The West Virginia State Legislature, faced with the prospect of a soon-to-be-bankrupt unemployment compensation fund, is preparing to raise taxes on businesses and workers to cover the funds anticipated expenses.
Opponents of the move would rather tap a portion of the state’s $460 million Rainy Day Fund (RDF) than burden employers in such hard economic times. But according to Governor Joe Manchin’s spokesman, “he’s very cautious” about accessing the RDF, and “looking further down the road, not just this year.”
Meanwhile, in Syracuse, New York, Mayor Matt Driscoll has elected to hold the line on taxes, while maintaining all city services. To cover the projected $25 million budget gap, the city will instead utilize a portion of its RDF.
While these two cases are very distinct, they do illustrate some of the budgetary challenges that state and local policy makers face with respect to use of reserve funds. The terms under which a government can tap its RDF vary by law, but generally the idea is that such reserves should only be used in times of “emergency.” Deciding what constitutes an “emergency” is, of course, a very subjective and politically messy calculation. One man’s drizzle is another man’s downpour, and much like the weather, economic conditions can be tough to forecast.
Only time will tell whether or not Gov. Manchin or Mayor Driscoll have made the right decisions, in terms of accessing their respective RDFs. Is the former being overly cautious, or the latter overzealous? Because the local economic climates of West Virginia and Upstate New York are unique, it’s possible that they’ve both adopted the correct approach. One thing’s for sure – to the extent that setting up an RDF is a prudent budgetary step for state and local governments, politicians and the general public would probably benefit from clearer guidance as to when the money can be appropriately accessed.