CHARLESTON — A global oversupply of natural gas is creating a domino effect that is causing natural gas and coal prices — and demand for coal — to plunge, contributing to a $33.26 million state budget shortfall through October, Deputy Revenue Secretary Mark Muchow told legislators Monday.
“There’s just a flood of natural gas out there. It’s keeping prices low, not only for natural gas, but for the coal industry,” Muchow told the interim Joint Committee on Finance.
As a result, year-to-date state severance tax collections are down 44.5 percent from the same point last year, missing revenue estimates by $33 million.
Coal production has remained relatively steady to date, but Muchow said he expects that to drop as power plant stockpiles max out.
Demand for metallurgical coal, used in steel production, has also dropped, as the global economic slowdown has created steel stockpiles, he said.
“There’s excess steel in the global market, and with excess steel, there’s less need for metallurgical coal,” he said.
Muchow noted that natural gas and coal companies are “hurting significantly” with the drop in prices and production. “Certainly, in the stock market, the worst performing sector is energy,” he said.
Natural gas is also contributing to a downturn in state personal income tax collections, which are running $37.47 million below estimates for the 2019-20 budget year, as natural gas pipeline construction projects have wrapped up, or are being held up in litigation, he said.
“Last year, we had a whole bunch of construction workers in the field,” Muchow said. “That’s not true now.”
While tax collections in August, September and October leveled off after July collections started off the new budget year with a disappointing $33 million shortfall, Muchow said November tax collections will come up short because of timing issues.
“There are certain months of the year I hate, and one of those months is November,” he said.
That’s because many taxes are due on the last day of the month, and state offices will be closed after Nov. 27 for the Thanksgiving holiday.
Meanwhile, Revenue Secretary Dave Hardy said state officials are continuing to monitor the revenue shortfalls, adding, “There’s no definitive plan on what kind of budget cuts, if any, need to be made.”
In October, Gov. Jim Justice directed state agency heads to identify a total of $100 million of spending cuts they could make if state revenues do not improve, and had previously asked them to build spending cuts into their 2020-21 budget requests.
On a positive note, Muchow said Internet sales tax collections are on pace to reach the estimated maximum collections of $50 million for the 2018-19 budget year.