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Next state budget cut without layoffs or furloughs

CHARLESTON, W.Va. -- State agencies have been called on to cut spending by more than $75 million in the 2013-14 state budget, and have done so without laying off or furloughing any state employees, state Budget Office Director Mike McKown said Wednesday.

"Each agency did something different," McKown said, noting that many agencies eliminated budgeted vacant positions in the 2013-14 budget, which begins July 1.

With many agencies including public education, Medicaid and the Division of Corrections exempt from the 7.5 percent spending cut, agencies accounting for about one-fourth of the state's $4.6 billion general revenue and Lottery revenue budget will absorb the brunt of the cuts.

That includes $34.8 million in cuts to higher education, $10.9 million to the Department of Health and Human Resources, $4.9 million to the Department of Commerce, and $4.7 million to the Department of Military Affairs and Public Safety.

Flat projections for tax collections -- driven primarily by a downturn in coal production and a drop in natural gas prices -- coupled with new funding demands for an additional $180 million into Medicaid and into state employee and teachers' retirement funds, combined to put a dent into the budget that Gov. Earl Ray Tomblin submitted to the House and Senate Wednesday.

The state will have to put an additional $142 million, for a total of $568 million, into Medicaid because the federal share of funding has dropped.

McKown said the federal Medicaid match has dropped from 81 percent to 72 percent, as federal stimulus funds directed to the health-care coverage for the poor, elderly and disabled have expired.

Meanwhile, more money will have to be put into the pension plans, because the plans assume 7.5 percent annual growth in investment funds -- and in the past year, those funds grew just 1.1 percent.

Deputy Revenue Secretary Mark Muchow said state tax collections for the 2013-14 budget year are projected to come in $9 million below the current budget year.

Severance taxes, primarily from coal and, to a lesser extent, from natural gas, are expected to fall $30.2 million to $431.3 million, while B&O taxes are expected to fall $16.3 million to $106.6 million, as electricity produced by coal-fired power plants will decline.

Personal income tax and sales tax collections are projected to increase, but won't be enough to offset the decline in the other tax categories.

Earlier Wednesday, the West Virginia University College of Business and Economics released its annual economic outlook, projecting slow, steady growth in the economy for the next five years.

Professor Paul Speaker told legislators Wednesday that the state's economy had weathered the recession of 2008-09 better than the rest of the country, but is seeing a less robust recovery.

"Our highs are not as high, and our lows are not as low," he said.

The report forecasts that losses from downturns in coal production and natural gas prices will be offset by increases in construction, health care, leisure and hospitality (paced by the opening of the Summit Bechtel National Scout Reserve in Fayette County) and retail trade (with the opening of the Macy's distribution center in the Eastern Panhandle).

Employment is projected to increase at 1.2 percent a year through 2017, lowering the unemployment rate to 5.7 percent.

Obstacles to growth include the having the nation's lowest percentage of population with college degrees, at 17.3 percent, and the third-oldest population in the U.S., with a median age of 41.5 years.

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


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