West Virginia Economic Outlook 2023-2028

Greetings! I am happy to present the 2023-2028 West Virginia Economic Outlook to you. My intent is for this document to serve as a thorough and rigorous reference for where our state’s economy is today and where it is likely heading in coming years. And my sincere hope is that you will find this document useful as you lead your business, government agency, or community organization through the economic opportunities and challenges we face in West Virginia.

Since 1948, our mission here at the Bureau of Business & Economic Research, a unit within WVU’s John Chambers College of Business & Economics, has been to serve the people of West Virginia by providing you, the state’s business, policymaking, and advocacy communities, with reliable and timely data as well as rigorous applied economic analysis. We hope that the data and analysis we provide ultimately enables you to design and implement better business practices and public policies.

Our research is sponsored by public- and private-sector clients throughout West Virginia and nationally. For instance, our recent public-sector clients include the West Virginia Legislature, the West Virginia Department of Revenue, the West Virginia Higher Education Policy Commission, the American Cancer Society, and the Appalachian Regional Commission. We also engage with private-sector companies in the state regularly.

Please feel free to call on me personally anytime concerning your economic research needs. We are always interested in pursuing new opportunities to provide research and data in areas such as public policy analysis, health economics, energy economics, economic development, economic impact analysis, tourism and leisure economics, and education policy, among others.

To learn more about our research, to find contact information, or to find an electronic version of this document, please visit our website at http://www.be.wvu.edu/bber.

 

Sincerely,

John Deskins
Assistant Dean for Outreach and Engagement
John Chambers College of Business & Economics
West Virginia University

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Executive Summary

The United States and West Virginia economies currently face major headwinds resulting from sharp increases in interest rates since early-2022. So far, both the state and the nation have been able to avoid a recession, but the probability of a new recession remains elevated. Overall, however, our West Virginia forecast calls for slow output growth and a roughly stable level of employment over the coming five years. While the state is likely to face some major economic development challenges over the long term, it has also enjoyed some important economic development announcements and initiatives in recent years and has strong potential in some areas. Overall, this report provides a foundation to understand West Virginia’s long-run economic challenges and opportunities.

Highlights related to West Virginia’s recent economic performance are as follows:

• Despite being the shortest official recession on record, employment fell by around 100,000 in the Spring of 2020. While employment returned at a healthy pace through mid-2022, growth has been much weaker over the past year or so. Indeed, only about 6,000 jobs have been added since mid-2022. The state remains around 16,000 jobs – or 2.2 percent – below its January 2020 level.
• Private-sector employment has recovered at a stronger pace over the past three years or so. When focusing on private-sector employment specifically, the state stands only around 4,000 jobs – or 0.8 percent – below its January 2020 level.
• The state’s unemployment rate surged to nearly 16 percent in the Spring of 2020 but has declined significantly since then. The jobless rate reached an all-time low of roughly 3.5 percent during the middle of 2022 and has generally remained at that level.
• Only 55 percent of West Virginia’s adult population is either working or looking for work. Though an improvement from recent years, this remains the lowest rate of labor force participation among all 50 states and represents a key hurdle to economic prosperity.
• Per capita personal income (PCPI) in West Virginia ranks 49th highest among the 50 states, surpassing only Mississippi. PCPI in West Virginia stands at 76 percent of the national average. Movement in PCPI has largely been on par with the nation since around 2016, implying that the state has neither gained nor lost ground compared to the nation.
• West Virginia’s real GDP fell by around 3 percent in 2020, and has failed to bounce back since, growing only 1.3 percent and 0.4 percent over the past two years. Overall, the state has lagged the nation in output growth every year since 2011. Output in the state’s energy sector has grown by around 22 percent cumulatively over the past five years or so. Output in the rest of the state economy – outside of energy – has not increased at all over that period.
• The energy sector is an important driver of economic activity in the state. Coal output plunged to its lowest levels in decades during 2020, falling to roughly 60 million short tons. Production has rebounded over the past three years, however, and should average in the mid-80-million-ton range during the near term, in part due to global export demand.
• Natural gas production has consistently increased at a healthy pace for a decade now, and that growth is expected to continue over the forecast period. The state recently became the nation’s fourth-leading producer of natural gas. However, downstream manufacturing activity in the Appalachian Basin will be essential to supporting growth and broadening prosperity related to West Virginia’s natural gas industry over the long term.

Highlights related to West Virginia’s economic outlook are as follows:

• Employment in West Virginia is expected to remain essentially flat through 2028. This lags the nation, which is expected to add jobs at an average annual rate of 0.3 percent over the forecast period. The major driver of this slow growth is the sharp rise in interest rates that the nation has experienced over the past one to two years.
• Several recent economic development announcements that are not incorporated into this forecast do offer hope for added strength in a few regions of the state. The strongest examples of recent positive developments are the addition of an estimated 800 jobs associated with Nucor in Mason County, the addition of 750 jobs associated with FORM Energy in the state’s Northern Panhandle, and the addition of an estimated 3,000 permanent jobs associated with the development of a hydrogen hub in the state.
• The state’s unemployment rate is expected to increase over the next couple of years, reaching five percent or so by late-2025. This increase will largely be driven by entry into the labor force.
• Real per capita personal income is expected to grow 1.6 percent annually through 2028. Transfer payments are expected to register the fastest growth over the next five years. However, the degree to which the state is increasing its reliance on transfer payments is slowing compared to recent years.

The Mountain State’s underlying demographics remain a major limiting factor to growth moving forward. Consider the following:

• West Virginia’s population has declined by approximately 75,000 residents – or 4.5 percent - since 2012. Population losses are expected to be smaller in magnitude going forward.
• West Virginia’s age distribution ensures that the natural population decline will continue in the coming years. Positive shocks to the economy are essential to encourage in-migration and reduce the severity of natural population decline.
• Economic development strategies should focus on ways to improve health outcomes, lower drug abuse, and advance educational and vocational training outcomes in the state to make West Virginia’s workforce more attractive to potential businesses.

Economic performance is expected to remain extremely variable across West Virginia’s counties. Consider the following:

• The state’s top 10 employment growth counties added 14,420 jobs over the years 2012-2022, while the remaining 45 counties lost 58,180 jobs collectively. Important successes in certain areas of the state are often obscured in aggregate data by losses or stagnation across a large swath of the state.
• Sixteen counties are expected to add jobs in the coming five years, while expectations for the other counties range from stagnation to employment losses. The highest rates of job growth tend to be in the northern counties.
• While the state overall is expected to lose population in coming years, a handful of counties are expected to add residents during the outlook period. Population gains will occur in North-Central West Virginia and the Eastern Panhandle.
• Policymakers should be keenly aware of significant economic differences across West Virginia counties and ensure that economic development strategies consider each region’s specific strengths and weaknesses.

