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W.Va. agencies await possible effects of federal budget stalemate

CHARLESTON, W.Va. -- If the federal budget goes off the "fiscal cliff" on Jan. 2, the impact on state agencies would be serious, but not catastrophic, the state Budget Office director said Tuesday.

If Congress and the White House cannot reach a budget agreement by the end of the year, automatic cuts in federal funding to the states -- a process known as sequestration -- will begin to go into effect.

State Budget Director Mike McKown said that, while the cuts would vary from agency to agency, most would see their overall budgets reduced by 6 to 8 percent. The cuts would not come immediately.

"In nice round figures, if it goes through, it will be in the 6 to 8 percent range," McKown said of budget cuts for state agencies.

He noted that most federal grants are awarded in two-year cycles, so some agencies would not begin to feel the impact of sequestration until 2014.

"Some cuts would be in the next fiscal year, while most are a year or two away," he said.

Federal funding accounts for nearly 19 percent of the state's total annual operating budget, but McKown said sequestration applies to federal discretionary funds, and two major sources of federal funding, for Medicaid and for Highways and Transportation, would not be cut.

Nationally, sequestration would result in federal funding cuts of $110 billion in the 2013 budget year alone.

Funding cuts to state agencies would be painful, McKown said.

"But it's not catastrophic," he said. "Each program would have to be analyzed individually." 

According to state Budget Office figures, about 4,700 of the approximately 40,000 full-time positions in state government are federally funded, with about 2,400 of those positions in the Department of Health and Human Resources.

Sequestration could eventually require state agencies to eliminate somewhere between 280 to 375 federally funded positions, or find alternative funding though state revenue sources.

That doesn't count county Boards of Education, which would see similar reductions in federal funding streams for Title I programs for low-income students, and for special education.

"Most of that money is going to pay teachers," he said.

For the 2013-14 budget year, which starts next July 1, Gov. Earl Ray Tomblin has asked most state agencies to submit budget requests that cut spending by 7.5 percent.

Public education, Medicaid and most Health and Human Resources accounts, Corrections and certain other state agencies are exempt from the proposed cuts.

The potential for additional 6 to 8 percent cuts on top of the cuts in state funding makes it difficult for agencies to plan ahead, McKown said.

Additionally, the "fiscal cliff" would result in automatic increases in federal income taxes and other federal taxes, and the resulting economic downturn likely would further affect state revenue collections, he said.

McKown said he personally believes Congress will act before or immediately after the Jan. 2 deadline.

"I would imagine you're going to see some movement there," he said. "I don't think you'll see them leaving for Christmas recess without doing something, even if it's just kicking the can down the road further."

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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