More people use programs like Medicaid and SNAP during hard economic times, and with state revenue dropping, the Department of Health and Human Resources should expect to feel the pinch on both ends, state officials said Wednesday.
Mark Muchow, deputy secretary for the state Department of Revenue, told people at a West Virginia Health Innovation Collaborative work group meeting on Wednesday that he expects the state to lose out on $250 million in revenue in 2016, and as much as $300 million in 2017. Those losses come from a more than 30 percent decrease in coal excise tax, low natural gas prices and steep competition, increased competition from bordering states in gambling and the lottery, and the lowest workforce participation in the nation.
In October, Gov. Earl Ray Tomblin announced a 4 percent state budget cut - roughly $94 million. Muchow said it's reasonable to expect similar cuts in the near future, as West Virginia sees continuing drops in revenue driven by a low international demand for coal, lottery revenue losses and low taxation rates.
"It all depends on policy makers, but it could go a lot of different ways," Muchow said. "I think in five years we'll still be struggling - hopefully we'll have a balanced budget, but we'll be struggling because we've relied for so long on the coal industry, and the coal industry will hopefully stabilize, but it will be a lot smaller than in the past."
"We're in a difficult position in the department ... our mid-year cut was about $41.5 million. There are real consequences to that," said Jeremiah Samples, DHHR deputy secretary for public health and insurance.
"We have SNAP [Supplemental Nutrition Assistance Program] and TANF [Temporary Assistance to Needy Families] and those programs, but there's a lot of money coming from the federal government [for those]," he said.
Social service like Child Protective Services and Adult Protective Services are not affected by the cuts.
"We have a counter-cyclical situation at DHHR in terms of the services we provide. When you have an economic downturn and an increase in unemployment, and you have less revenue, we see an increase in the need for our services," said Samples.
Coal sales for the first four months of 2015 are down 30 percent from last year, and although natural gas production has surged by 30 percent in the last four years, Muchow doesn't anticipate it bridging the gap.
"Expect that surge to end, because at some point in time, we can't make money producing gas that nobody wants to buy," Muchow said. "In the coal industry, West Virginia enjoyed a 'mini-monopoly' because our coal was about the best around. In natural gas, we do not have the same monopoly, and there are a number of other states around us that can produce as much, if not a whole lot more."
The state's non-manufactured exports - mostly metallurgical coal - have plummeted by more than 70 percent since 2012, Muchow said. The state's racetrack and video lottery revenue has also dropped.
More than 70 percent of racetrack and video lottery consumers in West Virginia are from out-of-state, Muchow said, and increased competition from border states has resulted in revenues 25 percent lower than they were in 2007.
The DHHR saw the largest cut of any state agency in October, and has been forced to make a number of cuts in the last four years to respond to the year-over-year budget cuts at the state level.
"Over the past couple of years - and I don't want this to sound prideful, because it's been very hard - we've been very diligent in tightening the ship," Samples said. "I think everyone at the table can attest to how difficult it's been, but ... there is still more to be done to structurally realign. Either there needs to be more revenue, or we're going to need to make more cuts."
States with strong local and county partnerships are likely to fare best in the future, Munchow said. Some West Virginia counties have been gaining revenue from things like natural gas production, but have no additional responsibilities to pair with that cash. For example, he said, Marshall County cut their property tax rates by more than 25 percent in the last few years, Muchow said. Four counties - Doddridge, Harrison, Wetzel and Marshall - received two-thirds of last year's coal and severance tax distribution, or nearly $8 million.
According to Muchow, the next legislative session is unlikely to yield many long-term solutions. West Virginia residents pay some of the lowest tax rates in the nation, and possible solutions, like an increased tobacco tax, are unlikely to gain much traction, he said.
"Let's say our revenue gap is $300 million - if we choose to dip into the rainy day fund to maintain the status quo, we have about two years before D-Day," Muchow said. "There are no easy solutions - normally, major policy changes occur in the first year of a new administration, so I'm not looking for any major policy changes this coming session."
Reach Lydia Nuzum at lydia.nuzum@wvgazettemail.com, 304-348-5189 or follow @lydianuzum on Twitter.