Secretary for the West Virginia Department of Transportation, Jimmy Wriston, told the Joint Committee on Government and Finance that inflation is making highway construction more expensive in the Mountain State.
At an interim meeting of the Joint Committee on Government and Finance on July 26, West Virginia Department of Transportation Secretary Jimmy Wriston said the department’s contracts for current projects have clauses to adjust for rising inflation. While it relieves some of the added costs for contractors, it raises the project fee for the department.
“If all of our projects today were completed, and I had to calculate that asphalt and fuel adjustment and pay that today, it would exceed 14 million dollars,” said Wriston.
Supply chain shortages are also making it harder for the department to buy equipment and vehicles.
“The Division of Highways runs on its trucks,” Wriston said. “That’s a particular concern to us.”
Wriston suggested the state should develop a policy for upcoming projects under the Infrastructure Investment and Jobs Act to include clauses that compensate contractors to offset added expenses.
“We’re always anxious to be told what we can do to lower barriers to activation on things,” Speaker of the House Roger Hanshaw, R-Clay, said. “So if you’re trying to adjust or make mid-course corrections on anything that we can do to be helpful on, we’d certainly appreciate knowing that.”
The West Virginia Hospital Association is urging state and federal policymakers to help hospitals by increasing the amount of money provided to patients through government insurance programs.
As health care prices continue to rise, hospitals are feeling the squeeze.
The West Virginia Hospital Association is urging state and federal policymakers to help hospitals by increasing the amount of money provided to patients through government insurance programs.
Association President and CEO Jim Kaufman argued recently that West Virginia hospitals are at a disadvantage. He claimed 75 percent, or 3 out of 4 patients, receive their health insurance through government programs – Medicare, Medicaid, and the Public Employees Insurance Agency (PEIA).
West Virginia Public Broadcasting (WVPB) found that as of March 2022, 75,292 West Virginians are enrolled in PEIA and 442,545 in Medicare. As of July 2021, 584,000 West Virginians received Medicaid. This, however, does not account for the state’s uninsured population.
Kaufman said each of these programs pay hospitals less than the cost of care and these payment rates are non-negotiable since they are set by the government.
A report from the American Hospital Association (AHA) in April highlighted necessary hospital expenses have seen an increase from 2019 to 2021. Labor – which accounts for as much as 50 percent of a hospital’s expenses – have increased 19 percent, while drug expenses are up 37 percent.
In an email to WVPB, the West Virginia Department of Health and Human Resources – which manages the state’s Medicaid program – said the organization partners directly with the hospital association to ensure rates are appropriate.
Separately, the West Virginia Department of Administration – which manages PEIA – said via email they have increased reimbursements over the past two years, as well as pay 20 percent more for inpatient COVID cases. However, the email did state that reimbursements for inpatient hospital stays have not increased.
Appalachia Health News is a project of West Virginia Public Broadcasting with support from Charleston Area Medical Center and Marshall Health.
In April of last year, seven West Virginia counties (Mercer, Jefferson, Roane, Greenbrier, Mineral, Ohio and Summers) divided up $75 million in state funding to either replace, renovate or relocate outdated school buildings.
Inflated building costs are causing school construction projects across West Virginia to go back to the drawing board.
In April of last year, seven West Virginia counties (Mercer, Jefferson, Roane, Greenbrier, Mineral, Ohio and Summers) divided up $75 million in state funding to either replace, renovate or relocate outdated school buildings.
But with rising construction costs, the state School Building Authority (SBA) estimates a 25 percent increase to fund those projects, maybe more.
SBA Director of Special Projects Sue Chapman said the authority is working to refinance bonds and get an additional $29.5 million to supplement project costs.
She said each school district will also have to pare down on their original construction plans.
“Each of those counties are going to have to go back and look at their projects,” Chapman said. “And take those projects down to the minimum of what the school building authority may require in their policies for construction.”
Chapman said the state’s debt payment on the bond refinancing will come from excess lottery funds.
West Virginia is seeing many of the same, and some quite different, situations in surviving rising inflation rates.
West Virginia is seeing many of the same, and some quite different, situations in surviving rising inflation rates.
West Virginia Retailers Association President Bridget Lambert offered several examples. She said people are holding on to their automobiles longer because new models aren’t available. She said this is helping out state automobile parts stores and repair shops.
On the other hand, she said with the state’s rural nature, getting basic goods and services becomes more costly for many families.
“Just shopping for groceries in some areas can be a very long trip, up to an hour, to get to a full service grocery store,” Lambert said. “And it can be very difficult for consumers to make those trips.”
Lambert said more families are making monthly rather than weekly trips for groceries.
She said in West Virginia the ability to get goods and services to the customer has changed in other ways.
“The industry now highlights curbside deliveries and pickups for customers,” Lambert said. “They can order and make one trip and it’s delivered right into their car. They don’t have to go into the retail establishment any longer. And let’s not forget how many people are now utilizing delivery to their own front door. All this is here in West Virginia to stay.”
Lambert said more families are making meals at home so grocery stores are benefiting from increased consumer demand and restaurants are feeling the pinch.
“I think the restaurant industry will rebound to a certain point,” Lambert said. “But I think consumers still will be watching the bottom line and will be cautious and limit their number of visits to a restaurant.”
Additionally, she said with rising fuel costs, many West Virginia public transportation entities are cutting back on upgrade plans.
