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State’s operational finances are solid

December 17, 2010
Delegate John Doyle

Last week I attended the Fall Forum of the National Conference of State Legislatures. In the 48 hours I spent there I encountered dozens of people (legislators, legislative staff persons and representatives of businesses) who marveled that our state is currently showing a $121 million surplus for a projected $3.7 billion general revenue fund.

That figure stands as of Dec. 1, which represents five months of the 12-month current fiscal year which ends on June 30, 2011. Should that trend hold, we would end the fiscal year with a surplus of close to $290 million, which would be about 8 percent.

Most states are showing deficits over this period. A few are showing small surpluses (1 to 2 percent) and a couple have surpluses close to West Virginia's in percentage of general revenue. Only North Dakota shows a surplus higher in percentage of its general fund than our state.

There are two important reasons for this surplus. One is the performance of the coal industry and the other is careful budgeting.

Severance tax collections are running much higher than predicted, as are revenues from the Business and Occupation Tax paid by that industry. The Business and Occupation ("B&O") Tax is a tax on gross sales. Unlike the consumers' sales tax, which is paid by the purchaser (but collected by the merchant), the B&O Tax is paid by the business. This tax used to be levied by the state on all businesses, but is now levied only on extractive industries. Cities and towns can still levy such a tax on all businesses located within their borders.

Some presume that gambling revenues are a major reason for our current operational fiscal stability. While gambling revenues have increased considerably at the Charles Town Races, such revenues have declined at the other three racetrack/casinos in our state. Besides, gambling revenues don't show up in the general fund. All revenue from gambling is deposited in the State Lottery Fund.

The other reason for our state's strong tax collection performance is that we purposely budget cautiously. We would rather have a surplus at the end of a fiscal year than a deficit, so we are very careful. These days, most states are so stressed for revenue that they budget aggressively, hoping against hope that they are right. Many of these states face the prospect of midyear budget reductions.

Over two-thirds of the states have raised taxes in the past year. West Virginia is one of very few states that have actually reduced taxes.

Plus, our "rainy day" fund is one of the four or five soundest of the 50 states (measured as a percentage of general revenue). This strong rainy day fund is a large part of the reason for the three successive upgrades of West Virginia's bond rating recently. This has in turn resulted in great savings when we issue bonds, leaving more money in the general fund to do the things we need to do.

We are statutorily required to put half of any surplus at the end of the fiscal year into the rainy day fund. The other half can be used for any purpose we wish.

In the past few years most of that remaining surplus has been used to pay down our long-term, unfunded liabilities. That's appropriate, because on that count we are worse off than most states. We've made great progress in recent years paying down these liabilities, but we must continue to do so for at least a few more years.

Don't expect us to use this money for either public employee salary increases or for any tax reduction that is not already planned for. Surpluses are by definition "one-time," and should not therefore be used for any purpose that would require a permanent change in the budget.

And there is no guarantee that the financial performance we've seen in the first five months of this fiscal year will continue.



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