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Monitor state’s revenue closely

Within a few days, final reports on how much state government collected for the General Revenue Fund during the just-ended fiscal year will be available. Let us hope the last month was a good one.

West Virginia’s budget for fiscal 2018 is based largely on optimism that the state’s economy — in particular the energy sector — is picking up. Had that newly rosy outlook not materialized, legislators and Gov. Jim Justice might still be arguing about the budget.

As we reported last month, something of a breakthrough in negotiations occurred after the Justice administration revised its General Revenue Fund estimates on June 6.

For months before that, analysts had projected about $4.055 billion would be collected for the General Revenue Fund this year. But, as a result of legislation enacted earlier in the year and an expectation of an improving economy, the estimate was revised upward by $170 million.

But during the first 11 months of last fiscal year, revenue was sorely below estimates on which the fiscal 2017 budget was based. By the end of May, the shortfall was $42.7 million.

Justice’s new estimate for the coming year is based to a large extent on the hope that the coal and natural gas industries will do better in fiscal 2018. May’s revenue report bolstered that contention.

After the first 11 months of the fiscal year that ended Friday, collections from the severance tax on gas, coal and other resources were $39.6 million higher than had been projected. So yes, the energy sector may fuel an increase in revenue for state government.

But after 11 months, combined collections from the personal income and sales taxes were $134.8 million below estimates. If that trend continues, the state could be in big trouble. Year-end numbers, again, coming in a few days, will be important.

Unfortunately, state budget analysts have not had a good record of predicting income for several years. The last time their estimates were good was in fiscal 2012. In fiscal 2016, the gap between what they expected and actual collections was $203 million.

The stakes in this guessing game — and obviously, it is as much that as scientific economics — are high. State government cannot spend what it does not collect, after all.

During the past few fiscal years, the reaction to revenue shortfalls has been midyear spending cuts. But the later in the year they occur, the worse the impact.

Justice and the state Budget Office need to monitor revenue closely and realistically, then, starting right now. At the very first indication the optimism of last month was unfounded, spending cuts should be implemented.

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