Gov.-elect Earl Ray Tomblin addresses attendees of the 18th annual West Virginia Economic Outlook Conference in Charleston, W.Va. (Photo/Steven Allen Adams)

By Steven Allen Adams | West Virginia Watchdog

CHARLESTON —Despite revenues continually exceeding expectations, economic growth is expected to slow down from 2010 numbers, according to the West Virginia Department of Revenue.

Mark Muchow, deputy secretary of the West Virginia Department of Revenue, addressed the attendees of the 18th annual West Virginia Economic Outlook Conference in Charleston today.

According to Muchow, the state’s economic growth will slow down over the next few years. The state’s growth will be spurred by foreign exports and the energy sector, with labor recovery expected to accelerate thanks to manufacturing employment. However, federal fiscal policies could put a drag on the state’s economy, as could increased volatility in energy.

“We’re on a roller coaster ride,” Muchow said. “On the plus side, the State of West Virginia is better off than a lot of states.”

Even though coal mining is expected to decline over the next few years, particularly in southern West Virginia, Muchow said that coal mining has been a positive factor in keeping state revenues high. Coal mining made up 34 percent, or one-third, of the state’s earnings growth in the second quarter of 2011. Coal mining made up 21 percent of the state’s real gross domestic product growth. West Virginia had the fifth highest real GDP growth rate of 4 percent, exceeding the national growth rate of 2.6 percent.

But coal is starting to lose some of its market share to natural gas, which is growing due to explorations in the Marcellus Shale. In 2005, coal made up 49 percent of net generation. That dropped to 43 percent in 2011. Natural gas made up 19 percent of generation in 2005, but jumped to 23 percent in 2011.

The state’s corporate net income tax and severance taxes on coal, natural gas, and timber have helped keep the state in the black. The General Revenue Fund saw 8.1 percent growth in fiscal year 2011, with to 29.6 percent of that coming from the corporate net income tax. So far in fiscal year 2012, which started in July, the General Revenue Fund has seen 6.5 percent growth, with 36.2 percent coming from severance taxes.

The state has come to depend on severance tax revenue, which has jumped from 6 percent of general revenue in 2001 to 11 percent in 2011. Lottery also grew to 3 percent of the pie in 2011. But gaming competition from other states is hampering that growth. Growth of racetrack video lottery and other forms of games grew by 20.3 percent per year between 1991 and 2007, but have decreased by 2.8 percent per year ever since.

Another source of hurt for West Virginia’s budget in the future will be the state’s Road Fund. West Virginia owns well more than 90 percent of state roadways and receives $12,000 in state motor fuel tax receipts for every one mile of state-owned highway.

“Probably, for the long run, the solution to highway funding in West Virginia will probably need to involve a local component unless we want our fuel tax to be well out of sight,” Muchow said.

Gov.-elect Earl Ray Tomblin reminded the attendees about some of the state’s other accomplishments. The state ended the year with $6.4 billion in exports, $818 million in its Rainy Day Fund, an 8 percent increase in General Fund revenue over fiscal year 2010 and a 109 percent increase over projections, coming in at $4.1 billion.

“In the midst of what some have called the world’s toughest economic downturn, West Virginia continues to successfully meet its economic goals,” Tomblin said.

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