Tag Archives: West Virginia

Rainy Day, Go Away

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.

Pension Crisis Continues

The Financial Times writes:

The 2,600 [American state and local government] pension plans provide retirement savings for 22m public employees in towns and cities across the US, and range in size from the giant Calpers, with $120bn (€91bn, £81bn) in assets, to tiny small town funds which pay pensions for local garbage collectors and police.

[…]

State pension benefits are protected by law, and must be paid even if the fund is making a loss. Calpers, the largest fund, has lost $70bn in value in the past eight months, but still has to pay $11bn in benefits this year. Unless the fund starts recouping its losses soon, the California state government, which is already mired in a huge deficit, will have to lift contributions to Calpers starting from next year.

The FT goes on to note that US pension plans are in worse shape than those in Europe.

This is because American pension funds are more underfunded. That gets back to policy decisions made over the years. Couple that with the worst economic downturn in decades, and policy makers are left with tough choices: cut benefits, increase the size of contributions, or merge plans.

Places with pension funds that are less than 50 percent funded include Philadelphia, West Virginia, Pittsburg, Providence, Little Rock, Jersey City, Wilmington, Deleware, and Atlanta.