West Virginia lawmakers face a monumental challenge when the Legislature convenes Wednesday.
The state constitution requires a balanced budget. While this is sound policy, it requires leaders to make tough calls when our state's economy is struggling as it is today.
Revenues have failed to meet budget each month since June. The magnitude of the miss seems to worsen every month.
Official revenue for the first half of fiscal year 2016 is $158 million below budget. And the full year shortfall is now projected to exceed $350 million, 8 percent of the $4.3 billion general revenue budget. This deficit is due to declines in each of the top 3 generators - personal income tax, sales tax, and severance tax.
Of the deficit, $100 million is attributable to severance taxes, which were projected to be 11 percent of general revenue.
Severance revenue is 50 percent below budget due to a drop in coal production - caused by less demand, burdensome regulations and low natural gas prices.
Personal income taxes, which provide 43 percent or $1.9 billion of our budget, are $25 million short and continue to drop each month with the loss of coal and natural gas jobs.
These layoffs contribute to West Virginia having the highest unemployment (7.2 percent) and the lowest workforce participation (53 percent) rates in the nation. The domino effect is fewer dollars to spend on goods and reduced sales tax revenues.
Sales tax on goods generates $1.4 billion, or 30 percent of our general revenue, and is off $25 million so far - 3 percent. This revenue is also below budget in greater amounts each month.
All indications are these negative trends will continue.
How will the budget be balanced? In November, when the initial shortfall was projected to be $150 million, the governor implemented a 4 percent expense cut for all agencies and a 1 percent expense cut in education that was projected to save $100 million.
But that means we still need to find $250 million more in reductions or revenue to balance the budget. There are many ideas bandied about - good and not so good.
More than $50 million in payments to the nearly funded old workers' compensation obligation could be redirected for the remainder of the year.
Accumulated cash in various special revenue accounts can be reduced to generate between $25 to $50 million.
Although not proposed to cover the whole shortfall, the Rainy Day fund's balance of $800 million could be used for some. Agencies could further reduce budgets and the Supreme Court, like the executive and legislative branches, could make reductions. Lastly, the governor could propose a tax increase.
And remember there still comes the many requests for dollars: millions needed to maintain roads and bridges, the need to boost investment in K-12 education, the growing request for higher compensation and PEIA benefits, the need to fund rising health care costs, and the need to battle drug dependence.
Some have suggested we simply raise a few tax rates, and all will be fine. I disagree wholeheartedly.
Every dollar the state brings in via taxes is a dollar that otherwise could have been spent or invested by one of our hard-working citizens and business owners.
The legislative leadership's priority this session will be to ensure we enact policies that promote economic growth and job creation.
While energy markets may continue to slump, we can promote job creation that will boost payrolls and increase disposable income. That will, in turn, boost our top two sources of revenue for the state - personal income and sales taxes.
We will examine certain areas of our budget and recommend savings and efficiencies.
For example, we know our education system has a highly centralized bureaucracy. We will follow up on prior agency audits and draft legislation to facilitate additional savings.
I believe that West Virginia needs a total paradigm shift in how we approach our budget, as well as how we grow the state.
Through our leadership roles - me as chairman of the House Finance Committee - those of us in the Legislature plan to work together to accomplish the many positive changes needed.
Delegate Eric Nelson, R-Kanawha, is chairman of House Finance and represents the 35th District, including St. Albans, Dunbar and parts of Charleston and South Charleston.