What’s wrong and why—and what we’re doing to fix it.
written by Shay Maunz
What’s the problem? The problem is there are too many problems. The state is bringing in less in taxes lately, mainly because of the decline in coal and increasing competition facing the gambling industry. Plus, there’s the problem with Medicaid—as West Virginia’s per capita income has improved relative to the rest of the country’s, the amount of money we get from the federal government to fund that program has decreased, per the formula that determines such things, leaving us to foot a bigger portion of the bill. Projections show the Medicaid problem should dissipate in a few years, but for now it’s costing the state a lot.
OK, give me the numbers. Let’s begin at the beginning—the end of the 2013 fiscal year. That year the state took in $90 million less in revenue than it was expected to and than we’d planned on when we built that year’s budget. That’s bad, because we have to have a balanced budget at the end of the year—the state constitution says so. The Legislature and the governor made some cuts and did some shifting, though, and we came out with a balanced budget sheet at the end of 2013.
Then came 2014. The governor’s office estimated the state would bring in around $4.13 billion that fiscal year and again those revenue estimates were off. At first it looked like we would end the year with $60 million less in our purse than we thought we would; now estimates are for a shortfall of as much as $120 million. We started to realize it was looking bad around the middle of the fiscal year—sometime in December 2013—and the governor issued a hiring freeze to do some damage control, along with an executive order that cut the budgets of all the agencies funded through our general revenue fund; that means things like higher education and the public safety department all had to deal with a 7 percent cut. But we’re still slated to end the fiscal year in the hole if we don’t do something to make up the gap.
That brings us to 2015. The governor set his revenue estimate for the year at $3,271,251,000. That’s not much compared to previous years and to what state agencies and the public are used to—but it’s how much his office thinks the state will bring in this year. The governor and Legislature were tasked with making sure the state doesn’t spend more than that. That means coming up with some $53.5 million in savings. Add that to the $120 million we were still short for 2014, and it was quite a budget gap to fill.
So how did they do that? There are really only two options when you’re balancing a budget: either you bring more money in, or you send less money out.
So . . . Yeah, it’s never quite that simple.
When Governor Earl Ray Tomblin pitched his version of the 2015 budget January 2014, he proposed five bills that could, together, come up with that $53 million to balance the budget. Three of them hit roadblocks in the Legislature. Two made it through. But those two bills on their own couldn’t do nearly enough; all five had to be passed to make up for the shortfall, so that still left us short. There were other bills geared toward saving money this year, but none could raise enough to completely solve the problem.
On the increasing revenue side of things—that’s politician speak for raising taxes—some lawmakers saw a glimmer of hope in two bills introduced this session: one to increase the sales tax on tobacco products from 55 cents to $1.55, another to impose a two-year, 1 percent increase on the sales tax. Both of these bills, on their own, would have raised enough money to fill the state’s budget gap completely, but neither could survive the legislative session. Nobody wants to raise taxes, especially in an election year. But that’s a topic for another issue.
Really? No other options? OK, one more—the Rainy Day Fund. That’s the state’s savings account, where we stash half our extra money whenever we have a budget surplus. Before this it had around $915 million in it, available for emergencies like natural disasters or, some would argue, to fill a big budget gap like this one. The Rainy Day Fund was started to provide a cushion for the state in bad fiscal times—and these are bad fiscal times.
Whew, that’s lucky. So what’s wrong with that? Maybe nothing, maybe a lot. Our bond rating depends on the amount of money we have in that account, and we don’t know exactly how much we can remove without jeopardizing our ability to borrow money down the road. Also, this is the first time the state has ever used the Rainy Day Fund for anything other than a natural disaster. Some people worry it’s a slippery slope—that this will tempt lawmakers to dip into the emergency account for pet projects later on. Like Roman Prezioso, chairman of the Senate Finance Committee, says, “Anyone can say it’s raining on their parade.”
OK, sure. But that fixed it, right? For this year, yes. Now we keep our fingers crossed that the budget estimates aren’t wrong again, and that next year is
a little less rainy. The Rainy Day Fund can’t take many more hits like this one.
So how do we keep it from happening again? Prezioso has a whiteboard in his office with a dozen pieces of paper taped to it. On them is an outline of the state’s budget issues—the things we know, things we don’t know, options we have and don’t have. “I stand here and just look at it all the time,” he says. “Just running different scenarios and options, and I can’t solve it.” The budget is complicated and affects practically everything the state does, and it’s hard to make meaningful changes to it, especially when things are tight. Prezioso freely admits a lot of what they’re doing this year will just patch the budget for the time being—but he predicts more drastic measures are to come. “Next year will be the heavy lifting year,” he says. “That will be the year we’re going to have to either raise some taxes or make some other decisions. It will be after an election year, so maybe it will be a lot easier.”
Ted Boettner, executive director of the West Virginia Center on Budget and Policy, a Charleston-based policy organization that advocates for budget reform, sees another way. He thinks the executive branch has too much power in the budget process in West Virginia—he wants the Legislature to have a hand in setting revenue estimates, for example. And he wants lawmakers and the public to have more of a crisis mentality about our budget situation. “Once you cut taxes like we’ve done in recent years you usually never get them back without a crisis,” he says. “Here we are, the Legislature and the governor are searching in a dozen ways to balance the budget this year, using all of these mechanisms to try to avoid our revenue problem. Well, I don’t think we have a temporary problem—we need to do more to fix it.”