Section I: United States Economic Overview

Introduction

We begin with a brief discussion of the US economy to set the stage for understanding West Virginia. This contextual material is vital to understanding the West Virginia economic outlook because national growth is a key driver of state growth.

While the United States economy has now generally recovered from the sharp recession that was driven by the COVID-19 pandemic, a new wave of significant uncertainty emerged in late-2021 that continues to have the potential to trigger a new recession. The cornerstone of this new wave of uncertainty surrounds inflation. For around two years now the US has suffered rates of inflation that are noticeably above what is considered unacceptable by the monetary policymakers in the nation.

This surge in inflation was catalyzed at least four factors: First, global supply chain constraints emerged during the pandemic, driving up prices for goods that were in short supply, such as automobiles. Second, widespread workforce shortages emerged during the pandemic as many men and women left the labor force. These workforce shortages lead to more aggressive wage increases to attract workers to fill job openings, and these wage increases typically filter through to higher consumer prices. 

Third, energy prices rose substantially in 2022, due to several factors—one being Russia’s invasion of Ukraine. High energy prices not only have a direct impact on overall inflation, but filter through to increase the price of goods and services more broadly due to higher production and transportation costs. Finally, overall demand in the economy was strong, in part due to aggressive fiscal and monetary policy stimulus measures during the COVID era. Even though there has been at least some improvement in these four factors, inflation can become self-perpetuating if left unchecked. In other words, high inflation can persist even after the initial causes of the inflation have dissipated. 

This high rate of inflation would undoubtedly create great long-term damage to the US economy if left unchecked, as was observed in the US in the 1970s and in many other countries over time. Returning inflation to a modest and stable position is and should be a top priority for economic policymakers. As such, the US Federal Reserve (Fed) has worked very aggressively since early-2022 to raise interest rates to suppress overall demand in the economy and therefore reduce inflation. Indeed, the speed at which the Fed has increased rates since March of 2022 has been as aggressive as ever observed over a similar length of time. The fast pace of interest rate increases is partly because the Fed was slow to begin the cycle of interest rate increases due to lingering concerns over new coronavirus variants and outbreaks that continued until early-2022, as well as the unanticipated rapid increases in energy prices in 2022.

Overall, much of the great uncertainty facing the US economy currently stems from the interaction between inflation and these interest rates increases. Indeed, our expectation is that the US economy will follow a path of very slow, albeit positive, economic growth over the next five years overall. In other words, we believe it is possible that the interest rate increases can be timed appropriately such that a broad recession does not develop, and inflation returns to the two percent annual rate that is considered acceptable by the Fed.

However, a much higher-than-normal probability remains that the interest rate increases will prove too detrimental to economic growth and will tip the economy into at least a moderate recession within the next year.

Given this context, in this section we explore a few recent trends in the US economy with special attention paid to inflation and interest rates, and we consider the likely path of growth in the US over the coming five years. These findings have important implications for our discussion of the West Virginia economy in Sections II and III.

National Trends in Output, Employment, and the Labor Market

GDP As illustrated in Figure 1.1, economic output, as measured by real Gross Domestic Product (GDP), fell dramatically in early 2020 due to the outbreak of the COVID-19 pandemic. Likewise, GDP growth was very strong as the economy emerged from the pandemic. Over the course of 2022 and thus far into 2023, in contrast, GDP growth has weakened considerably, and has generally posted year-over-year growth rates that have been below the 30-year average (around 2.3 percent per year), although still in positive territory. The forecast calls for continued growth in real GDP, even though a recession is more likely than normal when considering downside risks. Overall, the pressure that the economy faces from the sharp rise in interest rates is expected to lead to below-average rates of real GDP growth throughout the outlook period.

EMPLOYMENT The US labor market was strong prior to the pandemic, and in fact employment stood at the level that economists generally perceive as the maximum level of jobs the economy can sustain over the long run - termed “full employment.” Over the course of the initial onset of the COVID-19 pandemic, nearly 20 million people in the US lost their jobs. While the US labor market cannot be strictly defined as that of as a “V-shaped recovery,” the rebound in payrolls after the recession was strong enough such that the nation attained its pre-recession level of employment by mid-2022, and employed has continued to growth since then. Overall, the national economy is again at or near its full employment level.

The employment forecast calls for a modest loss in employment over the course of 2024, primarily driven by the lingering effects of the recent interest rate decreases, as discussed above. While some rebound is expected in 2026 through 2028, generally we expect only a negligible amount of employment growth over the outlook period.

UNEMPLOYMENT Turning to the unemployment situation, the national unemployment rate stood at a low of 3.6 percent just before the beginning of the COVID-19 recession, as noted in Figure 1.3. This was one of the lowest jobless rates experienced since the beginning of modern economic statistics. The unemployment rate skyrocketed as the pandemic began, reaching a peak of 13 percent in the Spring of 2020. However, the jobless rate fell rapidly as pandemic-driven lockdowns ended in 2020 and returned to its pre-recession low by early-2022 as hiring activity was consistently strong for that period. Unemployment has remained at this historically low for the last year or more. The forecast calls for a gradual increase in the rate over the next two years, returning the figure close to its natural rate of around 4.5 to 5 percent. This expected increase in the unemployment rate will largely be driven by entry into the labor force, in addition to the modest expected job loss discussed above.

LABOR FORCE PARTICIPATION The labor force participation rate is a complementary measure to the unemployment rate. The labor force participation rate captures the share of the adult population that would like to work—termed “in the labor force”—while the unemployment rate captures the share of the labor force that is unable to find employment in any given month. Ultimately, the labor force participation rate is a more fundamental descriptor of an economy’s long-run labor market situation.

In Figure 1.4 we report labor force participation for the US since the early 1980s. As illustrated, the figure peaked around 2000 at 67 percent, fell substantially after 2008, and then maintained stability up until early-2020. The broad evolution of this figure is largely driven by demographic processes, namely the emergence and aging of “Baby Boom” generation. The figure began to rise substantially around 1965, when the first of the “Baby Boomers” were entering the workforce. This measure continued to rise through the late 1990s, when the first of this group turned 55 years old, but then began to decline substantially around 2008—the point when the leading edge of the Baby Boom approached conventional retirement age. In addition to the baby-boomer effect, the post-WWII structural change in labor force participation rates was driven in large part by meaningful gains in the female labor force that occurred through the mid-1990s.

Labor force participation once again fell substantially because of the COVID-19 recession, as “discouraged workers” left the labor force, reaching a low of just over 60 percent. Immediately after the lockdowns, the figure begun to improve, recovering to over 62 percent. However, the figure remains nearly one percentage point below its pre-COVID level, due primarily to a slower recovery in labor force participation among workers in older age groups (i.e. ages 55 to 64).

