By Brad McElhinny in News | January 31, 2017 at 9:54AM

CHARLESTON, W.Va. — Gov. Jim Justice is considering a wave of cuts when he presents his first state budget, and the chairmen of the finance committees in the Senate and House are glad the new governor is making the case for cuts up front.

But both Eric Nelson and Mike Hall said legislators will need to take a good, long look at the hundreds of millions of dollars in potential cuts to ensure government is able to fulfill whatever responsibilities the state’s elected leaders wind up deciding it needs to fulfill.

“If they’re throwing this stuff out there, it’s stuff we’ve needed to do for a long time, to ask the right questions about any program being offered by the government,” said Delegate Eric Nelson, R-Kanawha, chairman of the House Finance Committee. “Who is it for, and what purpose is it serving? When dollars are tight, how do we prioritize these?”

His counterpart in the Senate, Finance Chairman Mike Hall, concurred.

“I do believe, and I’ve said this for a year as I’ve listed the different things in the budget that I see, that this isn’t something that wouldn’t be done without a lot of pain and a lot of difficulty,” said Hall, R-Putnam. “Just like a family, if you don’t have the money you don’t have the money. You have to at least look at what you have to do to get you there.”

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Nick Casey

In a Monday appearance on “Talkline” with Hoppy Kercheval, Justice’s chief of staff, Nick Casey, said he is preparing budget options with a range of $390 million to $606 million in reduced spending. Casey characterized some of the options as cuts while others are “foregone expenditures,” which means areas that could have been funded but now just won’t be.

The budget hole for the coming fiscal year, which starts July 1, is expected to be about $500 million.

“There’s just no good choices on these cuts at this stage of the game, except to say, ‘They’re going to be painful and they’re going impact people,’” Casey said on “Talkline.”

HOPPY KERCHEVAL: West Virginia’s budget — from bad to worse.

Later in the day, Justice’s new revenue secretary, Dave Hardy, appeared in a video describing the depth of the state’s budget problems. With ominous music playing lightly in the background, Hardy said the state is “in a budget crisis like we have not seen since the Great Depression.”

He added, “Governor Justice is committed to doing the responsible thing for our tax payers, for our families and for our future generations including your children and mine,” he said.

Mike Hall

Hall praised the governor and his staff for taking the state’s budget problems seriously and for getting out ahead of potential cuts. He said the state Constitution puts most budgeting responsibility on the governor.

“That’s apparently what they’re doing,” Hall said in a telephone interview. “They’re taking it seriously and doing it.”

West Virginia’s total state budget is $4.187 billion. So cuts of almost $400 million would be one-tenth.

Almost half the state budget goes to public education with a total of $1.9 billion, or 46 percent.

A quarter of the state budget goes to health and human services — a little more than $1 billion, or 26 percent.

A final quarter of the state budget pie is everything else.

Here’s a visual representation of the 2017 state budget in millions of dollars. The tiny block in the lower right-hand corner representing transportation is just what comes out of the general fund; the bulk of state funding for transportation comes out of the state Road Fund:

 

Create line charts

Hall observed that cuts in the range of what the governor’s staff is describing would transform state government from what residents have been accustomed to experiencing.

“Those would be significant cuts,” he said. “At a certain point, through their representatives, the people of this state have said at this point they’re not for tax increases. I believe that’s where they’re starting with that concept.”

When proposed cuts become less abstract and instead are specific programs or departments, Hall expects strong reactions from people who have benefited from those areas in the past.

“There’ll be constituencies representing nearly every item in there,” he said. “The next thing will be to see how legislators and everybody in the process looks at those choices.”

Another obstacle to making such deep cuts is state law that limits budgeting options for particular areas. Of the $4.2 billion budget, about $2.9 billion is already spoken for by statute, he said.

For example, there are areas of Lottery where money goes directly to counties or to horse and dog purses or horse breeding or dog breeding.

“You’d have to change the law to get to those sections,” Hall said. “If you don’t change the law, you’d only have about $1.3 billion to go after $500 million or $600 million.”

Hall expects a flurry of bills that would give the Legislature more flexibility to make cuts.

“So I’ll assume part of this will occur in areas that will require changing the law, which then gets beyond some of the sections that do not require changing of the law. In terms of me making a guess as to what changes would be made in the law, I don’t know but I believe they’re on the table.”

That means much of the budgeting action in the Legislature will take place not only in the finance committees but also in committees focusing on health, education or government organization.

“It’s a lot more complicated than just taking a pencil and striking out a number,” Hall said. “You have to actually change the law that actually spends the money.

“You could have 15, 16 bills, maybe more, that would have to be passed to get to the level they’re talking about. You’ll have to change how government is organized. You’ll have to eliminate agencies, and that will require some legislation. If you eliminate a commission’s existence by law then you don’t have to pay for that any more, and that’s part of what you’ll see.”

Eric Nelson

Nelson, the House finance chairman, said he and Hall met Monday with Hardy, the new revenue secretary. Nelson is pleased to hear the new administration is realistic about the depths of West Virginia’s budget problem.

Nelson said cutting to the degree being described will require a new view of what West Virginia government does.

“To get to that stage in cuts and cuts alone, it will have some serious effects on eliminating programs and consolidating programs that have needed it for a while, but it will go into some of the programs that touch a lot of people,” Nelson said in a telephone interview. “At the end of the day, we’ve got to see what it is and prioritize it.”

