Federal Cutbacks Blamed : West Virginia at the Brink of Bankruptcy

If West Virginia were a private corporation, said George Farley, it would be in bankruptcy.

“Things are that bad in West Virginia,” Farley, chairman of the Appalachian state’s House Finance Committee, said recently. “Not only that, but it appears this current legislative session is our last chance to keep things from totally going bust.”

Farley, a Democrat who has helped put together the state budget for the last 10 years, said he’s never seen conditions so bleak. Long-term unemployment, a depleted industrial tax base and the loss of millions of federal revenue-sharing dollars have West Virginia reeling on the edge of bankruptcy.

While leaders cast about for solutions--special loan promotions for industry, tax hikes, spending cuts and a hotly debated plan to make southern West Virginia a dumping ground for nuclear wastes--1.9 million residents watch helplessly as their highways crumble from neglect, social services dwindle and thousands of their friends and relatives flee to greener pastures.

“I’d estimate more than 100,000 of our young people have left the state since 1980,” said William Miernyk, a retired economist at West Virginia University.

They were about 15% of the state’s labor force, he said. The exodus also tends to distort the unemployment picture in West Virginia, a chronically poor state where 3 of every 5 residents live in the country.

Rural regions throughout the South and Appalachia have been left out of the economic boom that has come to many of the urban areas.

The federal government currently puts West Virginia’s jobless rate at 7.4%, and many rural counties report double-digit unemployment rates.

“I’d say the true unemployment rate around here, counting people who have used up their benefits, would be way over 20%,” said John (Duck) Dudash, a retired miner at Farmington, a little coal town in northern West Virginia.

“Things are so bad that people would line up for miles, double file, if a mine around here would start hiring. Why, it reminds me of the Depression,” said Dudash, who is 74. “Farmington is almost a ghost town these days.”

Miernyk went further: “In some ways it’s worse than it was in the 1930s. Coal has always been a cyclic industry here, but in recent years we’ve lost many thousands of coal-mining jobs that, because of the decline of our chemical and primary metals industries, we’ll never get back.”

The loss of these industrial payrolls and nearly 25% of West Virginia’s manufacturing jobs has had a ripple effect on the state’s economy. Even basic revenue sources, such as the state-operated liquor stores, are reporting serious revenue losses these days.

Last December, Standard & Poor, the national bond-rating service, imposed an emergency “financial watch” on the state.

Last month, the Kanawha County school system, West Virginia’s largest, threatened to close down, then filed suit in an attempt to force the state to release millions of dollars in overdue school aid.

“The state needs an immediate $150-million fix, just to stay even,” Farley said. “On top of that, we’ll probably need another $50 million by the end of the fiscal year, given that tax revenues currently are $37 million below budget estimates.”

Farley said he doubts that Gov. Arch Moore Jr.’s recent assertion that the state merely has a cash-flow problem that will clear up when taxes come rolling in.

Moore, a Republican, imposed a 20%, across-the-board cut in state spending during the fourth quarter of the fiscal year ended last June 30. Then he still had to delay payment of $58 million in state income tax refunds.

“This meant we began the current fiscal year $58 million in the hole,” Farley said.

As of mid-February, West Virginia was $100 million behind in its school-aid payments. It owed $50 million in state medical insurance payments to hospitals, physicians and pharmacists, and it needed to come up with about $30 million as its share of $120-million in overdue federal-state Medicaid payments.

Meanwhile, teachers are up in arms because their paychecks are threatened and their retirement fund is more than $1 billion in the red, due to past borrowing from it by the state.

Some state officials acknowledged privately that many smaller companies no longer will do business with the state government except on a cash basis.

Moore, who is running for reelection, acknowledged in November that the state was facing a financial crisis. A month later, in his state-of-the-state address, he said West Virginia had just had a great year of economic development.

State Senate President Dan Tonkovich, a Democrat who also is running for governor, accused Moore of fomenting “chaos.”

Standard & Poor, in its financial warning about $900-million worth of state bonds, noted that “Neither the executive nor legislative branch has formulated a comprehensive program to address the state’s deteriorating financial picture.”

West Virginians, whose motto is “Mountaineers Are Always Free,” say they are depressed and frightened.

“I feel the thing that has really pushed us over the edge is the loss of federal revenue-sharing funds,” said Kate Long, an activist who is knowledgeable about the state’s tax structure. “We’ve always had inept politicians and cycles of boom and bust, but a poor state like West Virginia simply can’t overcome the loss of $200 million a year, given everything else that has happened to us.”

A study by the American Federation of State, County and Municipal Employees found that West Virginia over the last four years has lost more federal dollars, per capita, than any other state except New York. The money lost when federal-revenue sharing was curtailed took 23% of West Virginia communities’ annual budgets and caused widespread reductions in services.

In rural Preston County, county hospital administrator Hilda Heady said she has had to lay off 20% of the hospital’s workers and reduce the operating room schedule to keep the doors open.

Jerry Ash of the West Virginia Hospital Assn. said that continuing revenue losses, and especially late state payments, have created a medical crisis.

“Two small hospitals went bankrupt last year, and we did a recent survey that showed six more of the state’s 35 small, rural hospitals are on the verge of bankruptcy. Another six are just a step behind them,” he said.

Farley, who advocates a combination of budget cuts and tax increases to try to stave off financial disaster, said a national energy policy is needed to help states such as West Virginia, Louisiana and Texas, whose economies have been crippled by the slump in natural resource industries.

Asked what West Virginia would do if it did go belly up, Farley just shook his head.

The governor, when asked recently what would happen should West Virginia be unable to pay its bills in April, replied: “Who says there will even be a state government by then?”

The question is no joke to many West Virginians, especially those who live in the southern counties.

Asked what would happen to his community if the state went broke, Joe Carter, a 34-year-old jobless miner who lives at Stanaford near Beckley, mulled it over for a moment. Then he said:

“I guess we’d just dry up and blow away--what’s left of us.”