Overall, the declines in labor force participation likely present an impediment to the nation’s long-run economic growth potential as fewer workers will be available to support retirees vis-à-vis private pension plans as well as Social Security and other federal programs. Furthermore, many economic challenges below might interact with a lower rate of labor force participation in the long run, leading to a significantly different performance for the US economy over the long term.

 

INFLATION Next, we turn to inflation – perhaps the most significant problem facing the US economy in the short term. As reported in Figure 1.5, inflation skyrocketed to nearly seven percent on a year-over-year basis in 2021 and 2022, depending upon which reported measure is used. This is the highest rate of inflation experienced in the US since the early-1980s and comes in sharp contrast to the mostly modest inflation that the US experienced for more than two decades, rarely moving outside of the 1 to 3 percent range—a period in economic history referred to as “The Great Moderation.” This sharp rise in inflation was catalyzed by at least four factors: a) high energy prices, in part driven by Russia’s invasion of Ukraine; b) global supply-chain constraints that emerged during the COVID pandemic; c) workforce shortages that emerged during the COVID pandemic; and d) strong aggregate demand, in part driven by aggressive fiscal and monetary stimulus during the COVID era. As described above, even though these drivers have at least partially dissipated, inflation remains a problem as it has the potential to become self-perpetuating if left unchecked. The forecast calls for inflation to remain above the Fed’s target level (two percent) until 2025. 

INTEREST RATES This high rate of inflation would undoubtedly create great long-term damage to the US economy if left unchecked, as observed in the US in the 1970s and in many other countries over time. Returning inflation to a modest and stable position is and should be a top priority for economic policymakers. As such, the Fed has worked very aggressively over the course of 2022 and 2023 to raise interest rates to suppress overall demand in the economy and therefore reduce inflation. Indeed, the speed at which the Fed has increased interest rates over the past one- and one-half years has been as aggressive as ever observed over a similar length of time. In retrospect, we understand that the fast pace of interest rate increases is partly because the Fed was slow to begin the cycle of interest rate increases due to lingering concerns over new coronavirus variants/outbreaks that continued until early-2022.

Overall, much of the great uncertainty facing the US economy currently stems from the interaction between inflation and these interest rates increases. It is possible that the rate increases have been timed appropriately such that a broad recession does not develop while inflation also returns to a rate that is considered acceptable (around 2 percent for core inflation, which excludes food and energy from consideration). However, a strong probability exists that the interest rate increases will exert too much downward pressure on demand and will ultimately tip the economy into at least a moderate recession.

Section II: Recent Trends in the West Virginia Economy

Employment and the Labor Market

TOTAL EMPLOYMENT According to the most recent data, West Virginia’s economy has not fully recovered from the COVID-19 recession in terms of employment. Payroll employment, which contracted by around 100,000 between January of 2020 and late-Spring 2020, bounced back at a healthy pace through mid-2022. The speed of the recovery during this phase is especially impressive when compared to previous recession-recovery episodes. The rebound in employment was strongest during the early-summer of 2020 as the reopening process began, and continued through early-2022, when payrolls in the state nearly reached 700 thousand again. Overall, the state was able to avoid the L-, W- or checkmark-shaped recovery scenarios that were feared by some and has recovered mostly on par with the V-shaped recovery that we anticipated in our forecast in the summer of 2020.

Despite the strong recovery through early-2022, however, the state has not observed a similarly rapid rate of employment growth over the past year or so – adding only about 6,000 jobs since mid-2022. This slower rate of growth is likely a result, at least in part, of the headwinds associated with the national interest rate increases discussed above. The state remains around 2.5 percent below its January 2020 level in terms of total employment.

PRIVATE SECTOR EMPLOYMENT In Figure 1.8 we present total private-sector employment in West Virginia, in contrast to total employment presented previously. Here the figure follows a similar trajectory compared to that in Figure 1.7. However, the recovery has been somewhat stronger when focusing solely on private-sector activity, indicating that government employment (both state and local, as well as federal), has failed to match the recovery in private-sector jobs over the recovery period. Focusing solely on private-sector employment, the state is currently only around four thousand jobs – or less than one percent - below its January 2020 level.

WEST VIRGINIA COMPARED TO THE NATION In Figure 1.9 we present total private-sector employment again, for the state and for the nation, except that we have converted the data to an index beginning at 100 in January of 2020. This approach allows for an easy comparison between state- and national-level performance. As illustrated, the state and the nation performed similarly through the first year and one-half of the pandemic. However, since mid-2021, the state has fallen behind in terms of private-sector employment growth. As of the most recent data, the state is at 99.2 percent of its pre-pandemic level of private-sector employment, while the nation stands at 103.3 percent.

EMPLOYMENT GROWTH BY COUNTY While we present a broader analysis of economic performance by county in a separate report, here we briefly consider how employment growth varies across county. Here we present a simple long-run view by calculating total employment in 2022 minus total employment in 2012 on a county-by-county basis. In Figure 1.10 we illustrate the top 10 growth counties over the past decade compared to the remaining 45 counties in the state. As noted in the figure, the top 10 growth counties added over 14 thousand jobs over the period, whereas the remaining 45 counties lost over 58 jobs over the period. The point here is that economic performance varies widely across the state’s counties and relatively strong performance in a few counties or regions may be masked in aggregate data by the numerous counties that have been stagnant or have declined.

UNEMPLOYMENT For several years prior to the pandemic, West Virginia’s unemployment rate averaged between five to six percent, exceeding the national average by roughly one percentage point or so during most months. Over the course of the pandemic, however, the state’s unemployment rate was in line with the national average for the most part. More recently, West Virginia’s jobless rate fell below four percent for the first time on record in early-2022 and remains at a very low level, setting a new all-time low of 3.5 percent in 2023.

In many instances historically, declines in West Virginia’s unemployment rate can be explained at least in part by some combination of labor force attrition and underlying demographic trends. Over the past three years or so, the sharp drop in the unemployment rate has been the product of increased hiring activity mostly, but ongoing friction between factors influencing the demand and supply for labor have also caused the labor market to appear even tighter than the measured unemployment rate might indicate.

LABOR FORCE PARTICIPATION Based upon the unemployment rate, West Virginia is at “full employment.” But, while the state’s labor market is very tight in the short-run context of the unemployment rate, it only provides a partial representation of labor market health. Specifically, West Virginia’s underlying demographic characteristics, industrial structure, and other unique factors warrant additional information to assess labor market conditions.

