CHARLESTON, W.Va. (AP) — Most West Virginia agencies must cutspending by 7.5 percent for the 2013-2014 budget year, to avoid adeficit threat blamed on rising Medicaid costs, the sluggishnational economy and slumping coal production, Gov. Earl RayTomblin announced Monday.

Several agencies and programs are exempt from the cuts includingMedicaid, state funding for public schools and prisons, RevenueSecretary Charles Lorensen has told agency chiefs in a memo.

"Simply stated, anticipated revenues are not expected to keeppace with costs for current programs," Lorensen's memo said.

The state budget that took effect July 1 expects to spend $4.1billion in general tax revenues. Lorensen forecasts those revenuesto grow by less than 1 percent during the next budget year, citingthe weak recovery and a cooling coal industry. The current spendingplan also relies on $436 million from lottery proceeds. Officialsproject those to decline by 4 percent in the face of border statecompetition.

Costs, meanwhile, will expand the general revenue and lotteryportions of the state budget by 9 percent, the memo said. Theoverall result is a budget gap of 2 percent, but the programs andagencies exempted from cuts mean the rest must reduce spending by7.5 percent, the memo said.

The Division of Miners' Health, Safety and Training is amongthose spared cuts, as is funding for some seniors programs, StatePolice pensions and the nursing home for veterans.

Besides the state school aid formula, exempt areas of publiceducation include child nutrition and special, adult and vocationseducation. Several programs for children and families are off thetable as well, including basic welfare, child support enforcementand child protective services, Lorensen's memo said.

Current state funding for child care aid is preserved, butTomblin is still seeking alternatives to a now-exhausted surplus offederal funds that helped supplement this program, administrationofficials have said. The list of exemptions in Lorensen's memo alsoincludes funding for rehabilitation and juvenile offender services,and aid for primary care, institutions and behavioral and localhealth services.

Monday's announcement ends a period of relatively pain-freebudget balancing by state officials. West Virginia avoided the taxhikes, program cuts and worker layoffs suffered by many otherstates in the wake of the Great Recession. While other statestapped or depleted their emergency reserves during this time, WestVirginia built up its rainy day fund into one of the nation'shealthiest when measured against spending.

The state also enjoyed surpluses in both general revenue andlottery proceeds during the previous budget year. Lorensen's memosaid that spending during that just-completed year also fell $12million below the amount budgeted by the Legislature.

Tomblin cited that backdrop when he announced the planned cuts,while also noting that debt payments are among those areasexempted.

"West Virginia's fiscal health remains strong," Tomblin, aDemocrat, said in a Monday statement, "However, we must vigilantlyprepare for the future. My administration will continue to makefiscal responsibility a top priority. For 2014, we must simply domore with less in certain of our agencies."

Medicaid plays a major role in the predicted budget growth. Theprogram consumes $860 million in state funds from the currentbudget, and that's forecast to increase by $180 million nextyear.

Lorensen noted that this growth does not reflect the expansionof the program called for by the federal health care overhaul.Officials have not yet decided how West Virginia will proceed withthat expansion. Tomblin recently wrote U.S. Health and HumanServices Secretary Kathleen Sebelius seeking information aboutpossible options.

The 2013-2014 budget must also offset underperforminginvestments. The state's $13 billion portfolio earned a 2.5 percentreturn during the just-completed budget year, but needed to earn atleast 7.5 percent, the latest Investment Management Board figuresshow. The state counts on that earning target, in part to stickwith a multi-decade payment plan for curing a major fundingshortfall in its pension program for teachers. Around 78percent of the portfolio reflects pension assets.

Around 70 percent of general revenues come from personal incomeand sales and use taxes, which also indicate economy activity.Those revenues are expected to grow by 0.5 percent during thecurrent budget year. The severance tax on coal and other extractednatural resources, meanwhile, proved key in helping to keep WestVirginia's general revenue budget balanced amid the recession.State officials project that severance tax revenues will drop by1.4 percent. Among other factors, a mild winter lessened demandfrom power plants while low natural gas prices have eaten intocoal's share of U.S. electricity production. European economictroubles, meanwhile, have weakened that important market for WestVirginia's metal-making coal.

Tomblin drew fire after Monday's announcement from Bill Maloney,his GOP opponent in this year's race for governor. Their duelingviews of West Virginia's economy have shaped their contest, withTomblin citing signs of improvement and Maloney invoking thestate's dismal rankings for employment, poverty and education.

"Even he can't hide his failed record as the budget dives towarda deficit," Maloney said in a statement.