From the Greenbrier to the governor’s mansion, Jim Justice has spread the word about the state’s $1.8 billion surplus this year. But there’s another $1 billion just laying around, too.
It’s called the Rainy Day Fund. In plain English, it’s West Virginia’s emergency fund — the proverbial “oh crap” account.
Just like how everyday people squirrel away a little bit of cash to cover a blown tire or a burnt out refrigerator, the state has done the same since the mid-1990s.
And in recent years, Justice has wanted to rejigger how much cash the state sets back for when the times get lean and mean.
What is the Rainy Day Fund?
The Rainy Day Fund is a savings account — as former Governor Earl Ray Tomblin put it in an interview, “it’s a nest egg at a bigger scale.”
The idea for the fund came about in the early 1990s when Tomblin was head of the Senate Finance Committee. He and his counterpart in the House of Delegates, Bob Kiss, would go up to New York each year to visit with the bond rating agencies on Wall Street.
“They just mentioned something about a Rainy Day Fund — they didn’t really push it or anything, they just mentioned it might be a good idea,” Tomblin said.
So when the state saw a surplus in 1994, Tomblin said he called Kiss.
“I said, ‘Bob, I think we ought to take a little bit of this and put it into a Rainy Day Fund’,” Tomblin said.
To understand the Rainy Day Fund, one has to understand what a “revenue surplus” is.
Each year, the governor comes up with a number for how much tax money his administration expects to collect. In times where the taxes come in over what the governor figured, that’s called a revenue surplus.
In 2022, West Virginia had a surplus of $1.8 billion, the largest ever, based largely on the fickle severance tax, which goes up and down with the coal and natural gas markets.
The Rainy Day Fund law works like this: Lawmakers take half the revenue surplus, then sock it away until the fund equals a target percentage based on how much the government spent the prior year.
In the original bill, that target number was set at 5%, but over the years lawmakers have fiddled with it. By 2022, that number was pegged at around 10%.
For example, if the government collects an additional $600 million in taxes above expected, they would take $300 million and put away enough to match 10% of the last year’s budget. Once the money’s matched, any remaining money goes back into the general spending pot.
When the tobacco settlement came in the 2000s, Tomblin said a good chunk of that money was used to create a second fund, called Rainy Day Part B.
Without getting too far into the weeds, that fund is purely for investment and can only be tapped if the original Rainy Day Fund created in the 1990s runs out of money.
From 2010 to 2023, the two funds put together have grown from $556 million to $943 million.
With state budgets in the neighborhood of between $4.5 and $5 billion each year, that’s a lot of coin to stack up. But it’s not sitting in a shoebox under the governor’s bed.
When has West Virginia used the fund? What is a rainy day?
Two years after establishing the fund, lawmakers had to figure out just what “a rainy day” is. They passed a law allowing the fund to be tapped to cover acts of God, budget shortfalls and anything else the Legislature saw fit.
With the new power to use the Rainy Day Fund, the West Virginia Legislature spent millions of dollars on flood relief in 1996. Twenty years later, they would use it again for the flood of 2016. As of 2023, about $225 million has been used on floods, snow removal, droughts and infrastructure assistance.
But as fate would have it, the first governor to tap the fund to balance the budget was the architect of it himself — Earl Ray Tomblin.
A litany of factors played into why the state came up short during the 2010s — Tomblin said coal was in a death spiral, which led to unemployment, which took a hit on the income tax. He also added the severance tax — which is the tax on the extraction of natural resources like gas and coal — took a hit too.
“Over those years, we had to rely on the Rainy Day Fund to keep from cutting programs when we had a bad year,” he said. “It used to be if times were tough, you’d swing the ax and cut the budget wherever it landed.”
And even with the funds, lawmakers still hacked away at the budget, including cuts to higher education and the Department of Health and Human Resources.
During the lean years from 2014 to 2017, about $330 million was used from the fund to fill in the gaps.
Since 2017, lawmakers haven’t tapped the fund.
