BRADENTON, Fla. – The outlook on West Virginia’s credit has turned negative from pressures due to energy sector layoffs and the state’s rising unemployment rate, according to Moody's Investors Service.
Moody’s revised the outlook to negative from stable on Wednesday as it affirmed the state’s Aa1 rating on $394 million of general obligation debt.
Ratings of Aa2 on the state’s revenue bonds and Aa3 on Water Development Authority moral obligation bonds were also affirmed.
As a coal-producing state, West Virginia has seen key economic indicators erode from rapidly declining coal and natural gas prices and statewide layoffs for key energy sector employers, Moody’s said.
The state's unemployment rate rapidly increased to 7.6% in August, underscoring challenges in the energy sector, said Moody’s analyst Genevieve Nolan. The jobless rate was 5.9% in January.
“Should the coal and natural gas sectors face continued pressures, or if additional layoffs occur as the result of mine closures and lower natural gas production, that could result in downward rating action,” Nolan said.
West Virginia also experienced a precipitous 42% decline in coal and natural gas severance tax revenues in the first three months of the year, leaving the state with at least a $250 million operating gap, Nolan said.
Gov. Earl Ray Tomblin recently announced 4% budget cuts for most agencies, while reducing public school funding by $16 million. Additional details on closing the gap are expected soon.
“While we note the magnitude of the revised budget gap is manageable, and the state still maintains substantial reserves, the outlook incorporates our expectation that the state will continue to adhere to conservative budgeting practices in rectifying the negative variance,” Nolan said.
In the first eight months of the year, West Virginia lost 19,500 jobs over the same period the prior year, and in August led all states with the highest unemployment rate,
Moody’s negative outlook came a day after Tomblin signed a pact with Ohio and Pennsylvania on natural gas development that he hopes will boost employment.
In a video conference Tuesday, Tomblin, Ohio Lt. Governor Mary Taylor and Pennsylvania Governor Tom Wolf announced that they signed an agreement pledging support and cooperation for development of natural gas in the Appalachian Basin.
The agreement pledges marketing to promote the Tri-State Region for the development of shale gas and derivatives, creating workforce development programs, investing in infrastructure to move gas safely, and academic research that supports the industry.
“The development of West Virginia’s natural gas industry, although still in its infancy, has the potential to be a game changer not only in West Virginia, but for the tri-state region,” Tomblin said.
The technology is expected to create “good paying jobs for hardworking West Virginians,” he added.
