WVLEG: W.Va. Budget Grows by 2.8 Percent

By westvirginia on January 14, 2011

By STEVEN ALLEN ADAMS
steven@westvirginiawatchdog.org

West Virginia’s annual budget increased by 2.8 percent, from $4.2 billion in FY2011 to $4.3 billion in FY2012. It’s a $119 million increase, all the while Acting Gov. Earl Ray Tomblin wants a 1 cent decrease in the food tax and one-time salary enhancements for teachers and service personnel.

Member of the media sat down Wednesday prior to the State of the State with Mike McKown, director of the State Budget Office, to walk through the budget line-by-line.

“West Virginia has weathered the Great Recession better than most,” McKown said. “We’re in a very good financial position to address all the financial needs coming up in this budget. All this didn’t occur by accident, we’ve been planning for this.”

McKown noted that there were no layoffs or furloughs with no borrowing of money to pay bills. The state’s Rainy Day fund is flush with $632.9 million, and the state received two upticks in its bond ratings. McKown added that the state has made its retirement system payments, and thanks to good investments can now decrease what it pays into the Teachers Retirement System.

The state will decrease its payment into the TRS from $470 million in FY2011 to $453 million, a 3.77 percent decrease. The state TRS has a $4.1 billion unfunded liability and is funded at 50 percent. The state last year saw investment gains greater than 7.5 percent, which allows the state to put less in for FY2012.

“The state over the last several years has put huge amounts of money into that system so that we’re now at the point that has flat-lined and there is sufficient cash in the Teachers Retirement System so if they have a good year and meet their benchmark the state puts less money into the pension system,” said Rob Alsop, chief of staff to Acting Gov. Tomblin.

“Those are huge unfunded liabilities that back in the 70s and 80s when we should have been making these actuarial payments they just weren’t made,” McKown said. “We’re making all those payments on time and as they should be made.”

While decreasing its TRS payments, the state is increasing its Public Employee Retirement System employer match from 12.5 percent to 14.5 percent, an increase of $8 million over last year.

“Under normal circumstances, since we earned more that 7.5 percent in investments, that number would have gone down just like the Teachers Retirement System did,” McKown said. “Last year we smoothed the PERS contribution. We would have had to go from 11.5 percent employer match to a 17 percent match. We decided to phase that in over four years.”

Teachers and state employees will receive one-time salary enhancements. Teachers hired within the School Funding Formula would receive $800, service personnel would receive $500, and higher education and all other state employees would receive a 2 percent bump with a minimum of $500. The state has set aside $47 million for these enhancements.

Tomblin proposed a new loan forgiveness program to encourage teachers to fill math and science positions. The Teachers Shortage Incentive Pay program would cost $5.7 million. Public education would see a $6.8 million decrease thanks to increased federal funding. The School Funding Formula will grow by $18 million in FY2012, mostly due to decreases in local property taxes, requiring the state to kick in more funding.

Tomblin also proposed a 1 percent decrease in the state food tax from 3 percent to 2 percent. If passed, the tax decrease would occur in the middle of the year, cutting $11 million, then $26 million each year after.

The state is putting aside no extra monies for Medicaid, only putting away $370 million, which the federal government matches to the tune of $2 billion. Between now and 2014 Medicaid costs are expected to increase from $370 million to 640 million.

“All the outyear costs are going to be driven by Medicaid,” said McKown. “Free health care is not free.”

The state’s general revenue fund peaked at over $3.9 billion in FY2008, but projected to drop to a low of $3.7 billion in FY2011, peaking again around $3.9 billion in FY2012. The dip in revenue corresponds with the national recession. The state has also had to rely less on lottery and excess lottery revenue.

“Lottery has been growing tremendously over the last few years, but that will certainly…start to flatten out,” McKown said. “Due to competition from other states we’re not relying on any more growth in our lottery.”

Education will receive nearly half of the 2012 recommended appropriations at 48.4 percent, or $2.1 billion. Health and Human Resources would receive 18.3 percent and higher education would receive 11.4 percent. Military Affairs and Public Saftey would received 8.2 percent, leaving about seven agencies and the legislative and judicial branches fighting over 10 percent.