Just two years after changing it, lawmakers have taken another whack at the Rainy Day Fund formula.
But that change could lead to problems later on, according to one policy expert.
The Rainy Day Fund — West Virginia’s emergency fund — has been around since 1994. While it’s been used to cover acts of God and the occasional budget shortfall, the main point of the fund is to help the state secure better bond ratings.
Just like how paying bills on time and taking out the occasional loan can help an everyday person build good credit, these bond ratings are key to West Virginia being able to save money when paving roads, erecting bridges or laying pipes in the ground.
That means building up a healthy Rainy Day Fund, and right now, West Virginia’s stands at about $1.2 billion. For scale, that’s about 20% of the budget passed this year during the regular session.
The money for the fund has always been taken out of whatever is left on the table at the end of a financial year, which is June 30. In years past, the funding was calculated based on how much was spent that year.
But over the last few years, Gov. Jim Justice has repeatedly asked for a reformulation that would lead to less money being put into the fund, freeing up cash that could go into projects. Every time he’s pushed for a change, it’s passed the Senate but has died in the House.
That is, until this Monday, when the House of Delegates approved the change by a 53-40 vote, during a special session mainly focused on restoring funding cuts to social programs. The Senate had already voted unanimously for it.
The change recalculates the Rainy Day funding. Instead of basing it on actual spending, it bases it on the average of the approved budget over three years. But that budget lawmakers approve during the regular session never tells the full story — under the new formula, anytime the Legislature convenes for a special session to spend more tax dollars, that wouldn’t be counted in the Rainy Day formulation.
House Finance Chairman Vernon Criss, R-Wood, said he wasn’t sold on an attempt to change the formula last year when he let a similar measure die in his committee. However, this year it was part of the bargaining to restore social services funding. He said prior iterations of the bill based the Rainy Day funding on a seven-year rolling average, and a calculation based on only three years was more palatable for him.
“It’s a tighter number,” Criss said. “It’s part of the compromise process.”
But as the bill moved through the legislative process, not everyone was on board. House Minority Whip Marty Gearhart, R-Mercer, said he was concerned about how bond rating agencies would view another change to the formula in such a short time.
Del. Larry Rowe, D-Kanawha, said that he was concerned about putting less money into the Rainy Day Fund, because the state might need the money to cover potential budget shortfalls.
Other lawmakers, such as Del. Geoff Foster, R-Putnam, said they were in favor of reducing payments to the fund only if that money gets returned to the taxpayers, rather than being used on projects.
For Sean O’Leary, a budget analyst for the West Virginia Center on Budget and Policy, putting less money into Rainy Day could spell issues 10 or 20 years down the road. He said as the budget grows over time, less money in the fund could mean bond downgrades — which makes road projects more expensive and could make them take longer — or even affect how well the state responds to natural disasters.
While the bill ultimately passed, this might not be the last tweak to the Rainy Day Fund. Sen. Mike Oliverio, R-Monongalia, said he’s eyeing even more changes next year.
As it stands, the fund has two parts: Part A, which has little interest building on it but is meant to be tapped in case of emergency, and Part B, which is meant to never be touched but has higher rates of return. Oliverio said he wants to see money taken from Part A and rolled over into Part B each month — essentially like taking money from a savings account and putting it into the stock market.
The intention, he said, is to reduce the need for tax money going into the fund.
“Every dollar that we can earn in yield is $1 that we don’t have to tax our people,” Oliverio said. “So if we can grow our investment income, you don’t need as much from income tax, property tax and sales tax, the things that touch people.”