By Stephen Smoot
For 16 years, an organization called Truth in Accounting has released rankings of state fiscal health in its Financial State of the State Report.
It revealed that the financial condition of West Virginia is far better than that of the states collectively. While the Mountain State placed 15th in the nation, 25 states, including the most populous and wealthy, lacked the funds to pay state government obligations.
“At the close of fiscal year 2024,” the report stated “25 states were unable to cover all of their financial obligations.” It went on to explain that “in most states, the law requires a balanced budget” but some states used accounting tricks and “excluded certain costs from their budget calculations” to satisfy the letter, but not the spirit, of those laws.
“This practice essentially shifts these financial responsibilities onto future taxpayers, leaving them to cover the expenses that should have been accounted for in the current budget,” it also shared.
Even with the more stringent analysis, West Virginia showed a healthy fiscal condition in terms of the state’s ability to meet obligations. Truth in Accounting explained that “West Virginia made progress in (fiscal year) 2024, improving its financial condition.” The report based these findings on “reported revenues exceeded its expenses and its pension debt decreased.”
The report also described potential headwinds that could hurt the state’s results in coming years, sharing that “the state experienced a decline in total revenues, primarily due to a $1.8 billion reduction in operating grants” mostly from the termination of American Rescue Plan Act funding.
State and local governments that emerged from the end of ARPA funding in financial trouble often used those funds for ongoing, rather than one-time, expenses. Most of the ongoing costs came from adding personnel positions. When the end of ARPA arrived, this formed a “fiscal cliff” where the obligations added during funding could no longer be met.
When Governor Patrick Morrisey came into office he raised the alarm of potential budgetary issues and immediately worked to contract state government, especially in areas where it expanded under his predecessor.
The Truth in Accounting report confirmed the potential for future trouble, stating that “this analysis models a return to 2019 federal grants and contributions increased only by inflation. If so, West Virginia could see a $1.3 billion reduction in federal funding, representing around seven percent of projected expenses for the state’s primary government.”
Overall, the state of West Virginia received $14.7 billion in revenues and paid out $11.9 billion in obligations, resulting in a solid, but not overly sizeable $2.8 billion surplus, around $5,400 per taxpayer.
This earned West Virginia a grade of B.
With Morrisey focused on competition with state neighbors, this ranking showed that only the Old Dominion outstripped the Mountain State in fiscal health, earning 12th place with a per capita surplus of $6,800 per taxpayer.
The rest of West Virginia’s bordering states joined the 25 states unable to meet their obligations. Ohio ranked 28 with a per capita shared deficit burden of $1,300. Pennsylvania ranked 40 at $9,400, Maryland 41 at $11,100, and Kentucky 42 at $11,500.
One of the main issues facing states ranked lower lay in having a “pay as you go” philosophy with pension obligations. The total unfunded obligation of all states in $832 billion. West Virginia escaped this problem due to the policies of then-Governor Joe Manchin.
When banner years in severance tax receipts brought added billions to state revenues, Manchin ignored calls to lower taxes or expand services. Instead, he had the West Virginia Legislature allocate funds to pay down West Virginia’s pension liabilities, which has been a major part of the bedrock of state fiscal health ever since.
The top five states in the ranking were North Dakota, Alaska, Wyoming, Utah, and Tennessee. Tennessee also placed first in a recent ranking of permitting ease for businesses.
The five worst were California, Massachusetts, Illinois, Connecticut, and New Jersey, all imposing high rates of taxation and fees, most also adding layers of burdensome regulations.
Truth in Accounting also praised West Virginia for timely release of fiscal year information, placing sixth, right after Virginia. Ohio and Pennsylvania took somewhat more time than the Mountain State, but were still considered “timely” because they turned in reports within 180 days. Kentucky and Maryland received a “tardy” ranking for being more than 200 days late.
