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W.Va. cuts $18M from Medicaid to balance books

CHARLESTON, W.Va. -- West Virginia cut nearly $18 million from Medicaid reserve funding Friday in an emergency move to ensure the state would end its budget year Sunday with spending and revenue balanced.

An executive order from Gov. Earl Ray Tomblin allowed for a reduction of up to $20 million to help the state offset a general revenue shortfall projected to total $93 million, or 2 percent below the nearly $4.15 billion the state expected to collect from these taxes during the budget year.

Acting revenue secretary Jason Pizatella said the actual cut was $17.7 million. To avoid a budget deficit, which the West Virginia Constitution forbids, the Legislature previously cut $28 million from current spending at Tomblin's request and the state drained a $45 million special account for paying income tax refunds.

Because the cut targets funds to be banked for future budget years, Friday's move will not affect ongoing health-care services, Pizatella said.

"This is purely a timing and cash-flow issue," Pizatella said Friday, adding, "We will ask the Legislature to restore what we've cut the next time they convene."

Medicaid has placed increasing pressure on the state's annual spending plan.

General tax revenue has struggled throughout the budget year to meet estimates, missing the monthly mark six times before June. Declining coal production has been a major culprit. Severance taxes on that fossil fuel and other extracted natural resources were expected to bring in $461.5 million, or 10 percent of all general revenue. It began the month down $37.6 million, or 9 percent.

The two key sources of general revenue, taxes on personal income and on sales and services, also showed weakness. Together, they account for nearly 72 percent of general revenue. Sales and use taxes were down nearly $16 million. Income tax collections were in the black, but largely because the state exhausted the $45 million refund reserve account.

Those two taxes are signs of economic activity, so the slumping revenue indicates the state's recovery from the latest recession continues in fits and starts.

West Virginia also has pursued several gradual tax cuts since 2005. It will repeal the sales tax on groceries Monday, after a series of rate reductions that saves consumers -- and cost the state in revenue -- an estimated $162 million. The state also is cutting its corporate net income tax rate to 6.5 percent next year, from a high of 9 percent, and remains on track to erase a tax on business net equity at the end of 2014.

Revenue from those two business taxes was $188 million during the last budget year, a decline of $152 million, or 46 percent, when compared to collections the year before the rate cuts began. Estimated to bring in $249 million this budget year, it began June down $8.1 million. Sales and use tax revenues, meanwhile, are up 14 percent, or $153 million, when compared to the year before the state began whittling down the rate on food.

The general revenue budget for the fiscal year that begins Monday is $13.7 million smaller than the one lawmakers approved for the current year. Among other changes, the new spending plan reflects cuts Tomblin ordered for most agencies in the executive branch.


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