CHARLESTON – Gov. Jim Justice's chief of staff and the director of the state budget office expressed optimism for the 2019 fiscal year and the budget going six years into the future.
Mike Hall, Justice's chief of staff, and Mike McKown, state budget office director, addressed the House and Senate finance committees Thursday, presenting details on the governor's proposed budget. McKown said he is optimistic about the six-year plan, saying the projection is for surpluses to grow each year.
“I'm as optimistic and positive as I've ever been about this fiscal year and the out years,” McKown told the Senate Finance Committee. “The bottom line is positive. We used to have negative red numbers. Now, it's all positive.”
Hall, who served as finance chair before becoming Justice's chief of staff, said the budget situation is a better picture this year.
“Having been in your role for several years and seeing a shortfall in revenue, what we're seeing today is a different story,” Hall said, addressing Senate Finance Chair Craig Blair, R-Berkeley. “The investment returns have affected our pension system and caused for it to be a better picture. Certain things have added to the growth of our economy.”
Secretary of Revenue Dave Hardy explained his office tracks numbers every day and one of the projections is a six-year plan. Hardy said December marked the first time since 2012 that revenue estimates were above estimates.
"It's important when Wall Street bonding agencies are looking at longterm financial plans and status," Hardy said. "Because the numbers have improved so much, and because of intelligent cuts in the budget, for the first time since we've been doing the six-year plan, which is about a decade, all six years are showing in the black, showing positive numbers. A year ago, it was the opposite. The out years were showing in the red."
Justice rallied optimism but gave few details in his second state of the state address Wednesday night. Some of his proposed new spending measures included pay raises for all state employees, increased funding to tourism and commerce, and the elimination of the business inventory tax.
Senate President Mitch Carmichael said he is encouraged by the budget, in particular, the six-year forecast.
“Any six-year forecast is speculative assumptions, but I think obviously, it looks a lot better than it did last year,” he said.
Carmichael said he also is encouraged by the governor's embrace of eliminating the business inventory tax.
Hardy explained the inventory tax takes at least seven years to implement. He noted its elimination requires a constitutional amendment, meaning residents would vote on the issue in November. Hardy said the constitutional amendment is to guarantee counties will receive the same funding taken away by the inventory tax repeal.
"The effect of that would not be felt until the year of 2020," Hardy said. "Starting in 2020 and in the next seven years after, it would be phased out at roughly $20 million a year until the total of $140 million is reached. It's a slow and gradual tax reduction and $20 million starting two years from now, we are certainly capable of absorbing that especially in light of the revenue projections over the next few years."
Carmichael said he also appreciated the governor's view of finding ways to incentivize community and technical colleges.
“I'm excited about the prospect of lifting West Virginians' education levels and providing training to get jobs along with workforce readiness. That improves people's lives and it's great public policy. It helps individuals achieve greater success and lifts the economic situation in the state.”
McKown said there is $7 million under the budget to make sure students can attend community colleges at no cost. He said the office is working on the bill right now. He said students can apply for federal funds or any type of money available to them.
“The intent is whatever that balance that is left, the $7 million will go toward that balance,” McKown said.
Carmichael said the goal of this session is to focus attention on a few items he says are critical points — eliminating the business inventory tax, placing the state Supreme Court's budget under the Legislature's control, creating an intermediate court of appeals, and education initiatives.
“I am committed to passing a budget before the end of the 60-day session,” Carmichael said. “I'm absolutely committed to that. There is an expectation in place to possibly not consider revenue measures after a certain point in the session. However, we are having a leadership meeting to discuss that.”
Carmichael said he does anticipate an appetite in the Senate to take up the governor's spending measures, particularly the increase to tourism, which did not fare well in the last legislative session. The budget requests an increase to tourism from about $6 million to $20 million.
“Last year, we were facing a $500 million budget crisis,” Carmichael said. “There is more appetite this year to consider those things. Commerce has proven credible and responsible stewards in their willingness to provide tools to improve the economy.”
McKown said in formulating the 2019 fiscal year budget, they closed about a $200 million gap. He said they did this through some growth in the economy but the office also revised revenue estimates upward from what they thought it would be. He said base spending went down, too because of retirement needs and higher investment returns. He said one-time money including Medicaid funds also went into closing that gap.
“The last four to five years, 2014-2018, have been a challenge,” McKown said. “We had huge budget gaps that we had to fill. I remember at this time last year, when we sat down with the governor on that first day and showed him the chart saying we have a $497 million gap. And it got progressively worse. This year, we sat down with him, and the gap we're talking about was $208 million.”
Hardy said there were several factors that contributed to West Virginia's increased revenue. One, he said is optimism in the governor's economic policies. Other factors are state budget numbers cut back over the last three to four years and expectations on the road bond.
"The expectation with the road bond market in June of this year is $1.6 billion in the initial bond issue is generating economic optimism," Hardy said. "And as always, the energy market is very relevant. Natural gas numbers are improving and came through a cold spell in the state. We will see good severance numbers as well."
McKown said this year, revenues are better and retirement systems require less funding this year due to investment returns. He also said there was improvement in Medicaid finishing the year better than estimates. McKown said actual numbers came in a few days ago and were much better than projected, causing a large cash balance in the accounts.
“Therefore, what the governor proposes because we have cash balances in Medicaid accounts, is that we go into appropriations and see supplemental bills introduced by the governor to reduce appropriations to Medicaid lines to help fund some of the other supplemental appropriations needed. This is a tremendous help in helping to balance the 2018 supplementals that are still required but also the Fiscal Year 2019 budget.”
For every $3 the federal government spends on Medicaid, the state spends $1. Hardy explained the state had projected much higher numbers and when numbers came in much lower, he said that freed up $130 million in cash to put aside to pay West Virginia's Medicaid grant.
"One of the reasons we were able to wrap up the last budget and move into this budget is we had over-budgeted Medicaid," Hardy said. "When we found out we over-budgeted, that freed up that $130 million in cash and we could enjoy the benefit of getting the books balanced for this fiscal year."
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