (along with five other GOP senators) of a bill to repeal the state’s prevailing wage provisions for state construction projects. This bill was also introduced in the House by GOP members. Similar to Right-to-Work laws, eliminating prevailing wages for construction workers lead to lower wages, health and pension coverage. They also lead to a less-trained workforce and higher injury rates.

Repeal of Business Personal Property Tax: While eliminating the business personal property tax has enjoyed bi-partisan support in the legislature, it has been a difficult thing to do because it would leave the state with close to $500 million in lost revenue at the local level (not to mention the millions in additional money that would be needed for state aid to schools) and it would likely result in a giant tax shift to home owners if any of the revenue is replaced.

Another stumbling block is that it would require amending our state constitution. This would require two-thirds of the elected members in both houses in order for it to be placed on the ballot. Another avenue that could be taken by the GOP would be to make all business personal property subject to be taxed on its salvage value, which would lower the appraised value from 100% to just 5%. This is precisely what the legislature did a couple of years ago in efforts to attract an ethane cracker facility. Also, keep in mind that governors across the country are putting in large tax cuts without replacing the revenue. For more info, see our 2011 report on why eliminating the business property tax is fiscally irresponsible and a boon to mostly out-of-state mining companies. 

End of Medicaid Expansion: While the Senator Hall has said that the WV State Senate may not eliminate Medicaid expansion to over 150,000 low-income West Virginians, he believes the House could move to eliminate it in 2015. It is also unclear whether Governor Tomblin would veto a bill eliminating Medicaid expansion if  does not include an appropriation.

More Budget Cuts?: Currently, the state has a deficit of $37.5 million in FY 2015. In January 2014, the governor projected a deficit of $126.3 million for the FY 2016 budget. In his veto letter in March 2014, he stated he would use the Rainy Day Fund to plug the FY 2016 budget hole which might grow even bigger with time. Last year, most of the GOP leadership argued against taking money from the rainy day fund and did not push for any tax increases to balance the budget. So, don’t be surprised if the new leadership pushes for more cuts in the FY 2016 budget along with other tax cuts that could lead to more future budget cuts. Another important thing to keep in mind is that the Governor’s veto authority over the budget only extends to reducing line-items not increasing them. For example, if the the legislature decides to make across the board budget cuts instead of tapping the rainy day fund next year, there is little that the Governor can do except veto the entire budget bill and call the legislature back into the session- which would be highly unlikely.

Budget Transparency: One of the more progressive measures that GOP leadership has taken is looking at ways to increase transparency in the budget process. This is something that we’ve worked on for some time and that might have a much better chance to be realized because of the change in the political balance of power.

Other fiscal policies that might come up in the 2015 Legislative Session could be school vouchers, a Tax Payer’s Bill of Rights (TABOR), and more corporate tax cuts, While these are all just a sample of what might come to pass, there is also a good chance that the new leadership will work to find common ground and that our budget process might be more open and more subject to public scrutiny.Let’s hope for the best!

How the Marcellus Boom Masked West Virginia’s Tax Cut Problems

Earlier this week, the state’s monthly revenue report was released, which keeps track of the various taxes that make up the state’s General Revenue Fund. For October, the General Revenue Fund was up $5 million over the estimate, a pretty good month. This was largely due to severance taxes, which came in at $38.1 million or almost $10 million over the October estimate. Less impressive was the corporate net income/business franchise tax revenue, which came in at $8.4 million, $134,000 below estimates. For FY 2015, the state is expecting to collect $201.5 million in corporate net income/business franchise tax revenue, which (excluding the bad year of 2012) would be the lowest amount since 2004.

It’s no surprise that the state’s business tax revenue has been lackluster, with the series of business tax cuts enacted since 2006. The tax cuts have dramatically reduced revenue, to the tune of $205 million in FY 2015. While these tax cuts have caused their fair share of budget problems in recent years, West Virginia hasn’t had the major budget problems of tax cutting state’s like Kansas and North Carolina, which are facing massive budget shortfalls.

After several rounds of budget cuts, West Virginia is still facing a $126 million shortfall in FY 2016, a gap of about 2.6% of the base budget. But West Virginia’s tax cut induced problems could have been much worse, if it weren’t for the Marcellus boom and the resulting rise in severance tax revenue.

Right around the time West Virginia started its business tax cuts, natural gas production in the state took off, in a rather fortunate coincidence. Natural gas production in West Virginia increased from 231 billion cubic feet in 2007 to 718 billion cubic feet in 2013, an increase of 211%. As a result, even as the coal industry struggled, severance tax revenue took off. Between 1999 and 2004, severance tax revenue grew at an average annual rate of 4.4%. Between 2004 and 2014, that growth rate grew to an average of 10.2% per year, as severance tax revenue grew to nearly $500 million. Moving forward, the State Budget Office projects that revenue growth will return to its pre-boom rate of about 4% per year, as coal’s decline catches up with gas’s gains.

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The growth in severance tax has neatly coincided with the shrinking of the state’s business tax revenue. For the past 15 years, revenue from the severance tax and the corporate net income/business franchise tax have combined to make up about 15% of the state’s general revenue, a share that has been fairly stable. But each tax’s contribution to that share has changed dramatically. In FY 2005, the split was pretty close to half, with the CNI/BFT making up 8.5% of general revenue, and the severance tax accounting for 7.5%. While while the severance tax grew, business tax cuts took their toll, and by FY 2015, the CNI/BFT’s share was down to 4.7%, while the severance tax’s share was up to 11.1%. The decline in business tax revenue was almost completely masked by the increase in severance tax revenue.

