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From Governing’s West Virginia
West Virginia is haunted by its fiscal past. Today’s impressive efforts to get financial management in line are weighted under by more than $9 billion in accrued liabilities from the state’s pension and workers’ compensation funds. Compare that to a general fund budget of about $3 billion, 55 percent of which goes to education, and you can grasp the magnitude of the problem. True, “the hole isn’t getting any deeper,” says Budget Director Roger Smith. But it’s sure deep enough to make progress on other fronts an uphill battle. 
In fact, more than 11 percent of the state’s revenues are now spent annually on the $6 billion-plus pension liability. At the end of last fiscal year, some financial advisers wanted to bond out a large portion of this debt. But the state’s auditor and treasurer successfully fought the move in court, on the grounds that West Virginia’s constitution requires any debt to be approved by voters. There also was a debate over whether this was good financial policy to begin with. “If you can borrow your way out of debt, we’d all do it,” says the auditor, Glen B. Gainer III. How did West Virginia get into this mess? As former tax secretary Robin Capehart explains, the state for years was conservative about giving its employees raises and instead rewarded them essentially with pension commitments — IOUs they could collect in their retirement years. Now, as the population ages, the bill is coming due. Businesses were never required to fund workers’ comp properly, and asking them to do it now would bankrupt some of them. The state is trying to partner with companies to make workers’ comp solvent on a gradual basis. But it won’t be easy, and it threatens to undermine the state’s efforts at economic development. “It’s hard to be profitable when all of a corporation’s profits are going into workers’ comp,” says state Comptroller Andrew Fizer.
With all this taking place, it’s easy to ignore the positive efforts being made in West Virginia. The state has one of the best revenue estimating operations in the country. Controls over spending have been very successful; in fact, the budget ran a $54 million unappropriated surplus last year and projects a $191 million surplus for fiscal year 2005. The state plans to use much of that money to pay off a small portion of the accrued liabilities. Financial reporting is exemplary. The state has maintained a rainy-day fund, and even made some significant progress in its cash management. The one thrust at solid financial control that may have gone a bit too far is the set of procedures aimed at protecting the state from future contracting scandals. There are so many layers of contract oversight — especially in the Attorney General’s Office — that it can take forever to get anything done. At the bottom of most of the state’s difficulties is money — not will or intelligence. West Virginia’s financial condition creates problems all across the spectrum of government. Agencies complain that they don’t have the personnel data they need to do adequate workforce planning. And though the tax department has finally been given some money to upgrade its technological capacity, it “has been underfunded for a long time,” says Fizer. “And that’s stupid, because it’s the state’s lifeblood.” Sometimes it just seems the deck is stacked against West Virginia. It’s one of only four states, for example, that have complete responsibility for all roads other than city streets, and as a result, about 37,000 miles of road are on the books. For the vast majority, transportation officials can’t place a dollar amount on their maintenance needs — except that they know there’s a lot of work out there. “There isn’t enough money,” says one transportation official. “We’re still trying to fund the Appalachian Highway System, which was approved in 1966.”
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