As a result, one should examine the labor force participation rate, in conjunction with the jobless rate, for a more complete depiction of West Virginia’s labor market. As of 2022, West Virginia’s labor force participation rate was the lowest among all states at just over 55 percent, a ranking that it has maintained since the US Bureau of Labor Statistics began reporting this data series in 1976. Age distribution does explain some of the state’s workforce participation deficit against other states, but the underlying causes extend to issues beyond age since the state also lags well behind others among the prime working age population (25-54 years of age). On a positive note, the state’s rate has increased over the past couple of years and the workforce participation gap with the nation has narrowed slightly.

JOB OPENINGS A significant trend that has emerged both nationally and within West Virginia that speaks to the massive swing in labor market conditions during the COVID-19 pandemic has been the sharp increase in the rate of job openings. According to the BLS, since early 2021 an average of seven to eight percent of all jobs available are not filled in West Virginia. Some of this persistently high rate of job openings stems from early retirements during the pandemic as well as significantly lower levels of immigration into the US since 2016. While the job openings rate has improved significantly for the nation, West Virginia continues to observe an unusually high figure.

Income and Output

INCOME Per capita personal income in West Virginia stood just shy of $50,000 in 2022, placing the state 49th highest among the 50 states. West Virginia is substantially ahead of Mississippi by this metric, and lags 48th placed Alabama by just under $1,000 per person. Overall, the average West Virginian receives around $76 dollars in income for every $100 received by the average American.

Turning to Figure 1.15, we report the growth of per capita personal income for the state and for the nation over the past decade or so. While the state has been near the bottom of states in terms of per capita personal income, the relative position of the state compared to the nation has not moved significantly. As reported in the figure, per capita personal income growth (not accounting for inflation) in West Virginia has lagged nation since 2011. Since 2010, the figure has grown by about 50 percent for the state, versus nearly 61 percent for the nation. However, most of this deficit occurred over the first few years of this window of time. Since around 2016 the state and the nation have performed very similarly in terms of per capita personal income growth. While West Virginia has not improved relative to the nation in terms of per capita personal income, it has not fallen further behind over the past six years or so.

WAGES In Figure 1.16 we report average wages for the state overall and across the major industrial super sectors. Altogether, the average wage in the state was around $50,000 for 2022. Unsurprisingly, wages vary widely across supersector, with typical wages in the utilities sector and in the mining and oil and gas sector exceeding $100,000 for the year. This stands in sharp contrast to a sector such as leisure and hospitality, where the typical wage barely surpassed $20,000 for the year.

GDP After experiencing a large annual percentage decline during 2020 (~3 percent), West Virginia has failed to bounce back in a mirrored fashion in the two years since. The state posted real GDP gains of only 1.3 percent and 0.4 percent in 2021 and 2022, respectively, significantly lagging performance at the national level. While the COVID recession created some volatility in West Virginia’s economic performance, the state has tended to experience a much more uneven pace of real output growth over the past decade or so when compared to the nation. Further, the state has lagged the nation significantly in terms of real GDP growth during the years depicted in Figure 1.17 overall. The state has underperformed the nation every year since 2011. And over the entire period depicted in the Figure, West Virginia has posted an average annual rate of real GDP growth of 0.4 percent, compared to 2.1 percent for the nation.

GDP – MINING and OIL & GAS It is important to consider the mining super sector (which includes coal mining, oil and gas production, as well as quarrying) to fully understand the state’s economic output picture. In Figure 1.18 we use an indexed approach to illustrate the change in West Virginia’s total GDP outside of the mining super sector, versus GDP from the mining super sector exclusively. As illustrated, output outside of mining has not grown at all since 2017, and in fact the figure stands at 99.5 percent of its 2017 level, after accounting for inflation. In contrast, output in the mining super sector has grown considerably over the period – posting nearly 23 percent cumulative growth between 2017 and 2022, after accounting for inflation.

Recent Demographic Trends

POPULATION West Virginia saw its population decline in number for the tenth consecutive year in 2022 and has registered an overall loss of over 82,000 residents since 2012. Overall, the absolute and percentage declines in population over the past decade have surpassed the losses observed during the mid- to late-1990s but are demonstrably smaller than the massive population declines that occurred during the early- to mid-1980s economic collapse. West Virginia’s sustained population declines set it apart from nearly every state in the US. Indeed, because of this population loss the state saw its representation in the US House of Representatives drop from three to two beginning this year (down from a high of six decades ago).

West Virginia’s population declines have been driven both by net outflows of residents to other states and natural population losses in most years, which occur when deaths exceed births. West Virginia saw an important swing in net migration during 2021 and 2022, however, as the state recorded its first positive net inflow of residents from other states in several years. At the same time, the rate of natural population decline in West Virginia accelerated recently as the state saw a significant increase in deaths caused by COVID-19.

A separate section of this report details population trends on a county-by-county basis. The data show that only a handful of counties have consistently gained population in recent years, while the large majority of the state’s 55 counties have seen population loss, ranging from minor losses in a few counties, to quite large losses in others.

AGE DISTRIBUTION Age distribution represents one of the defining demographic characteristics of the Mountain State’s population when compared to most of the US. And this age structure has palpable impacts on broader economic trends in the state. The state’s median age stands nearly 4 years above the national figure. Another sign of the state’s skewed age distribution is the fact that more than 21 percent of the state’s residents are aged 65 or older, exceeding the national figure by nearly four percentage points.

HEALTH AND DRUG ABUSE While the state’s older-than-average population does contribute to higher rates of mortality, even when accounting for the population’s age distribution, West Virginia experiences higher incidences from various morbidities as well as higher mortality rates. According to the Centers for Disease Control, West Virginia’s age-adjusted mortality rate is the second highest among all states and ranks among the tier of states with high incidences of heart disease, cancer, and diabetes. Furthermore, behavioral or lifestyle factors that contribute to poor health outcomes such as physical activity during leisure time are among the lowest in the nation and rates of cigarette smoking and smokeless tobacco use among the adult population are among the highest nationally. Another source of the state’s poor health outcome trends over the past decade or so has been the skyrocketing use of and death from opioid and other drug overdoses. Indeed, the drug overdose rate in West Virginia was nearly three times the national average in 2021 (most recent data available).

 

Employment by Supersector

ENERGY SECTOR Even as the employment footprint of extraction industries continues to shrink in West Virginia, especially with respect to coal, the natural gas and coal industries remain a key foundational component of the state’s economy. In some respects, these sectors also represent major opportunities and challenges for the state’s economy due to their connections to global economic, environmental, and political issues. Overall, the natural resources and mining sector accounts for just three percent of statewide employment, but the disproportionate deployment of capital equipment, highly interconnected supply chains (on both the input and output side), and the high wages paid out to coal miners and gas industry workers pushed the sector’s output to just shy of 10 percent of total statewide GDP in 2022.

