The Times West Virginian

West Virginia

June 29, 2013

State cuts nearly $18M from Medicaid reserve

Emergency move to ensure balanced budget at end of year

CHARLESTON — West Virginia cut nearly $18 million from Medicaid reserve funding on Friday in an emergency move to ensure the state would end its budget year Sunday with spending and revenues 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 stated 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 had also 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 revenues have struggled throughout the budget year to meet estimates, missing their 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 revenues. They 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 revenues indicate the state’s recovery from the Great Recession continues in fits and starts. West Virginia has also pursued several gradual tax cuts since 2005. It will repeal the sales tax on groceries on Monday after a series of rate reductions that saves consumers — and cost the state in revenues — an estimated $162 million. West Virginia is also 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.

Revenues from those two business taxes were $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, they 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 his part of the executive branch.

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