This week we got our first look at the House and Senate versions of the FY 2025 budget. Both the Senate and the House proposed budgets came in far below the governor’s proposed budget, even as the governor’s budget proposal is $450 million below pre-pandemic FY 2019 expenditures after adjusting for inflation. And while legislative leaders from both chambers blamed their ‘skinny’ budget proposals on uncertainty due to negotiations with the federal government about education spending, the state’s noncompliance came about due to underfunding public education and higher education in the state budget to begin with.
In 2023, West Virginia lawmakers passed significant income tax cuts, which were justified by revenue surpluses that were driven by temporary factors and years of flat state budgets. But lawmakers were primarily able to maintain those flat budgets thanks to significant federal dollars coming into the state via COVID-relief funds. That increased federal funding for Medicaid, public education, and child care, to name a few examples. In each of those cases, lawmakers were able to hold flat or even reduce state spending for those programs, effectively using federal COVID dollars to supplant state funds.
That seems to be the basis for the current clawback threat the state is reportedly facing with the United States Department of Education (USDE). As with many other federal programs, the COVID-era ESSER funding in the American Rescue Plan (ARP) required states to comply with a Maintenance of Effort (MOE) provision. That meant that in FYs 2022 and 2023, West Virginia had to maintain state funding for elementary and secondary education and higher education at proportional levels to that which they provided in pre-pandemic years.
West Virginia requested and received a waiver from the MOE provisions in FY 2022 on the basis of declining student enrollment being behind the reduction in state spending. But in FY 2023, the state’s education spending declined significantly as a share of the state’s overall budget expenditures, leaving the state even further out of compliance with the MOE requirement and creating the current situation where the state must negotiate with the USDE to either increase education spending or return federal dollars.
Continuing in the wrong direction, both the House and Senate budgets reduce spending for public education relative to the governor’s proposed budget. The Senate does so by failing to include the funding needed for public employee pay raises, while the House budget does not include the governor’s proposed School Building Authority expenditure.
And while administration officials have insisted that the school aid funding formula dictates education expenditures, West Virginia could do plenty to increase funding for public education in a way that helps our students and meets compliance requirements. The state currently spends $1,300 less in per pupil funding on public education than the national average and less than most of our neighboring states. Additionally, the state has several school districts that lack a single social worker or school psychologist, critical support staff as school officials say they are struggling with increasing behavioral issues.
Another area where the state used temporary federal funds to supplant state dollars was in Medicaid. We’ve highlighted in great detail how the increased federal match for Medicaid during the COVID era allowed the state to reduce its base budget spending for Medicaid. That, in part, helped keep the budget flat, which was used to justify permanent income tax cuts. Now, as the federal match for Medicaid has returned to normal, some lawmakers are balking at returning to the state’s pre-pandemic share of Medicaid, even as they acknowledged that reality as recently as last year.
While the governor’s proposed budget fully funds the Medicaid program at current levels, the Senate version come in tens of millions of dollars short of what the agency and governor have said they need to operate in FY 2025. Because Medicaid is a matching program, failing to allocate those state dollars would have an exponential impact in the loss of federal Medicaid funds as a result.
It should be noted that, while the governor’s budget does fully fund Medicaid, it does so by allocating $40.6 million of FY 2024 revenue surplus to the program. Because that $40 million represents an annual cost rather than a one-time cost, it would be far preferable to place it in the base budget.
Blaming ‘uncertainty’ around the ESSER funding as an excuse to underfund the state budget and, with it, the programs and services that West Virginians rely on would be morally and strategically wrong. The uncertainty with our budget is not caused by federal officials or COVID-era spending guidelines, but by the 2023 tax law that created perennial budget uncertainty by instituting annual automatic triggers that could reduce revenues mid-year- even as spending needs emerge. That is likely the real reason we’ve seen both the House and Senate pass budgets over $200 million below the revenue estimate, as we predicted might happen.
This week, the governor’s chief of staff, Brian Abraham, said that it would be a “misnomer” to say we can’t spend any money because of the possibility of a federal clawback and that “the answer” is to approve the spending the governor proposed. In this case, we are inclined to agree. Rather than facing clawbacks to federal money, the legislature should pass a budget that increases funding for and adequately supports our public education and health care systems—not only to be in compliance with federal requirements but also because it’s the right thing to do for our people and our economy. Lawmakers should also repeal the triggers that will create annual uncertainty like this, while continuing to inhibit important spending needs in public education, child care, and health care.