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Without the extraordinary growth in severance tax revenue making up for the lost business tax revenue, the state’s budget pictures would have looked very different. Since 2008, West Virginia general revenue fund has averaged a balance of $32 million, albeit with shortfalls since FY 2012 that have necessitated budget cuts the past three years. So, up until FY 2012, the severance tax has done a pretty good job of covering up the losses from the business tax cuts, and West Virginia has avoided major budget pain.

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Just how much of a difference did the Marcellus boom make? Let’s assume that instead of its extraordinary 10% per year growth from 2004 to 2014, that the severance tax maintained its pre-boom average growth rate of 4.4%. This scenario shows what the effect of the business tax cuts would have had on the state budget, has there not been a natural gas boom to bail us out.

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In this scenario, West Virginia goes from having an average general revenue balance of $32 million from FY 2008 to FY 2015, to an average annual gap of -$135 million. Instead of fiscal troubles creeping up on the state in FY 2012, they would have started right off the bat, as soon as the tax cuts took effect. And these gaps still include the budget cuts that West Virginia did have to make, so in reality they would have been even larger. For example, while in this scenario, FY 2011 has a positive balance, it includes $115 million in budget cuts that were replaced by stimulus funds that year. Without the extra growth in severance revenue, West Virginia would have been short over $1 billion since FY 2008. This means not only would there have been no deposits in the rainy day fund that during that time (which may have stopped further business tax cuts), but even larger spending cuts then we have seen since Fy 2012 would have been needed.

 Not only did the natural gas boom help cover up some major budget problems that West Virginia’s business tax cuts could have caused, it also covered up some the lack of economic growth that the tax cuts were supposed to create. After the tax cuts were enacted, then-Governor Manchin highlighted them in his FY 2009 budget message, pointing out that the Cato Institute called them, “probably the most pro-growth tax reforms of any state.” And while our “business tax climate” increased from 34th in 2007 to 21st in 2015, the business tax cuts haven’t done much to promote growth.

West Virginia’s private-sector job growth since the end of the recession has been middle of the pack, relative to our neighboring states, coming in at 5.4%, behind Kentucky and Ohio (both of which, by the way, have worse “business tax climates”).

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But, just like with West Virginia’s revenue, take away the natural gas boom, and West Virginia’s job growth looks less impressive. When looking at non-mining private-sector job growth, West Virginia comes in last place among our border states, with growth falling from 5.4% to 4.8%.

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The same thing happens to our GDP growth. While tax-cut enthusiasts like to tout West Virginia’s 5.1% GDP growth last year as evidence that our tax cuts are working, without the growth in the natural gas industry, our GDP growth would have been negative. And even with the 3rd-highest GDP growth last year, West Virginia ranked dead last in job growth, losing almost 7,000 jobs.

West Virginia was told we badly needed tax reform to spur economic development, and that with it we would be, “in a better position to compete regionally with Pennsylvania and Virginia.” We got our tax reform, and unless tax cuts put natural gas underground, we have little to show for it. Instead of competing regionally, we’re lagging behind all of our neighbors, instead of growing the rainy day fund, we’re depleting it, and instead of  making the investments that do matter for economic growth, we’re worrying about where to cut next.

7 Things You Need to Know About Why Coal is Declining in West Virginia (3 of 7)

In the last post, I looked at the rapid decline in coal mining productivity in West Virginia. This post will show how the decline in productivity has played out over the last few years and how it is has resulted in West Virginia losing coal market share with other coal producing regions. 

#3 West Virginia coal is losing national coal market share

While coal’s share of electric power generation has declined nationally, West Virginia’s share of steam coal that is being used for electric power generation has also declined. In 2008, West Virginia shipped 97.7 million tons of coal to the electric power sector compared to just 51.8 million in 2013. Between 2008 and 2013, West Virginia’s share of U.S. coal being shipped to the electric power sector dropped from 9.6 percent to 6.6 percent. In contrast, Wyoming’s share of coal being used for electric power in the U.S. rose from 44.3 percent to 47.4 percent over this period and Illinois’s share grew from 2.3 percent to 4.4 percent. West Virginia’s shrinking share is even more dramatic when you look at the southern part of the state. In 2008, southern West Virginia accounted for 6.3 percent of the nation’s coal used for electric power generation. By 2013, southern West Virginia’s share had dropped to just 2.5 percent. This means that West Virginia is being out competed by other states for providing steam coal that is used for electric power generations in the United States.

 domestic coal by state

What about international coal markets?

West Virginia is doing much better here. Between 2008 and 2012, the state has increased the number of tons of coal it is exporting from 26.4 million to 47.5 million. As the table below highlights, this growth is driven primarily by the increase in southern West Virginia foreign exports, which has nearly doubled over this period. While West Virginia has seen growth in its coal exports, so have other states, most notably Illinois, Alabama, and Montana. As a share of total U.S. coal exports, West Virginia has seen a slight reduction between 2008 and 2012 of two percentage points. It is also important to recognize that most of West Virginia’s exports are dependent on the internal market for metallurgical coal which is highly volatile and is heavily dependent on growth rates of countries like India and China. 

 foreign coal by state 

Looking at the big picture, the share of U.S. coal being produced in West Virginia has shrunk considerably over the last 14 years. In 2002, nearly 15 percent of the coal produced in the U.S. came from West Virginia. Today, only 11.5 percent. As the graph below shows, this is driven by the relative decline in southern West Virginia coal production. The share of U.S. coal produced from northern West Virginia has risen over the last decade and a half, from 3.1 percent in 2002 to 4.3 percent in 2013.

coal market share

What this all makes clear is that the decline of coal production in southern West Virginia is happening as other coal basins and states have increased their market shares. There is a national ‘war on coal’ when other regions are out competing West Virginia and our production losses are being replaced by other states.

In the next post, I will look at one of the other central reasons why coal is declining in West Virginia -  the growth of natural gas.