Analyst: Future Fund Will Need Miracle to Grow
WHEELING – West Virginia’s newly created Future Fund could still be sitting empty five years from now unless the state finds a way to grow its Rainy Day Fund by about $126 million by then, according to West Virginia Center on Budget and Policy Executive Director Ted Boettner.
During the final days of the Legislature’s regular session, the House of Delegates attached a number of conditions to state Senate President Jeff Kessler’s Future Fund bill that will make it difficult to invest any money in it for the forseeable future. It’s all but certain nothing will flow into the fund during the next fiscal year, as one House constraint – dipping into the state’s $922 million Rainy Day Fund in order to balance the budget – is likely to be met within days when the Legislature passes the fiscal year 2015 budget.
Another trigger – forbidding deposits into the Future Fund unless the state’s main Rainy Day Fund contains at least 13 percent of the general fund budget – likely will have longer-lasting effects, according to Boettner.
The $922 million Rainy Day Fund is actually two separate accounts. There is the main fund, or “Rainy Day Fund A,” which stands at $559 million – barely enough to meet the 13 percent threshold – with the rest sitting in “Part B,” an account that may only be tapped when the main fund is totally depleted.
According to Boettner, Rainy Day Fund A would have to grow to $615 million in 2016, $647 million in 2017, $667 million by 2018 and $685 million by 2019 in order to remain at 13 percent of the projected general fund budget amounts for those years. Assuming the Legislature takes between $84 million and $125 million out of the Rainy Day Fund to balance next year’s budget, as has been proposed, the state would need an unrealistic scenario to unfold – a $110 million budget surplus by the end of next year – to bring Rainy Day Fund A back up to 13 percent of the budget, he predicted.
“The only foreseeable way this could change is a boom in shale development beyond what is baked into future budgets or some other type of economic miracle,” Boettner said.
Boettner said ways around the situation include combining the two reserve funds into a single account, enabling them to more easily meet the 13-percent threshold, or by simply changing the Future Fund law to include Rainy Day Fund B. But the surest way to get money into the Future Fund, he said, is to raise enough revenue to prevent future raids of the Rainy Day Fund – perhaps by raising the state’s cigarette tax, which is the nation’s seventh-lowest.
According to the State Tax and Revenue Department, a $1 increase in West Virginia’s 55-cent-per-pack cigarette tax would have generated an additional $137 million per year to the general fund by Fiscal Year 2017, but the bill never made it out of committee.
“Without this action, it doesn’t look likely anything will ever flow into the Future Fund,” Boettner said.
Another revenue-generating measure – raising the state sales tax from 6 percent to 7 percent – also died in committee during this year’s session. That would have provided more than $200 million in additional revenue each year, Revenue Secretary Mark Muchow said.