After recording its lowest annual production level in roughly a century (outside of years characterized by major organized labor strikes) during 2020, West Virginia’s coal industry has rebounded over the past three years or so. However, even as global demand for steam and metallurgical coal has risen and Russia’s invasion of Ukraine has created a negative energy supply shock that has precipitated massive increase in world coal prices, further constraining the global coal trade, coal output from mines in West Virginia has only increased to the mid 80-million-ton range. In addition, most of the rebound in production has occurred across the state’s northern mines, where tonnage levels have recovered to be roughly equal to pre-pandemic levels. New met coal operations have helped to bolster regional output in recent quarters, as has increased coal-fired electricity generation, which became more cost competitive amid the run-up in natural gas prices caused by the war in Ukraine.

West Virginia’s natural gas industry continues to develop and has benefited significantly from recent exploration and resource development in high-yield regions of the state’s Marcellus and Utica shale fields. Natural gas output has increased at a very healthy pace for the past decade or so. Overall, these increases have enabled West Virginia’s natural gas output to rise to fourth highest among all states in 2022. Natural gas liquids (NGL) production has also expanded in significant fashion in recent years and is expected to see some increased demand over the near term from the recently opened Royal Dutch Shell ethane cracker just outside of the West Virginia border in Pennsylvania.

Even as natural gas output has increased at a healthy pace over the past several years, employment levels in the natural gas industry are well below those seen during other growth episodes historically. While some of this represents an increased shifting of hires to contract labor firms, rapid technological progress and innovations in drilling practices have enabled upstream operators to enjoy dramatic increases in new well production without the same number of workers at the wellhead that might have been needed in previous decades. Examples of new innovations include increasingly lengthier laterals, improved rotary engines and other equipment that have enabled drillers to operate more wells from one rig and access deeper wells with a larger ‘sweet spot.’ The net effect of these changing practices and innovations has been to dramatically increase operational efficiency and new well productivity.

MANUFACTURING West Virginia’s manufacturing sector has experienced a rollercoaster ride in recent years. Following a string of positive developments, such as the building out of Procter & Gamble’s campus in Berkeley County, the sector has dealt with some significant issues over the past few years. Indeed, given the dramatic shifts in consumer demand during and after the COVID-19 pandemic, producers in West Virginia (and elsewhere) have struggled with unpredictable production schedules due to global supply chain snarls for inputs ranging from semiconductors to lumber, labor shortages, and rising fuel prices. In addition, decisions by Viatris to close its Mylan Pharmaceuticals facility in Morgantown and Mountain State Carbon to shutter its Follansbee-area coking coal plant have created more challenges for the manufacturing sector.

Despite the problems related to the pandemic and these recent plant closures, portions of the state’s manufacturing sector have performed well, and recent developments indicate some potential for growth in the sector. For example, an additional $240 million capacity expansion is underway at the Toyota plant in Putnam County to build transaxles for hybrid vehicles and the company had already begun investing $210 million in the plant and hiring more workers to boost production of engines.

West Virginia is also seeing an emergence of other clean-tech manufacturers. For example, in early-2022, electric bus manufacturer GreenPower Motor Company announced that it will open a production facility for its Beast line of electric-powered buses in Kanawha County. The company has already started a pilot program with West Virginia’s state government to test the buses and potentially build buses for all counties (if proven feasible), but the plant will produce units for a market that is growing as more states set stricter limits on vehicle emissions.

Another project that is expected for this emerging industry is the next-gen EV battery manufacturer Sparkz. The company’s 300-worker Gigafactory in Taylor County is slated to produce cobalt-free batteries for industrial- and commercial-use vehicles initially, such as forklifts and tractors, but is expected to expand to automotive batteries once certification and testing processes have been completed.

Perhaps the most significant link in the chain to enhance West Virginia’s potential with clean-tech manufacturing (auto or non-auto) or manufacturers seeking to reduce their own CO2 emissions was the announcement by Berkshire Hathaway Energy (BHE) to develop a renewable energy microgrid to power a 2,000-acre industrial park in Jackson County. One of BHE’s own subsidiary businesses, Precision Castparts Corp., is expected to be the first company to operate at the site and will produce titanium castings for aerospace industry, but other manufacturers do are likely under consideration to locate at the site as recent legislation appears to target prospective industries.

Perhaps the biggest news for the state’s manufacturing sector comes from metals manufacturing, where Nucor has committed to build a $2.7 billion steel sheet mill facility in Mason County, which will employ as many as 800 workers upon completion in late-2024/early-2025. The site development and construction is expected to generate as many as 2,000 construction jobs during the peak construction phases. The Nucor development is expected to be one of the single-largest economic developments in West Virginia history.

Finally, several other projects across the state recently have or will soon boost manufacturing activity in the state. For example, Mountain Top Beverage recently expanded production at a new Morgantown-area facility and is expected to expand capacity further within the next several years. Moreover, the plant is one piece of a broader plan to expand use of the region’s industrial park and increase infrastructure access. While several manufacturers in the state have a direct connection to the defense and nondefense aerospace industries, West Virginia’s defense-based aerospace industry is expected to grow further within the next few years as Northrop Grumman recently announced it will build a strike missile production facility on its Rocket Center campus by 2024, resulting in the addition of several hundred jobs.

SERVICE SECTORS While goods-producing sectors have endured significant turmoil over the course of the pandemic due to supply chain disruptions, labor supply shortages and erstwhile skyrocketing energy prices, the construction, energy, and manufacturing sectors have seen employment and output recover to the point that they are at least close to pre-pandemic levels. By comparison, several service-providing sectors experienced massive drops in economic activity during the early phases of the pandemic and continue to see business activity lag pre-pandemic levels by an appreciable margin.

Capacity restrictions and concerns over infection risks in indoor settings were significant hindrances for these sectors, particularly leisure and hospitality. Since the pandemic, however, restaurants, bars and other leisure and hospitality sector businesses have faced persistent problems with labor supply shortfalls. Rising wage bills, increased worker turnover, greater competition for workers with other sectors and several years of lower immigration levels into the US have reduced the labor supply to some degree. Some segments of the leisure and hospitality sector will likely not see their payroll levels reach pre-pandemic levels for quite some time.

Healthcare is another sector that has faced a significant hit from the COVID-19 pandemic. Although many of the job losses the sector faced during the initial phases of the pandemic were recovered as hospitals began to re-open patient services by mid-2020, the successive waves of increased hospitalizations and ICU utilization rates in 2020 and 2021 took their toll on the sector, reaching the point of placing significant strains on staff and resource availability. Indeed, several of the state’s major health provider networks have struggled through episodes of over-capacity to the point of having to curtail other types of care and services and shift resources over to COVID-19 coverage.

