CHARLESTON — As legislators begin reviewing Gov. Jim Justice’s proposed 2020-21 West Virginia budget, indications are that the next four budget years will be even more challenging, according to the governor’s annual Budget Report to the Legislature.

Justice’s proposal is a $4.58 billion spending plan that requires $108.64 million in one-time funding to make up for a drop in tax collection.

According to the report’s six-year financial plan, 2020-21 will be the first of five straight years where state spending will exceed revenue collection from taxes and Lottery profits.

In 2021-22, that will result in a $170 million deficit, a shortfall projected to shrink to $158 million in 2022-23, grow to $171.4 million in 2023-24 and result in a $164.3 million deficit in 2024-25.

“We continue to approach current and future challenges that include increases to state appropriations for the state’s social programs, PEIA, education, continued retirement contributions, and deferred maintenance for state-owned property,” the report says.

Those cost increases are projected to grow state spending from general revenue and Lottery funds from $5.09 billion in the current budget year to $5.65 billion in 2024-25, a rise of just over 9%.

Combined general revenue and Lottery revenue collection is projected to grow by just 6.36% during that time, from $5.17 billion to $5.49 billion, creating funding shortfalls each year.

“Using this plan, it is easy to see where the projected ongoing base expenditures outpace projected available revenues, and it becomes obvious that any surplus revenues from upcoming fiscal years should be used mostly for onetime needs or held for use to assist in offsetting possible future requirements,” the report states.

The report finds that health care costs are a key factor for rising government spending.

Costs for Medicaid, the health care plan for 500,000 poor, disabled and elderly West Virginians, are projected to grow by 4% a year, according to the report. The current state appropriation for Medicaid is $1.162 billion, while federal funding for the plan tops $3 billion per year.

Costs for PEIA, the state-managed health insurance plan that covers more than 200,000 public employees, spouses and dependents, are expected to increase by more than 8% a year, the report projects.

It projects that PEIA will need an additional $63 million in the 2021-22 plan year, an additional $73 million in 2022-23 and another $85 million in 2023-24.

In 2019, legislators appropriated $105 million of budget surplus into a PEIA reserve fund, and PEIA will spend $34 million of that fund during the 2020-21 plan year to avoid any premium increases or benefit cuts.

Likewise, the report finds that the cost of maintaining nearly 39,000 miles of public roads is putting stress on the budget.

It notes that the Division of Highways needs $414 million a year to repave roads on a 12-year cycle. Currently, the total state Highways budget for maintenance is $489.9 million.

The report also says West Virginia needs to budget about $3 billion for the cost of replacing bridges that are more than 60 years old, and notes, “Highway slips and slides totaling tens of millions of dollars have been identified.”

It also notes that $16 billion in new highway construction projects has been shelved for lack of funding.

Deputy Revenue Secretary Mark Muchow told Senate Finance Committee members that, after peaking in 2019, a combination of plunging natural gas prices and coal exports, as well as the loss of natural gas pipeline construction jobs, has caused a downturn in the state economy. That, he said, is reflected in state severance tax collection, which has fallen from a peak of $462.5 million in 2018 to $360 million in 2019 to a projected $253.8 million for 2020.

A mild winter, to date, is not helping boost demand for coal or natural gas, he said.

“This weekend, the forecast is for temperatures in the 70s. That’s not good for tax collections,” Muchow said. “What we need is minus-10 degrees.”

Muchow said he’s hopeful that the downturn in natural gas prices and coal exports is close to bottoming out.

“You can’t go below zero,” he said.

Other tidbits from the executive Budget Report:

  • While most budget items in the governor’s proposed 2020-21 plan are unchanged from the current budget, Justice is asking the Legislature to double the general revenue appropriation for tourism, from $7 million to $14 million. In the past, Justice has advocated for increased spending for tourism advertising and promotion.
  • As of Nov. 30, state government had 36,697 permanent full-time employees, 12,233 of whom are employed by higher education institutions. Among the five statewide elected constitutional officers, the agriculture commissioner has the most employees, at 354, while the governor has the fewest, at 43.
  • West Virginia has 24 tax credit programs that provide $100.8 million a year in tax relief to recipients. Economic development programs account for $54 million of that total, with Industrial Expansion/Revitalization credits available to electric power plants accounting for $27 million. Some of the larger credits, in terms of total amounts, benefit individuals, not businesses. Those include the Low-Income Family Tax Credit, totaling $20 million, and the Homestead Exemption property tax credit for senior homeowners, at $12.2 million.

Reach Phil Kabler at philk, 304-348-1220 or follow @PhilKabler on Twitter.