What was Gov. Justice trying to change with the Rainy Day Fund?
In years’ past, all the money calculated for the Rainy Day Fund was put into the original fund.
But in 2022, the Legislature radically changed the formula. They combined the original Rainy Day Fund with the tobacco settlement account for one whole target number. Instead of plopping enough to equal 10% of the prior year’s budget into the original account, the target percentage was set at 20% of last year’s spending, to be shared by both accounts.
But at the same time, Gov. Jim Justice has repeatedly pushed for a different change — one he so far hasn’t gotten lawmakers to go along with.
He wants the calculation to be based on the amount in the “enrolled budget” — the base budget the Legislature passes in the spring.
That “enrolled budget” usually doesn’t match up with what the government actually spends — in some years, they might have to cut back, in others they might have extra dough to spend on the list of decaying infrastructure, like roads, jails and schools.
On top of that, Justice wanted to base the target percentage off an average of the last seven years’ worth of budgets. So over time, the number required to meet the target percentage would even out, rather than rise and fall from year to year.
Think of it like a home budget — a person might have their mortgage or rent, utilities, grocery and gas. But something might come up — a blown tire — and all of the sudden there’s a need to spend a little more that month. If times are tough, you might skip eating out to keep a few bucks back for later.
Unlike a home budget, where you have to account for the price hikes from the utility companies and the fickle fluctuation of gas, Justice’s plan would’ve allowed lawmakers to not take into account the soaring costs.
Under the proposed change, the government would put significantly less money into the Rainy Day Fund.
For the 2022-23 financial year, that change would have resulted in $144 million less going into the Rainy Day Fund.
This is the same formula he pushed in 2022 when lawmakers made the original change, and asked lawmakers to consider it again during a special session in August to pass funding for jails and prisons. It passed the Senate without much of a hassle, but when it got to the House Finance Committee, it died.
Del. Vernon Criss, R-Wood, chair of the House Finance Committee said he and his fellow Republicans weren’t about to change the formula again.
“I was adamant and firm in holding my ground that the Rainy Day formula should remain the same, because I believe we need to take a more cautious approach in this economy,” he said.
Criss also said he was concerned with how the bond rating agencies would view yet another sudden change in the formula after lawmakers had already changed it the year before.
What’s the point of the Rainy Day Fund if the roads are bad, the jails are in disrepair and people are going without?
There’s nearly $1 billion in West Virginia’s Rainy Day Fund. It’s not enough to fix all of the state’s problems but it could be used to make a start, said Sean O’Leary, senior policy analyst at the West Virginia Center on Budget and Policy.
“If we’re facing crisis after crisis, it would seem like we could use that money to help get things going,” he said.
But O’Leary did note the money isn’t just sitting there — keeping that amount on hand helps with bond ratings, which makes it easier for the state to get construction bonds for roads and schools.
O’Leary said the Justice-era policy of running a flat budget — where funding for state agencies is not adjusted for inflation — means the state government will have some type of a surplus to work with, even if it’s harder for agencies to meet rising costs and get their jobs done.
Criss said the surpluses in recent years, along with federal aid from the pandemic, means the state government can address long-overdue projects.
“Right now, we’re keeping good surpluses and we’re able to use those surpluses for one-time expenses, like highways and state parks,” Criss said.
However, the tax cut passed earlier this year could add a new issue to the rub — if certain revenue thresholds are met, that could trigger an additional cut to the income tax, until it is eliminated.
If that happens, then the government will have to find ways to cover the shortfall — and one of those ways is by once again raiding the Rainy Day Fund.
“Right now, we’re running really lean,” O’Leary said.
But Criss said the gradual phase out of the income tax means the state won’t take a hit all at once in its biggest revenue source.
“We have to gradually phase it out, just like we did the food tax— by the time that was phased out, we never missed it,” Criss said.
Criss said with the surpluses, he doesn’t anticipate the state needing to dip into the Rainy Day Fund to make ends meet.