Recent trends within the state’s healthcare sector enabled some providers to hold up relatively well during the pandemic and position themselves to maintain healthier financial conditions going forward. For example, the state’s largest health systems providers expanded their geographic footprints vis-à-vis mergers and joint venture agreements with smaller rural partners or struggling regional medical centers, which helped in not only buoying financial aspects of these facilities but also serve to protect (and eventually improve) patient care in underserved areas. Finally, the addition of a dedicated WVU Children’s Hospital at Ruby Memorial Hospital now provides the state, which has historically been underserved in many aspects of pediatric care, with advanced facilities and services that were once only available to residents who traveled to Pittsburgh, Cleveland, and other major cities along the East Coast.

PUBLIC SECTOR West Virginia’s public sector has endured some volatility of its own over the past few years. Aggressive federal fiscal and monetary policy response during 2020 and 2021 provided a significant backstop against revenue losses and lifted some of the burden off state and local agencies to pay for many emergency programs that were enacted during the pandemic. Furthermore, stronger-than-expected revenue growth allowed state and municipal governments in West Virginia to avoid the aggressive cutbacks in programs that many feared were possible at the onset of the COVID-19 pandemic.

With that said, however, total employment at the state and local government level in West Virginia has not yet recovered to pre-pandemic levels, as much of the health underpinning public sector finances over the past two years was due to federal government support. As temporary pandemic-era federal spending programs have expired, state and local governments have had to maintain some degree of austerity with respect to some expenditure programs, due to uncertainty over future budget conditions.

By contrast, the federal government has been a source of new job creation in several parts of the state over the past several years, building upon the significant presence it already maintains within several regions such as North Central and the Eastern Panhandle. Most notably, the FBI, US Treasury and National Park Service have increased staffing levels by significant margins.

Section III: West Virginia Economic Outlook

West Virginia Outlook

EMPLOYMENT GROWTH Expectations for the US economy will directly influence West Virginia’s economic performance during the outlook period.^[1] At present, the US economy is expected to avoid an outright recession, but aggressive interest rate increases over the course of 2022 and 2023 by the Federal Reserve to cool broader inflationary pressures are expected to slow growth to nearly zero over the outlook period. 

Overall, the baseline forecast calls for total employment in West Virginia to increase at a rate of almost exactly zero between 2023 and 2028, which will trail the national average annual rate of 0.3 percent during this period. We do expect some continued growth early in the outlook period – late-2023 and early-2024 – to be followed by some modest losses in employment. Generally, this pattern is true for the state and for the nation.

EMPLOYMENT GROWTH BY SECTOR As illustrated in Figure 1.26, most of the major industrial super sectors in the state are expected to move by small rates over the forecast period, in line with the small movement that is expected in total employment. One exception to this is the energy sector, which has experienced the largest swings, by far, in employment over time. The sector has lost jobs (mainly in coal) at by far the highest rate of all the sectors over the past decade. However, the sector is expected to see the fastest rate of growth in the coming five years. However, this forecast is subject to considerable uncertainty due to various issues with the global economy, ranging from energy-related shocks connected to Russia’s invasion of Ukraine to various issues associated with natural gas production. 

SERVICES Job growth is expected to come in relatively strong for several private service-providing sectors over the forecast period, as the labor market distortions caused by the COVID-19 pandemic continue to fade and businesses such as hospitals, medical offices, daycare centers, restaurants, and hotels get closer to normal operating conditions. Healthcare services should continue to enjoy growth that exceeds the overall statewide average, as recent moves by WVU Medicine, Charleston Area Medical Center (CAMC), Mon Health and other major networks solidify the sector’s financial conditions and increase capacity within certain areas of patient care for state residents that were underserved or unavailable within the state. 

CONSTRUCTION The construction sector’s homebuilding segment will likely be weighed down by the rise in interest rates (in line with national trends), thus leading to an overall small expected loss in construction employment. However, a host of major commercial, industrial and infrastructure projects will be underway across the state during the next few years and should mostly offset weaker residential construction activity. Indeed, projects such as Nucor, BHE’s microgrid/manufacturing development, Sparkz, Greenpower, Mountain Top Beverage and other industrial construction projects will account for several billion dollars of new nonresidential projects over the next one to two years. Federal and state infrastructure spending also promise to buoy the sector over the forecast horizon.

RETAIL TRADE Among the state’s major service-providing sectors, retail trade is expected to face the most downward pressure on payrolls during the forecast horizon (categorized in the figure under Trade, Transportation & Utilities). Pent-up consumer demand and strong income growth that was buoyed by federal aid have waned and the combination of inflation plus rising concerns over an economic downturn will continue to restrain household discretionary spending activity. Beyond the near term, West Virginia’s underlying demographics and the seismic shifts in the retail sector’s shift from brick-and-mortar to online platforms are major limiting factors to hiring by retailers in the state, particularly those outside of the state’s stronger economic regions.

UNEMPLOYMENT After standing below four percent for most of 2022 and 2023, the forecast calls for West Virginia’s jobless rate to rise over the next couple of years or so, returning to the low-5-percent range by some point in 2025. Much of this upward movement in the unemployment rate will come from individuals re-entering the labor force, due to factors such as ‘un-retiring’ individuals or higher starting wages incentivizing discouraged workers back into the workforce to compete for open jobs. At the same time, the jobless rate could rise more significantly over the next year or two if the national interest rate increases discussed above ultimately exert more downward pressure on the national and state economies than expected.

INCOME Personal income is expected to grow at an average annual rate of just over 1.6 percent over the forecast period, after accounting for inflation, as illustrated in Figure 1.28. This is slightly lower than expected growth at the national level, which comes in at just over two percent (not shown). The fastest growing component of personal income in the forecast period is transfer payments, stemming from programs such as Social Security or unemployment insurance. This pattern does imply that West Virginia is becoming more reliant on transfer payments over time as a share of total income in the state. However, the degree to which growth in transfer payments is expected to surpass other components of income – such as labor income or investment income – is significantly lower than has been in the case in recent years. Overall, we expect transfer payments to make up 30.4 percent of total income in the state by 2028, which will likely place West Virginia highest among the states in terms of reliance on transfer income.

POPULATION Following a decade of losing an average of over 8,200 residents a year (a cumulative loss of 4.5 percent of the total 2012 population), West Virginia’s population losses are expected to slow over the next five years. Overall, we expect a cumulative 1.7 percent population loss from 2023 through 2028. This continued (albeit slower) population loss is primarily driven by a continuation of the natural population loss - a situation in which deaths exceed births - that has been observed in the state for several years now.

