Citing rapidly declining coal and natural gas prices and layoffs across the state for key energy sector employers, Moody's Investor Services Thursday downgraded West Virginia's economic outlook from stable to negative.
"The state's unemployment rate has rapidly increased in 2015, hitting 7.6% in August of 2015, driven in part by an increase in the labor force participation rate but also underscoring the challenges to the energy sector," the New York-based bond ratings service stated, adding, "The state is also experiencing a precipitous decline in coal and natural gas severance tax revenues in the first three months of the current fiscal year. The revenue decline is requiring the state to revise its fiscal 2016 budget gap."
However, Moody's noted that the state budget gap is manageable, and that the state has substantial reserve funds, and it expects "the state will continue to adhere to conservative budgeting practices in rectifying the negative variance."
Chris Stadelman, spokesman for Gov. Earl Ray Tomblin, said the governor is "certainly disappointed" with the downgrade, but noted it is a "reflection of national trends affecting energy-producing states across the country," with states including Alaska, Louisiana and Mississippi also receiving negative outlooks, while neighboring Kentucky and Pennsylvania have had their bond ratings downgraded.
Moody's did not downgrade West Virginia's bond ratings Thursday, but warned, "Should the coal and natural gas sectors face continued pressures, or if additional layoffs occur as the result of mine closures and lower natural gas production, that could result in downward rating action."
"It's important to note that Moody's applauds West Virginia's fiscally responsible policies and dedication to paying down unfunded pension liabilities as key strengths," Stadelman said. "Gov. Tomblin remains committed to ensuring the state budget is managed responsibly, and West Virginia maintains its strong Rainy Day Fund, which is among the best in the country."