Earlier this month, state lawmakers met in Charleston for a special session mostly to allocate funding for budget needs that were shorted when they passed the state budget in March. Of 15 bills passed, 12 dealt with appropriations and state spending, with lawmakers continuing a troubling trend of using one-time surplus funds to pay for ongoing, base budget costs. Rather than creating certainty, many of their actions in May kicked the can down the road on some of the state’s most pressing needs.
During the special session, lawmakers appropriated additional funding to the Departments of Health and Human Services, the State Road Fund, a food bank fund, and the Hope Scholarship, among other allocations. Altogether, lawmakers have allocated about $506 million of the year-to-date $637 million surplus for FY 2024. The special session failed entirely to address longstanding economic and family well-being issues like funding for child care providers and families. And, as we’ve noted before, lawmakers are increasingly relying on one-time surplus allocations for ongoing, annual budget costs—which raises significant concerns for future budget solvency as the budgeting tactic masks true spending needs just as tax cuts and economic factors are making future surpluses less and less likely.
FY 2024 revenues are already down $724 million, or 13.3 percent, compared with this point last year, largely due to the collapse of severance tax collections and 2023’s personal income tax cuts. And in FY 2025, personal income tax revenues will be further reduced upwards of $200 million/year as property tax rebates and the exemption for Social Security benefits are phased in.
Several of the line items funded via one-time surplus dollars are for ongoing costs, which Senate Finance Chairman Eric Tarr noted during the regular legislative session. Among them include $30.6 million to the West Virginia Department of Education, of which $27 million goes to the Hope Scholarship—an ongoing and growing state budget cost. Ongoing annual budget needs of both the Department of Tourism and Public Defender Services have regularly been funded via surplus allocations in recent years. Additionally, surplus allocations to the former DHHR for contract nursing and crisis pregnancy centers have the “propensity to be a base [budget] item” according to Chairman Tarr.
The legislation receiving the most attention before and during the special session was SB 1001, which purported to close funding gaps in Medicaid and the Department of Health left when lawmakers passed the state budget in March. According to the WVCBP’s analysis, the enacted state budget left Medicaid with an estimated $150 million funding shortfall for FY 2025.
SB 1001 creates a reserve fund of $183 million, from which the Department of Human Services secretary can draw monies and move them into other Medicaid line items that were reduced in the final FY 2025 budget, including the I/DD waiver, the Traumatic Brain Injury Waiver, and Medical Services, among others.
But the final enacted legislation contains language amended in by the Senate stating that “any unexpended balance remaining in the Reserve as of March 31, 2025 shall revert to the unappropriated surplus balance of General Revenue.” This creates significant uncertainty as to whether the reserve funds will be available to close budget gaps at all because the agency, already funded with approximately 85 percent of their budget in each Medicaid-associated line item via the FY 2025 budget, likely wouldn’t need to transfer funds until the final quarter of FY 2025— at which point the monies would no longer be available because they will have reverted to the General Revenue Fund.
Speaking with reporters on Tuesday during the final hours of the special session, Senate leaders described this maneuver as a safety net in the event of a state revenue shortfall in the second half of FY 2025. According to Finance Chairman Tarr, “What we are doing right now is no different than when times were tight, and you had to be really conservative with that dollar because revenue might not be there. What this does is says alright, for the first six months of the fiscal year, every bit of that budget that was anticipated by the governor is available [to Human Services] if there happens to be a shortfall. But if there’s not then that money reappropriates to general revenue and we can look at it at in six months and see if we need to adjust those lines going forward.”
Essentially, this language creates a new funding cliff of March 31, 2025 ensuring that the next legislature and governor seated in 2025 will be the ones to determine if the Medicaid shortfall, including full funding of the I/DD waiver, will be closed in the new fiscal year.
In addition to utilizing one-time funds for ongoing budget needs and creating a new funding cliff for Medicaid, other bills also seemed to prioritize short-term solutions over longer-term budget solvency. SB 1015 changed the calculation for allocating funds into the state’s Rainy Day Fund, presumably to ensure that lawmakers would not have to put any of this year’s surplus into the fund. The legislation changed the calculation for allocations from being based on general revenue expenditures to the enacted and enrolled budget which, as discussed above, does not represent the state’s spending needs given the increasing reliance on passing flat budgets followed by surplus spending to meet ongoing needs.
While many states do have historically high balances in their Rainy Day Funds due to a stronger-than-expected bounceback from the pandemic and federal aid, reducing the state’s ability to weather a future recession—particularly to enact more tax cuts—is short-sighted, especially as economic conditions tighten.
Lawmakers repeatedly tell us that the budget can stay flat as a tradeoff for deep tax cuts primarily benefiting the wealthy. However, they are showing us over and over that a flat budget cannot meet our people’s needs by increasingly relying on surplus spending and short-term gimmicks to cover ongoing budget needs necessary to make programs and services whole.
