The Times West Virginian

March 21, 2013

Hiring freeze continues state’s commitment to fiscal responsibility

Times West Virginian

— West Virginia has prided itself on fiscal responsibility in recent years.

In February 2012, for example, Gov. Earl Ray Tomblin signed a bill into law making West Virginia the first state in the country to have a comprehensive plan in place to address the debt created by health-care costs for future state retirees. These costs are called OPEB, which stands for Other Post-Employment Benefits.

“We in West Virginia are the first to solve it,” Tomblin said at the time. “We take the last step toward ending our long-term debts.”

Previously, the state had addressed such issues as workers’ compensation and retirement costs.

West Virginia also has a Rainy Day fund totaling $915,951,589.32 at the end of February. The fund can be tapped in the event of an emergency, and it also assures high bond ratings and resulting low interest rates when the state issues bonds for construction projects.

Ensuring the financial health of the state, though, doesn’t stop with past accomplishments. It must be an ongoing process.

In that light, with tax revenues that could lag below expectations by up to $70 million by the end of the fiscal year, Tomblin has ordered a freeze on hiring for all executive agencies under his authority. It will continue until June 30.

The governor said there will be no furloughs or layoffs, and positions funded by special revenue sources, not general revenue, will not be affected. The hiring freeze applies solely to executive agencies under the governor, and does not apply to other executive agencies, such as the attorney general or the secretary of state. It includes all cabinet agencies, the state board of education and the Higher Education Policy Commission.

“Throughout my public service career, I have advocated for and implemented plans to promote fiscal responsibility,” Tomblin said.

“While we have fared better than most states in recent years, our nation’s economic challenges continue to impact our state’s revenue collections. The plan I’m implementing ensures key government services will continue to be provided to our people, and necessary employment positions to deliver those services will be filled. This will help us ensure our financial house will remain in order at fiscal year end.”

The Associated Press reported that through the end of February, the first eight months of the fiscal year, the state’s tax collections were $35 million below expectations after being on target through last December. While that’s less than 1.5 percent of projected general revenue collections to date, Deputy Revenue Secretary Mark Muchow expects the budget woes to continue before the fiscal year ends on June 30.

Muchow said money saved from the freeze would at best make up a third of the deficit.

“The hiring freeze will be one of the steps necessary in covering any type of gaps,” Muchow said. “It’s not in and of itself going to solve everything, but it’s an important component.”

Muchow said that reduced severance tax revenue from coal and gas production is the biggest issue.

“The biggest item by far is the severance tax,” Muchow said, noting it was down $39.7 million in February. “The decline in the coal industry is a little bit more severe than initially predicted, and to compound that, on the natural gas side, we were expecting an increase in revenues going into this fiscal year and instead we have received a decrease in revenues mainly because of significantly lower natural gas prices.”

Muchow expects the state will have to tap a reserve account that contains about $45 million that is used to pay income tax refunds when the state has cash-flow problems to supplement savings from the hiring freeze. Projects or discretionary spending that can be moved until the next budget year might also need to be delayed.

We’re hopeful the state’s tax revenue will pick up as the nation’s economy improves. In the meantime, we appreciate the effort to address the issue with a minimum of pain and before the problem escalates.