Unfortunately, the underlying structural economic and demographic trends that have prevailed in West Virginia in recent decades will be difficult to overcome as the forecast progresses. As such, the state is expected to further age, as the only age group with growing numbers is those aged 65 and older, as illustrated. The “under age 25” segment of the population is expected to suffer the highest rate of population loss.

Recent positive economic news such as Nucor, BHE and other developments could provide a shot in the arm to the state’s long-run growth prospects and lift the potential for larger positive migration flows into West Virginia from other states, offsetting some natural population decline. Furthermore, enhanced broadband capabilities could allow some localities to become increasingly attractive to remote workers, which underpins the idea behind the Ascend West Virginia program and other programs to attract remote workers.

 

[1] All forecast estimates for this document are provided by S&P Global, Inc.

Section IV: West Virginia Fiscal Forecast

By Mark Muchow, Deputy Cabinet Secretary, West Virginia Department of Revenue

The US economic expansion continued at a moderate pace over the past year even with headwinds from rising interest rates and higher than optimal inflation. The Federal Reserve Board (Fed) increased short-term interest rates by a significant 525 basis points through 11 separate rate increases spread out over a relatively short period beginning in March 2022 and ending as of July 2023. The Fed’s tighter monetary policies were contemplated to bring down inflation and to provide some slack in an otherwise tight labor market.   After averaging less than 2 percent annual increase in the prior decade, general consumer price inflation began accelerating in early 2021 to a year over year peak level of nearly 9.1 percent as of June 2022. Subsequently, inflation levels trended lower over the past year toward an annualized rate somewhere between 3.0 percent and 3.5 percent. Recent inflation levels were still above the Federal Reserve target rate of 2 percent. Additionally, labor markets remained relatively tight with the unemployment rate edging up slightly from a low of 3.4 percent in April 2023 to 3.8 percent as of August 2023. As a result of a significant lag between short-term interest rate increases and their impact on the economy, the Federal Reserve recently paused further rate increase actions.  Short-term interest rates were likely near a peak with still some chance of an additional future rate hike depending on whether tight labor markets yield significant upward wage pressure and inflation fails to further slow toward the 2 percent target rate. 

For some perspective, in 2021 and 2022, commodity price inflation greatly exceeded overall inflation due to various demand-supply imbalances and due to political instability in Eastern Europe and elsewhere. The producer price index for energy jumped 70.7 percent between 2020 and 2022. Due in large part to the sharp rise in energy prices, West Virginia severance tax collections rose by 260 percent over a nineteen-month period beginning at the end of Fiscal Year 2021 to a record annualized peak of more than $1.08 billion as of February 2023. High energy prices also contributed to a one-year 16 percent jump in personal income tax receipts between 2021 and 2022 partially associated with higher natural resource royalty income payments, higher energy business profits and higher wage payments for the mining sector.

Energy prices declined significantly in 2023 from the high levels seen in 2022. A relatively mild 2022-23 winter season for both the eastern United States and Europe contributed to a bigger than expected build-up of natural gas inventories resulting in a trend of decreasing prices. Higher interest rates in the U.S. and elsewhere led to slower global economic growth. In addition, the Chinese economy experienced below average growth with continuing challenges from Covid. According to Natural Gas Intelligence, the average monthly price at the Eastern Gas Hub plummeted from a high of $7.89 per million BTU in August 2022 to $1.18 per million BTU in August 2023. Average West Virginia coal prices fell from a record high of nearly $149 per ton in May 2022 to an average of $104 per ton over the past quarter.

Despite significantly lower energy prices, West Virginia’s production of natural gas and coal both increased in 2023. According to the most recently published data from the U.S. Energy Information Administration (EIA), natural gas production through the first seven months of 2023 increased by more than 10 percent from the prior year to an annual pace of roughly 3.2 trillion cubic feet. Year-to-date coal production through the end of September was up 5.7 percent from last year with production at an annual pace of roughly 88 million tons. However, year-to-date West Virginia electric power generation as of July was down by 8.9 percent from last year, and coal-fired generation was down by 12.4 percent. Total U.S. coal-fired generation was down by more than 24 percent from last year through the first seven months of this year. Energy substitution associated with low natural gas prices was a contributing factor to the decrease in coal-fired generation along with a continuing trend of plant retirements. The coal industry’s market in West Virginia continues to gradually shift away from domestic sales toward foreign exports with more than 40 percent of production now destined for export outside of the United States. 

The nominal value of foreign exports of West Virginia goods trended lower in recent months, mainly due to lower energy prices. The value of foreign good exports sourced to West Virginia fell 17 percent over the past year to $6.2 billion as of August 2023. The value of manufacturing good exports was up 12 percent, and the value of non-manufacturing exports, mainly coal, was down 44 percent. The decline in export value was due to lower prices as opposed to lower volume. The most recent data from EIA indicated a 30.1 percent decline in the price of metallurgical coal exports during the first half of 2023 along with a 6 percent increase in volume. Anticipated slower global economic growth in the near term and the growing appreciation of the U.S. dollar relative to foreign currencies both pose some potential headwinds for future foreign exports. However, EIA forecasts greater exports of energy products in the coming year.

West Virginia’s economic expansion continues in 2023 with growth in employment, wages, consumer sales and economic output. Payroll employment levels are rising at an annual pace of roughly 0.7 percent this year following a 2.2 percent increase in 2022. The State’s unemployment rate is near a record low of just 3.5 percent. Even though non-farm payroll employment remains roughly 1.7 percent below pre-pandemic levels, household employment levels have fully recovered. Wage and salary disbursement growth of nearly 7 percent is due to a combination of higher average wages and higher employment. Future wage growth is expected to gradually slow as inflation levels continue decreasing. Several new economic development projects, headlined by the multibillion Nucor Steel investment in Mason County, should add to the State’s economic performance over the next few years. 

West Virginia General Revenue Fund collections totaled more than $6.48 billion in Fiscal Year 2023. Collections exceeded the Governor’s official revenue estimate by nearly $1.85 billion and prior year receipts by 10.1 percent. Official estimates for Fiscal Year 2023 were set to match the Governor’s proposed budget rather than actual economic projections. However, only 44 percent of the $1.85 billion surplus was attributable to the lower estimates. Following a 180 percent increase in Fiscal Year 2022, general revenue severance tax collections increased by an additional 23.1 percent in Fiscal Year 2023. Collections exceeded the unofficial estimate by more than $469 million and accounted for more than 25 percent of the Fiscal Year 2023 surplus. The 245 percent (i.e., $672.2 million) jump in severance tax collections over the past two years was largely due to significantly higher energy prices.  In particular, the monthly average Eastern Hub natural gas price rose from a low of $1.03 per million Btu in November 2020 to a peak of $7.89 per million Btu in August 2022. Average coal prices also more than doubled within less than one year to a peak of nearly $150 per short ton in May 2022. Stronger than expected wage growth and consumption growth led to surplus personal income tax and sales tax collections collectively accounting for roughly 15 percent of the total revenue surplus. Wage growth was particularly strong in the energy sector of the economy. Income tax collections also benefited from inflated energy prices with a significant jump in royalty income and business profits. Corporation net income tax collections increased by an adjusted 59 percent over the past two years and accounted for more than 7 percent of the total revenue surplus. Record cash flow and higher interest rates contributed to a $126.5 million surplus in interest income, a factor accounting for nearly 7 percent of the total surplus.

