As revenue weakens, West Virginia faces shoring up pension funds after Wall Street losses

By Lawrence Messina, AP
Friday, January 8, 2010

Investment losses add to W.Va. budget woes

SOUTH CHARLESTON, W.Va. — Already grappling with recession-weakened revenues, West Virginia’s state government now must find an additional $145 million to shore up its pension funds, Manchin administration officials said Friday.

The Wall Street meltdown inflicted losses totaling around 16 percent on the invested assets of these programs, Budget Director Mike McKown said. The state had been counting on a 7.5 percent return.

“You’ve got a 23.5 percent gap in earnings,” McKown told reporters and editors during The Associated Press’ annual Legislative Lookahead conference. “The major driver of the fiscal year 2011 budget will be shoring up the retirement systems.”

The 2011 budget year begins July 1. Gov. Joe Manchin will present his proposed spending plan next week, when the Legislature starts its 60-day regular session. McKown and Legislative Director Jim Pitrolo said it reduces general revenue spending on education by 4 percent, and by 5 percent for most of the rest of state government.

This year’s budget totals around $11.5 billion, and includes $3.7 billion backed by general tax revenues. The recession prompted Manchin last month to cut the current budget, which is already more than $100 million smaller than the previous year’s.

The economy also plays a role in the reduced budget plan that Manchin will unveil next week.

“Right off the bat, we start off with $46 million less for fiscal year 2011 than we do (this year),” McKown said.

While noting annual increases that some public employees get automatically, McKown said the governor has ruled out pay raises. But Manchin does plan to increase spending on corrections facilities, including the state’s new day reporting centers meant as an alternative to prison, the two officials said.

McKown said $68 million left over from prior budget years should keep the upcoming spending plan balanced. West Virginia also still has funds from its share of the federal stimulus, Pitrolo noted, while adding that the state must obligate that money by September 2011.

“Most states went through this exercise several years ago. They’ve blown through what cash reserves they had,” McKown said. “West Virginia has not had to do that yet.”

The state’s official emergency reserves total around $581 million, McKown said, but the state hopes to save those for now. Despite signs of the recovery, McKown predicted gaps between spending needs and available general and lottery revenues that will equal 10 percent of those portions of the budget by the 2012-2013 year.

Pitrolo and McKown also said the administration expects flat revenues from the state lottery, which provides around $478 million toward this year’s budget. Most of that comes from video machines at West Virginia’s four racetracks. Besides the troubled economy, they face open or planned competing venues in neighboring Pennsylvania, Maryland and Ohio.

Pennsylvania’s governor signed a measure this week allowing table games at its slots casinos.

“Pennsylvania won’t be up fast enough to affect the entire year, but maybe part of it,” Pitrolo said.

The $145 million for pensions includes $89 million for the Teachers’ Retirement System. The annual budget already includes funds meant to close, gradually, a multibillion-dollar gap between its on-hand assets and promised benefits.

The state poured massive amounts of extra money into that system during the past several years. The system is considered one of the worst-funded public pension program in the country. Until Wall Street’s meltdown, those moves had allowed for set, annual payments meant to erase the shortfall over the next several decades.

McKown said the state’s investments have been gradually improving. The value of its portfolio increased by 14 percent between the July 1 start of the budget year and November, the latest month for figures from the state Investment Management Board.

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