West Virginia confronts cash shortage despite natural riches
By MICHAEL VIRTANEN, Associated Press
MORGANTOWN, W.Va. (AP) — West Virginia lawmakers returning to work shortly will find the state in the same position as last year — resource rich and cash poor. And though gas, not coal, is now the increasingly abundant resource, the budgeting challenges don't look all that different from the past.
The state projects a government budget deficit of $400 million next year amid anemic tax collections. Meanwhile, some 18 percent of West Virginia's 1.8 million people live under the federal poverty line and the unemployment rate hovers at 6 percent, fully a point higher than the national average.
"We have to get this state moving," incoming Republican Senate President Mitch Carmichael said. "Something's got to change here."
Republicans, set to begin work at the Capitol with an organizing session Wednesday, took command of the Legislature shortly after the 2014 elections. This year they are pressing for new tax and regulation cuts while vigorously supporting President-elect Donald Trump's pledges to scale back environmental regulations at the federal level. They say the cuts will help the free market and job creation.
Skeptics say West Virginia is poised to repeat the same poverty cycle with natural gas it experienced with coal. They charge that well-paying jobs to extract buried wealth will eventually run out along with the reserves.
"At the end of the day we have not been very good stewards of our resources, particularly the coal model," said Sen. Jeffrey Kessler, the outgoing Senate Democratic minority leader. "We were so grateful, happy to have some jobs, that we let them own the coal, take it, and export all the wealth out of the state."
A large chunk of West Virginia's $4.1 billion budget is funded by severance taxes on natural resources, which produced $612 million last year. It's 5 percent on gross receipts for oil, coal and natural gas. An incremental tax expired in July.
Meanwhile, natural gas production has increased sharply, roughly doubling over the past two years. Depressed market prices have recently rebounded, but with taxes so low the boom hasn't been robust enough to pull West Virginia from its budget doldrums.
Some see a missed opportunity.
"One of the things we've got is something in our state that the world wants and is willing to pay an enormous amount of money for," said Kessler, who won't be back this year after leaving the Senate to pursue an unsuccessful run for governor in 2016.
The taxes paid to West Virginia for extracting gas by mostly out-of-state companies should be raised and the money put into a futures fund for West Virginia's people, he added. "There's no reason for us to continue to give it away all the time like we did with our coal reserves."
Carmichael said lawmakers should seek ways of carefully adjusting severance taxes to raise revenues in a way that doesn't drive drillers and business elsewhere. "We need the capital investment to be in West Virginia and the jobs associated with that investment," he said.
But West Virginia is where much of the gas is.
Large pipeline projects are under way to send the state's natural gas to more lucrative markets, according to a 2014 analysis from the Center for Energy and Sustainable Development at West Virginia University College of Law. The state should also tap some of that energy for itself, the report said.
Short-term benefits include jobs building gas pipelines.
"This substantial infrastructure investment is being driven by the 'bubble' of natural gas within the Marcellus Shale region," center director James Van Norstrand wrote. "Once this pipeline infrastructure is in place, prices within the region will fall roughly in line with the national price."
One revenue boost for state residents could emerge from a legal fight pitting landowners against out-of-state gas companies that have been deducting downstream expenses from royalties paid to West Virginians. The law sets the minimum royalty at 12.5 percent. The state's Supreme Court ruled 3-2 in November against deductions, but the court minority disagreed and said lawmakers should clarify it. Meanwhile, one production company has asked the court to reconsider.
Lawmakers also are expected to revisit a law requiring mining and building companies to post wage bonds if they've operated in West Virginia less than five years. Some Republican lawmakers call that an obstacle to new businesses, though it hasn't stopped some from not following through on their commitments. In the past 10 years, the Division of Labor reports having cashed and paid $1 million in wages and benefits from bonds by 40 deadbeat companies.
But Kessler said the state needs to learn from its past and protect its people.
"If coal's been king it hasn't taken very good care of its subjects," he said. "We're the poorest state in the nation."Associated Press