June 13, 2012

W.Va. finances among best in U.S.; $850 million in Rainy Day fund | Charleston Gazette

West Virginia is faring better than many states financially, according to a report released Tuesday.

The state will finish the 2011-12 budget year June 30 with $850 million in its Rainy Day surplus funds — the fifth-largest such fund by dollar amount in the U.S., and third largest as a percentage of the state’s operating budget, at 20 percent.

The fund is projected to grow to $900 million, or 21.4 percent of the annual budget, by June 2013, according to the Spring 2012 Fiscal Survey of States.

“I could name more than a few states I wouldn’t want to be right now, starting with California and Illinois,” state Budget Director Mike McKown said of the survey, published by the National Governors Association and the National Association of State Budget Officers.

According to the survey, California will be one of 12 states with no revenue in its Rainy Day fund. In fact, the report shows that the state will finish the fiscal year with a $1.7 billion deficit in its surplus fund.

Other states that have emptied out their funds — intended to fund the states in event of natural disasters or major emergencies — in order to balance their budgets are Alabama, Arizona, Arkansas, Connecticut, Idaho, Montana, New Jersey, Oklahoma, Pennsylvania and Wisconsin. Kansas does not have a Rainy Day fund.

West Virginia is one of 10 states that have Rainy Day funds equal to 10 percent or more of the state’s operating budget, as recommended by financial analysts.

West Virginia also was the only state to cut taxes in 2012, amounting to an $11 million reduction in sales taxes and a $22 million reduction in corporate taxes, according to the survey.

It will be one of a handful of states to continue to cut taxes in the 2013-14 budget, with an additional 1 percent reduction in the sales tax on food and continued reductions in state corporate net and business franchise taxes, providing an additional $58 million of tax relief in the 2013-14 budget year.

That’s in contrast to national trends, according to the survey, as states will impose $6.74 billion of new taxes in the new budget year, led by California, which has proposed a half-cent increase in its sales tax to raise $1.17 billion, and will increase personal income tax rates by $3.5 billion.

During a conference call Tuesday, the authors of the survey — Dan Crippen, executive director of the NGA, and Scott Pattison, executive director of the NASBO — said that overall, state finances are slowly recovering from the recession of 2009-10, but with new budget threats on the horizon.

“It’s a interesting report,” Pattison said. “It demonstrates some improvement, and certainly tepid growth, which is probably not a surprise to people, given the rate of growth in the economy.” 

Overall nationally, state revenues from taxes and fees grew by 3.3 percent in 2011-12 budget year, and are projected to grow by 2.2 percent in the coming budget year. Meanwhile, states’ spending has been growing at an overall rate of 2 percent a year. 

“It’s a sign that governors are being cautious fiscally,” Pattison said. 

In 2012, only eight states had to make midyear budget cuts, totaling $1.7 billion, compared to 39 states in 2010 and 43 states at the height of the recession in the 2009 budget year — a sign the economy is improving, he said. 

However in 2012, 15 states laid off employees, six imposed salary reductions, 12 reduced employee benefits, and 15 made across-the-board cuts, according to the survey. 

“We haven’t had to lay anybody off. We haven’t cut anyone’s salary,” McKown noted. “In the 2012 budget, we actually gave pay raises.” As states recover from the recession, they will face new financial obstacles, led by steep increases in costs for Medicaid, the healthcare plan for low-income residents, the survey notes. Nationally, Medicaid enrollment jumped 5.1 percent and costs increased nearly 11 percent in fiscal 2011, as more people became eligible for the benefit as a result of the recession. 

“At this point in the recovery, we would expect to see Medicaid costs declining,” Crippen said. However, that hasn’t occurred nationally, as the long-term unemployed and discouraged workers have stayed on Medicaid rolls, he said. 

“The caseloads are not dropping off as we would expect at this point,” Crippen said. 

If the U.S. Supreme Court upholds the Affordable Care Act, Medicaid eligibility will expand to cover persons with incomes up to 133 percent of the federal poverty level beginning in 2014, making about 15 million additional Americans eligible for the coverage, he said. 

Other pending constraints on state budgets include likely federal spending cuts and requests for increased funding from local governments to offset reduced property tax collections. 

“From the bottom and the top, states are being squeezed,” Pattison said.

By:  Phil Kabler