Confronting the Fiscal Gap

February 16, 2016 by and

2016 Budget Brief coverGovernor Tomblin’s plan for closing an estimated $381 million budget gap for the current fiscal year (FY 2016) and a $466 million shortfall for the 2017 state budget (FY 2017) includes a mix of spending cuts and budget reductions, as well as tapping the Rainy Day Fund, using surplus and one-time revenues, and raising taxes on tobacco and telecommunications services. These large projected budget gaps come on top of a $195 million budget shortfall that was closed last year in the 2016 budget. Read PDF of report.

The state’s consecutive budget gaps derive from many factors, including significant tax cuts implemented over the last decade, the state’s weak economy over the last two years – especially in the energy sector – and growth in its Medicaid program.

The governor’s recommended 2017 base budget (general revenue and lottery funds) is approximately $4.682 billion, only $1.6 million more than the 2016 base budget appropriations enacted last spring. After the governor’s across-the-board cuts of four percent or $94.3 million in the 2016 budget, the governor’s 2017 base budget plan is only $92.7 million more than the current 2016 base budget.

While the governor has taken some positive steps this year – including a more balanced approach that includes additional tax revenue, funding to help partially close the $120 million shortfall in PEIA, and resourceful ways to utilize one-time revenue – the state still has many unmet needs that require additional revenue to improve the state’s long-term growth and fiscal health.

This brief will examine both the governor proposals for the 2016 budget and the 2017 budget, along with exploring the impact of recent and possible future budget cuts, and the underlying factors that are driving the state’s fiscal gaps. The brief will also explore steps policymakers can take to ensure that the budget not only provides a better foundation for economic prosperity but that it also protects vulnerable children and families and helps push more people out of poverty.

Key Findings

• The governor’s plan for closing the estimated $381 million budget gap for 2016 includes $94.3 million in across-the-board spending cuts and $287 million in revenue from various sources, including the Workers’ Compensation Debt Fund, surplus revenue funds, the Revenue Shortfall Reserve Fund A, excess cash, and tax modest increases.

• To close the estimated $466 million 2017 budget gap, the governor proposes a mix of tax increases, spending cuts, and budget reductions – including $152 million in new revenues and $77.1 million in cuts to programs and services.

• The large budget gaps are mostly due to the erosion of the state’s tax base from tax cuts enacted between 2007 and 2015 and the state’s weak energy sector, which has lead to lower severance tax collections. If general revenue fund investments as a share of the economy were at the two-decade average, the state would have an estimated $465 million in additional revenue.

• The Affordable Care Act also helped save the state nearly $15 million in the 2017 budget, despite growing Medicaid costs.

• The state’s budget woes over the last few years could have been much worse had it not been for declining student enrollment in public education and increases in property taxes from shale development.

• While raising the tax on tobacco products is a move in the right direction, the tax increase needs to be high enough to curb health care costs and save lives. Similar to the proposed sales tax on telecommunications, it is also regressive, hitting low-income people the hardest.

• Since 2008, the state has reduced higher education investment by over $120 million, after adjusting for inflation. Meanwhile, tuition at the state’s four-year colleges has grown by 32.4 percent during this time period, shifting costs to students and potentially jeopardizing quality at our public universities.

• To improve the state’s fiscal health and its economy, policymakers need to consider additional revenue sources. Otherwise, the state will continue to underinvest in its workforce and diminish its ability to provide long-term economic growth and improve the health of its communities.