Nelson said he will be interested to see how other legislators react to the specifics of the proposed cuts.

“When we have members, regardless of party, asking for cuts, it’s always interesting when they ask for something but then when it’s in their backyard, what happens,” Nelson said.

Tim Armstead

House Speaker Tim Armstead, R-Kanawha, appeared on Monday’s “Talkline” after Casey discussed the extent of the cuts the governor is considering. Armstead said, based on working with the budget estimates over the past year or so, that he is not surprised by the depth of the problems.

Armstead said House members are willing to make deep cuts.

“I think they are prepared to look at significant cuts,” Armstead said. “They’re going to be affecting a number of different districts. I think there will be fortitude to do that.”

He added, “We’re willing to roll up our sleeves and take part in it.”

Mitch Carmichael

Senate President Mitch Carmichael, who has praised Justice several times already for saying state residents can’t absorb a heavier tax burden, put out a statement Monday supporting the potential cuts.

“It is clear that Governor Justice is going to have to make the kinds of cuts to our state budget that no Governor has ever had to make before, and those cuts will be painful. However, we have no choice,” Carmichael, R-Jackson, said in a statement sent out to news outlets. “The size of our government is simply unsustainable, and across-the-board cuts will not be able to provide enough of the funding to cover this massive projected deficit.”

Ryan Ferns

Senate Majority Leader Ryan Ferns, R-Ohio, said he was surprised but pleased that the governor’s staff is already talking about significant cuts.

“I thought it was promising that at least they’re suggesting they would be able to come up with those kinds of cuts,” Ferns said in a telephone interview. “Even the lower end is greater than what I thought the governor’s office would propose. Mitch (Carmichael) and I have both said all along that if the governor’s office comes out and proposes legitimate cuts we’ll lock arms and march ahead with them on that.”

Although Casey discussed a range of cuts from $390 million to $606 million, Ferns suggested aiming for the upper part of the range.

“My suggestion to the governor’s office would be to shoot for the high end because it seems like every month that goes by the shortfall grows,” Ferns said. “If they legitimately have a path to $600-plus million in cuts I would use that as a starting point because I think it’s going to take all that to balance the budget and then some.”

Even with whatever state budget sacrifices are ahead, Ferns is advocating for a broader consideration of tax reform. He suggested the state has gotten into this financial mess because the budget has been too reliant on severance tax from coal, natural gas and timber, which can prove to fluctuate too much to achieve stability. “It’s almost like we’re banking on those industries never experiencing a decline,” he said.

Ferns said, “Even with these budget cuts being part of the discussion now, I think, and many of my colleagues in the Senate agree, this is the year to do tax reform because our source of the way we achieve our revenue is flawed at this point. I think it will be a very worthwhile endeavor to try to do a complete overhaul. I’m not talking about one part here or on a specific tax.

“No matter what your budget situation is like, I don’t think the tax reform effort is ever going to be easy.”

Marty Gearheart

Delegate Marty Gearheart, R-Mercer, a member of the House Finance Committee, said the state budget and the structure of state government offer some avenues for significant cuts.

“It’s a heavy lift, and it’s a really big amount,” Gearheart said in a telephone interview. “I think we need to make cuts, and if that’s where his revenue estimates are coming in, we’re going to have to accommodate that in some way, shape or form.”

Gearheart sees possibilities for cutting in the two biggest areas of the state budget — education and health.

“I do think there are some cuts that can be made in the education area, not in the distribution to counties for local school systems, but rather the amount in Charleston,” he said. “I have listened to the governor and he echoes some of the things I have said before with regards to the education department in Charleston, which I think is excessive.

“That would be an immediate area. One of the big elephants for us has been the Medicaid contributions. I’m assuming where we go and where the federal government goes with regard to the Affordable Care Act could have a big impact on our budget, but that’s a great unknown at this point. That department is by far the largest consumer of general revenue if I’m not mistaken, with education slightly behind it.”

Gearheart, like the other legislators discussing the budget, expressed appreciation for the Justice administration taking a realistic approach.

“For us, it gets us a place to start work,” he said. “We don’t know anything about what spending is going to be until we see the revenue estimates. Governor Tomblin’s revenue estimates have been off 10 percent in the last few years, which makes it real difficult after the budget is balanced to go back in and plug the holes. So I’m hoping we have some accurate and near-accurate revenue estimates so we’re not back to backfilling the budget again.”

The specifics of Justice’s budget will be made more clear when the Legislature goes into session Feb. 8. The governor presents a budget on the first day of the session and then presents his goals during a State of the State address that evening.

Hall, the Senate finance chairman, is looking forward to hearing Justice’s speech for more details.

“This ought to be a very interesting State of the State address this year,” Hall said. “He’s looking at it as a guy who has to deal with the bottom-line issue. It’ll be a wakeup call for the state.

“I can’t predict the outcome. Maybe the public says we’ll absorb this. The main thing as a result of it should be that we’ve got the government we can afford. If people want more of it, they’ll have to come up with the money.”

Otherwise, he said, legislators and the governor’s staff will have to “dig into it and say ‘All right, if this is all the money we’ve got then here’s what we’ll spend it on.’”