In addition to the nearly $1.85 billion revenue surplus, the State closed out Fiscal Year 2023 with $156.8 million in unappropriated surplus from prior years and $26.1 million in expirations from Fiscal Year 2023 regular appropriations. The total unappropriated surplus including other minor adjustments was slightly more than $2.03 billion. A total of $231.6 million in surplus was transferred to the Rainy Day A Fund to bring the combined balances of the rainy-day funds up to the fulfilling statutory requirement of 20 percent of State appropriations.

The Legislature appropriated more than $1.16 billion of anticipated surplus in the Fiscal Year 2024 Budget Bill with the bulk of such appropriations associated with one-time infrastructure projects. Major surplus appropriations included $282 million for deferred capital maintenance at public universities, community colleges and correctional facilities; $125 million toward the construction of a consolidated laboratory; $52.9 million for Division of Natural Resource projects; $50 million for the National Cancer Institute at West Virginia University; $40 million for the School Building Authority; $38 million for the Water Development Authority; $37.2 million for economic development; $29 million for the West Virginia Osteopathic School; $21.06 million for soil conservation projects and $20 million for nursing education program expansions. The appropriation total also included a $400 million transfer to the Personal Income Tax Refund Reserve Account to further guarantee future budget stability. 

During the August 2023 Special Session, the Legislature appropriated an additional $522.8 million of surplus, mostly for additional infrastructure projects. Major appropriations included $150 million for highway-related needs; an additional $125 million for a consolidated lab; $85 million to the Governor’s Contingency Fund; $45 million for a new cybersecurity program at Marshall University and $25 million for an aviation hangar at Pierpont Community and Technical School.

Strong revenue growth over the past couple years resulted in the implementation of a significant personal income tax cut effective in 2023. Governor Justice proposed a significant income tax cut during his State of the State address, and the Legislature subsequently enacted a multi-part tax reduction package. Effective January 1, 2023, personal income tax rates were reduced by 21.25 percent to the lowest tax rates in place since the current income tax was first implemented in 1961. The new Law also created future property tax credits beginning in 2024 against the personal income tax equal to the amount of local property taxes paid on qualified motor vehicles, qualified residential property owned by certain disabled veterans and up to 50 percent of the amount of qualified business tangible personal property taxes paid by qualified small businesses. The 21.25 percent income tax rate reduction was projected to reduce Fiscal Year 2024 revenue collections by roughly $700 million and Fiscal Year 2025 revenue collections by roughly $610 million. The higher cost in Fiscal Year 2024 was due to an implementation delay associated with legislation enacted in March 2023 that became effective as of January 1, 2023. The projected first full-year cost of the additional property tax credits was close to $200 million spread out between Fiscal Year 2025 and Fiscal Year 2026.  The new law also contained a mechanism for possible future additional personal income tax rate reductions beginning as early as 2025. Future tax rate reductions of no more than 10 percent would be tied to the difference between actual General Revenue Fund collections minus severance tax collections and calculated inflation-adjusted General Revenue Fund collections minus severance tax collections. The initial calculation would be based on actual Fiscal Year 2024 revenues versus inflation adjusted pre-Covid Fiscal Year 2019 revenues. Any positive difference above inflation would equate to the dollar value of a future automatic tax cut.

The official FY2024 General Revenue estimate of $4.884 billion, developed in December 2022, is nearly $1.6 billion below actual FY2023 General Revenue Fund collections. The official FY2024 revenue estimate was designed to match the amount necessary to fully fund the Governor’s proposed General Revenue Fund budget for FY2024. An unofficial revenue estimate developed in November 2023 was nearly $400 million below actual Fiscal Year 2023 collections, mainly due to the expectation of significantly lower severance tax collections associated with lower energy prices and slower growth in income taxes. These estimates did not incorporate any significant tax changes in the absence of a final plan agreeable to all policymakers at that time. After full accounting of the 21.25 percent personal income tax rate cut, Fiscal Year 2024 collections are still projected to exceed the Official estimate by at least 6 percent. As a result of conservative budgeting and conservative revenue estimates during a period of unusual turbulence, West Virginia’s finances are well positioned despite the prospect of slower economic growth in the near term associated with higher interest rates, above target inflation and geopolitical turmoil.

The base budget appropriations for FY2024 General Revenue and lottery revenue are $5.47 billion, $269 million more than the base budget appropriations included in the Fiscal Year 2023 budget of $5.2 billion. The increase in base budget reflects salary enhancements of nearly $120.6 million, over $21 million in additional funding for corrections, $5.6 million in additional higher education funding and roughly $611 million in unanticipated one-time infrastructure-related appropriations.

The basis of the current budget outlook for FY2024 and FY2025 is a forecast of a slower rate of expansion in the State economy due to the impact of higher interest rates, a gradual but uneven slowing of overall inflation rates and some anticipated decline in coal production during the forecast period. The highly uncertain energy sector outlook has great bearing on the future direction of State revenue collections. At this time, natural gas prices are expected to rebound above current levels over the coming year with additional benefits associated with the completion of the Mountain Valley Pipeline. Following production gains in 2023 associated with inventory replenishment, coal production is likely to decrease over the forecast period with much greater reliance on foreign exports for future sustainability. In this climate, revenue volatility will remain above average over the forecast period.

West Virginia remains fiscally strong due to conservative budgeting and conservative revenue estimates during this time of uncertainty. The State is also positioned to handle the coming transition toward lower future federal funding available for State government service needs. The current positive gap between revenues and expenditures should largely dissipate over the next couple years as tax cuts reduce incoming revenue and cost pressures, mainly associated with healthcare and corrections, increase expenditures. 

Section V: West Virginia’s Counties

While statewide figures reflecting West Virginia’s economy are important, it is important to recognize that they mask significant economic and demographic variations across the state’s regions and counties. As such, in this section we illustrate how several key economic statistics performed during the past decade across each of the state’s 55 counties and how these measures are expected to perform from a geographic perspective over the next five years.