Some possible good news, Lambert said many seasonal items that sat in California crates last year are now doubled up in many stores. So, if you need lawn furniture or garden tools, you have choices.
As the U.S. economy has opened back up, it has brought increased inflation and higher prices on just about everything. Nabaneeta Biswas is a professor of economics at Marshall University in the Department of Finance, Economics and International Business. She spoke with Eric Douglas to discuss what inflation means for the country.
This interview has been lightly edited for clarity.
Douglas: What’s the textbook definition of inflation?
Marshall University Economics Professor Nabaneeta Biswas.
Biswas: The textbook defines inflation as the percentage of change in price over a certain period of time. That time could be one month, it could be a quarter, or it could be a year. Or it could be over several years. The most common that we now see is over quarters, or maybe month to month. We are focused on it more closely, because we know that inflation is rising.
Douglas: There’s always some level of inflation, prices are always creeping up, right?
Biswas: Right. So there’s a difference between just inflation, which is price increase, and an acceleration of inflation, which is rapid increase in prices, The inflation rate is, let’s say, three percent. You will see price increases over the years by three percent. But if the inflation rate changes from three to five percent you would see that price increase being more rapid.
Douglas: What’s causing this jump now?
Biswas: They are actually a bunch of factors and these are actually classic textbook theories of what causes inflation, and we’re seeing them in action right now. This is called demand pull inflation, when aggregate demand increases, and production capacity doesn’t match up to it, which causes prices to rise. An increase in aggregate demand is desirable because unemployment goes down, and the GDP goes up. Economists always say there are costs of increasing output and GDP growth and reducing unemployment. And the cost sometimes is inflation.
The other factor here is cost push inflation. Basically, that’s a negative supply shock. The raw material and labor shortages we are seeing in some of the sectors is increasing the cost of production. That is why suppliers or retailers have to increase the price of the product.
Douglas: As the demand increases, that’s kind of the natural way of doing business. And prices slowly creep up. The other side we’re seeing is there are shortages, whether it’s shipping from Asia, whether it’s domestic manufacturing and raw materials. What’s causing some of those problems? Is it all COVID-related? Is it other bigger things at work?
Biswas: I think experts are saying it’s mostly COVID-related, because there’s a breakdown in the supply chain. For example, lumber supply, workers in the lumber industry, because of COVID, they had to stay home and they gave up on that work. This is what caused lumber prices to increase.
The other thing that we are experiencing is because of inflation, the dollar is losing value. So a lot of the goods that are imported, including raw materials, those are becoming costlier because the value of dollar is going down. That’s one of the costs of inflation, that imports cost more now.
During the pandemic, we experienced negative demand shock, which is demand went down in a lot of sectors. And we also saw a decline in production capacity, because there was no demand, there was no production. And now all of a sudden the economy’s returning to normal as the demand is returning to normal. And so what we are experiencing right now is production trying to match up to the demand. And until it does, we are going to experience inflation.
Douglas: During the height of the pandemic, we were all working from home, we weren’t buying those big ticket items. And a lot of people saved a bunch of money because we weren’t going out to eat and that kind of thing. And now that things are loosening back up and people are going back out shopping, that’s causing the demand to increase and the supply to drop off.
Biswas: Exactly. Demand is increasing more rapidly right now than it has in the past. If it’s a constant rate of increase in demand, it wouldn’t cause inflation but because it’s increasing more rapidly after that negative COVID shock, that’s why we’re experiencing this. An economist’s view of inflation is different from a non-economist’s view of inflation. Economists believe that inflation is temporary. And the costs of reducing inflation are actually higher than the costs of inflation itself.
Douglas: No politician in the world has ever wanted inflation. But at the same time, there’s very little the government can do about inflation, at least in the short term.
Biswas: If the government tries to reduce inflation, if it follows a disinflationary policy. The costs of that are periods of high unemployment, and low GDP. And that’s not what we are targeting right now, because this could put the economy into a recession.
The other way the government can deal with inflation is to announce a disinflationary policy in the future to which people respond with rational expectations. So, for instance, if the government announces a policy change, and if the people believe that the government is credible in its announcement, what they will do is lower purchases today, because they know that prices are going to go down tomorrow. And that means they would lower aggregate demand, and that would ease prices a little bit. Sometimes just announcing the policy helps, even if the government actually doesn’t carry it through. Expectations of inflation also drive inflation. That’s why we say inflation has inertia.
Douglas: Any crystal ball on how long we expect it to be at this rate, before it cools off a little bit?
Biswas: I think the biggest factor right now would be increasing production capacity, specifically, in the sectors where we are experiencing inflation. Increasing production capacity is the key. And there’s no magic wand that would increase production capacity overnight. It’s something that’s going to happen over time. And we just have to be a little patient for it to catch up to the increased demand. And until then, we will experience inflation.
How long that period is going to be is hard to say. But if you look at the inflation rate right now, which is close to five percent, that’s not too high. Nothing that economists would worry about because the U.S. has seen much higher rates of inflation back in the 70s. And even those were not hyperinflation like that in Germany or Zimbabwe.The flip side of inflation is recession and we don’t want that.
Note: While inflation during the 1970s in the U.S. averaged 6.8 percent for the decade, it spiked higher than 14 percent in 1980 before dropping off to 3.5 percent in the first half of the 1980s.
