CHARLESTON, W.Va. (AP) — Most West Virginia agencies must cut spending by 7.5 percent for the 2013-2014 budget year, to avoid a deficit threat blamed on rising Medicaid costs, the sluggish national economy and slumping coal production, Gov. Earl Ray Tomblin announced Monday.

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

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

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

Costs, meanwhile, will expand the general revenue and lottery portions of the state budget by 9 percent, the memo said. The overall result is a budget gap of 2 percent, but the programs and agencies exempted from cuts mean the rest must reduce spending by 7.5 percent, the memo said.

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

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

Current state funding for child care aid is preserved, but Tomblin is still seeking alternatives to a now-exhausted surplus of federal funds that helped supplement this program, administration officials have said. The list of exemptions in Lorensen's memo also includes funding for rehabilitation and juvenile offender services, and aid for primary care, institutions and behavioral and local health services.

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

The state also enjoyed surpluses in both general revenue and lottery proceeds during the previous budget year. Lorensen's memo said that spending during that just-completed year also fell $12 million 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 areas exempted.

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

Medicaid plays a major role in the predicted budget growth. The program consumes $860 million in state funds from the current budget, and that's forecast to increase by $180 million next year.

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

The 2013-2014 budget must also offset underperforming investments. The state's $13 billion portfolio earned a 2.5 percent return during the just-completed budget year, but needed to earn at least 7.5 percent, the latest Investment Management Board figures show. The state counts on that earning target, in part to stick with a multi-decade payment plan for curing a major funding shortfall in its pension program for teachers. Around 78 percent of the portfolio reflects pension assets.

Around 70 percent of general revenues come from personal income and sales and use taxes, which also indicate economy activity. Those revenues are expected to grow by 0.5 percent during the current budget year. The severance tax on coal and other extracted natural resources, meanwhile, proved key in helping to keep West Virginia's general revenue budget balanced amid the recession. State officials project that severance tax revenues will drop by 1.4 percent. Among other factors, a mild winter lessened demand from power plants while low natural gas prices have eaten into coal's share of U.S. electricity production. European economic troubles, meanwhile, have weakened that important market for West Virginia'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 dueling views of West Virginia's economy have shaped their contest, with Tomblin citing signs of improvement and Maloney invoking the state's dismal rankings for employment, poverty and education.

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

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West Virginia agencies bracing for 7.5 percent budget cuts

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