West Virginia’s economy continues to be impacted by the COVID-19 pandemic, nearly two years after impacts were first felt in the state. After historic job losses in the spring of 2020, the state underwent a steep, but partial recovery in the summer. However, growth has been sluggish in recent months, and a substantial jobs gap remains. As of November 2021, total nonfarm employment in West Virginia is still down 25,800 jobs from its pre-pandemic level.
West Virginia experienced solid job growth in the first half of 2021, adding an average of 2,633 jobs per month, as expanded unemployment benefits and stimulus checks helped to boost and sustain the economy. At the time, experts from the West Virginia University Bureau of Business and Economic Research predicted that the state would recover to its pre-pandemic job level by early 2022, or even before the end of 2021. However, the federal supports that were boosting the economy have ended, with no further stimulus checks and West Virginia choosing to end enhanced unemployment benefits in June. Along with the withdrawal of federal support, the rise of the Delta and Omicron COVID-19 variants may have played a role in weakening economic growth. Average monthly job growth in West Virginia was cut in half in the second half of 2021, averaging just 1,040 jobs per month. At that rate, the state will not recover all of the jobs lost during the pandemic until 2024.
Government, health care, and leisure and hospitality jobs make up the bulk of the state’s job shortfall. During the height of the pandemic, service-providing industries involving high levels of interpersonal interaction faced disproportionate job losses. In West Virginia, leisure and hospitality jobs fell from 75,100 jobs in February 2020 to 38,800 jobs in April 2020, nearly a 50 percent loss. While the industry saw substantial growth in 2021, it is still well below its pre-pandemic level, down 5,700 jobs, or 7.6 percent. The health care sector remains down 4,800 jobs, or 3.9 percent, and the government sector — primarily local government — remains down 5,800 jobs, or 3.8 percent.
State gross domestic product (GDP) growth has also slowed in 2021. Rising energy prices gave state GDP a boost in the 2nd quarter of 2021, with state GDP growing by an annualized rate of 7.3 percent — the 7th best rate among the 50 states — but that growth soon fell. West Virginia’s GDP declined by 0.6 percent in the 3rd quarter of 2021, with the state ranking 43rd nationwide.
And as the economy has slowed down, economic insecurity has begun to rise again. Over the summer, the share of West Virginians reporting difficulty paying household expenses fell to 24 percent. Since then, that number has increased, particularly for households with children. In December, 41 percent of adults in households with children, and 35 percent of adults overall, reported difficulty paying household expenses.
This economic slowdown in West Virginia is concerning after Congress failed to pass the Build Back Better Act (BBBA) before the end of the year. Of particular note, the enhanced Child Tax Credit (CTC) payments ended in December — these monthly payments had been providing a significant boost to families in West Virginia, and had kept millions circulating in the economy as other federal supports ended. In December, the last month the enhanced payments were made, 181,000 West Virginia households received a total of $80.7 million in payments, benefiting 305,000 children. With the enhanced CTC expiring, 50,000 children in West Virginia are at risk of slipping back into or deeper into poverty, while even a scaled back BBBA would mean a much slower recovery for the Mountain State, with ten thousand fewer jobs supported.
West Virginia’s economy needs support to fully recover and reverse its pre-pandemic trends. Even before COVID-19, the state was steadily losing jobs, and while federal aid sharply reduced poverty during the pandemic, West Virginia still had the 4th highest poverty rate in the country, and 2nd lowest median household income in 2020.
While the economy is showing signs of slowing down, West Virginia currently is enjoying a revenue surplus, with revenue collections exceeding estimates by $394 million so far in FY 2022. However, that surplus is in large part thanks to rising energy prices, the $12 billion in federal aid that has been pumped into the state, and lowered revenue estimates.
Some legislators are already proposing to use the surplus to pay for various tax cuts, acting as if the current surplus is a permanent feature and not a one-time result of extraordinary circumstances. Choosing to do this would be fiscally irresponsible. As noted, much of the surplus is the result of revenue estimates being dramatically lowered. Prior to the pandemic, the revenue estimate for FY 2022 was $4.926 billion. However, that estimate was lowered to $4.569 billion when the FY 2022 budget was proposed, a reduction of $357 million. In fact, the revenue estimate of $4.569 billion for FY 2022 is $418 million below actual revenue collections in FY 2021, and just $75 million above actual collections in FY 2020, the year that was most affected by the pandemic.
The revenue estimates implied that West Virginia’s economy in FY 2022 would be just as bad as it was during the worst of the pandemic. As such, surpassing those revenue estimates does not indicate that the state is on a “staggering… rocketship ride” — rather, it indicates that we are slowly getting back to normal, but still have a ways to go. In fact, both West Virginia’s GDP and revenue growth are trailing most other states. And now, the federal aid that boosted the state’s economy in 2021 has ended.
Further, West Virginia has several looming needs in its budget future, from shortfalls in the Public Employee Insurance Agency (PEIA) to Medicaid. The state also has several areas in desperate need of investment and new revenue, from restoring investment in higher education, to addressing the lack of paid leave and child care in the workforce, to raising the pay of underpaid public employees and teachers. In fact, Governor Justice’s FY 2021 budget warned that, “it becomes obvious that any surplus revenues from upcoming fiscal years should not be expended for items that would add new obligations to the ‘base budget;’ but rather should, as in recent fiscal years, be cautiously used mostly for one-time needs or held for use to assist in offsetting possible future requirements.” Cutting taxes is certainly not a cautious use for one-time needs. And when so many needs remain to be addressed — such as unaffordable higher education, lack of support for working families, underfunded schools, and tens of thousands of children living in poverty — then what good is a budget surplus?