Muchow said as of the end of November, the state's general revenue fund was roughly $72.6 million above estimates, thanks to severance taxes on the state's natural resources.

"Severance tax is the big engine," Muchow said of the state's tax collections. "The severance tax by itself was almost $43.3 million above estimates ... particularly in coal, because of significant higher prices -- much higher than was originally forecast over a year ago.

"Back then, the spot price was in the $40 to $50 per ton range, then by early summer, the price had moved up to $140 per ton range, and that was not in the forecast. Since then, the price had gradually eased down, but it's still a little above $100 per ton."

Muchow said increases in mining employment also added dollars to other taxes collected in the state, such as personal income tax.

"If not for mining employment, our state payrolls would be pretty much flat," he said. "All the net gains to date are basically mining."

Muchow said the state's exports keep us globally connected, and the global recession is beginning to impact the state.

"One thing we've noticed are recent layoffs in southern West Virginia," he said. "It appears steelmaking globally has been greatly curtailed."

West Virginia's tax collection growth is ahead of all its neighboring states, according to Muchow.

"We're not going to set the world on fire, but at the end of November, we're running about 3.4 percent ahead of last year, and we're running 4.9 percent ahead of estimates," he said. "We were actually forecasting less revenue."

Muchow said during the revenue growth of the past three or four years, the state made an effort to pay down long-term liabilities, such as pension debt.

"That activity -- having put the money into one-time problems as opposed to building the budget -- is really saving the state right now," he said. "If we had built the budget based on that revenue growth, we'd be upside down right now, even with the severance tax gains."

Muchow said West Virginia historically goes through cycles, and when energy has done well, taxes have been cut. And within two or three years, the cuts have to be undone -- "and that's not a good cycle."

"I think the best thing state government can do for the business environment is to offer stability, where bills are paid on time," he said.

Muchow predicted the state to be more conservative with its budget next year to avoid a deficit, but he said the state would only have a mild recession -- "partly because energy is one sector that goes up before other sectors, and partly because the state relies heavily on transfer payments on income."

Muchow explained that transfer payments, such as Social Security, Medicare and Medicaid, make up a big part of the state's incomes, so the state will see a big increase after Jan. 1, when Social Security benefits are scheduled to increase 5.8 percent.

George Hammond, associate director of the Bureau of Business and Economic Research at West Virginia University, echoed Muchow's predictions.

"The forecast calls for West Virginia to experience outright job losses from 2008 to 2009, so the state is going to experience a version of the national recession that will certainly affect tax revenues," Hammond said. "I think we'll experience a downturn that's less severe than the national economy."

Hammond said the 2008-'09 prediction was for a loss of about 5,000 jobs, and he said the upcoming recession is more severe than one that took place in the early 1990s but not as severe as one in the 1980s.

Hammond said the state was riding on a coal boom through 2008, which boosted production and employment and kept the state's growth a little stronger than the rest of the nation's.

Hammond also pointed out that with the exception of the Eastern Panhandle, the state never experienced a housing market boom, so the national bust left most of the state unscathed.

"West Virginia gets a large share of its income from transfer payments ... and that tends to insulate West Virginia somewhat from economic downturns because transfer payments are not connected to current economic activity," he said. "West Virginia has a large share of jobs in the health care sector and also federal government jobs, which tend not to be particularly sensitive to the national business cycle."

In taking a more long-term look, Hammond said the economy will turn around and start to go up again in 2010.

Muchow said the peak for severance tax collection probably would occur this year, and he added that state officials are holding their breath to see what national policies may bring.

"If policies effectively make the generation of electricity from coal significantly more expensive than it is today, that's one thing that will encourage people to look for alternative sources of electricity and reduce whatever competitive edge West Virginia historically had for electric power prices," he said. "A significant portion of our manufacturing economy is based in West Virginia partly due to lower-than-average electric power rates, and as those rates rise, it hurts the competitiveness of West Virginia's manufacturing sector."

Muchow said while the nation turns its attention to stimulating the economy, an energy policy may be placed on a second tier.

"The current economic recession and problems associated with it may benefit the state," he said. "It may put off some of the decisions people were going to make on global warming.

"In terms of our financial forecast, we're bearish on coal, bearish on severance taxes."