CHARLESTON, W.Va. -- Gov. Earl Ray Tomblin on Wednesday submitted a $4.726 billion 2014-15 budget plan that includes no new taxes or fee increases, and provides small pay raises for teachers, school service personnel and state government employees.

The budget proposes spending about $146 million more than the state is expected to collect in taxes and state Lottery revenue, and proposes making up the gap, in part, by tapping into the state's Rainy Day emergency reserve fund.

Revenue Secretary Bob Kiss said Wednesday it is "clearly an austere budget," but said the state is financially sound, unlike the crisis it faced in 1989, when he was House Finance Committee chairman.

"We are in far better position to deal with these challenges than a half-generation ago," Kiss said, adding, "This is not a long-term structural problem. This is a short-term problem."

Despite having to close a funding gap, the budget proposes no taxes or fee increases, and provides for 2-percent pay raises for teachers and school service personnel, and across-the-board $504 raises for state employees, at a total cost of $41.68 million.

Those raises were already built into the long-term state budget plan, which also calls for additional pay increases in 2016 and 2018.

However, the 2014-15 budget will require many state agencies to absorb another 7.5 percent spending cut, while Higher Education will have a 3.75 percent budget reduction.

Because public education, most Health and Human Resources' agencies, Corrections, Juvenile Services and certain other agencies are exempt from the spending cut, that amounts to an overall $69.9 million reduction in spending.

Kiss said the budget bill does not call for elimination of any programs or state offices, but said department heads may opt to make such cuts to comply with the spending reduction.

Meanwhile, a final round of reductions in business franchise and corporate net taxes will reduce state tax collections by about $39 million this budget year, Deputy Revenue Secretary Mark Muchow said.

Medicaid costs are a key reason for the growth in spending, with the state's share of the state-managed health-care program for the poor, elderly and disabled projected to increase by $87 million, to $662.76 million.

Kiss stressed that the increase is not driven by Medicaid expansion for low-income families or by the Affordable Care Act but because the state has to fund a higher percentage of Medicaid costs under a federal formula based on the state's per-capita income.

"Because of improvements in our economy, we are required to foot a higher percentage of the Medicaid bill," Kiss said, noting that the state's share of Medicaid costs has gone from 20 percent to 30 percent.

Tomblin proposes transferring $83.83 million out of the Rainy Day reserve fund to help cover the Medicaid increase.

That would mark the first time the state has tapped into the fund to close a budget gap. (It has used Rainy Day funds in the past to pay costs for natural-disaster recovery efforts.)

Kiss said he is hopeful the transfer will not set a precedent for future administrations to raid the fund, which currently has a balance of $918.33 million.

"We believe the Legislature will work with us," he said. "It could be a slippery slope if we're not careful. We intend to be vigilant."

Kiss said that if the Legislature adopts the austere budget this year, projections for continuing improvement in the state economy point to long-term budget surpluses, beginning in 2017.

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.