West Virginia Lawmakers Hike Taxes, Cut School Funds To Eliminate Deficit

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Faced with a mounting financial crisis, West Virginia lawmakers last week adopted the largest tax increase in state history and ordered stiff budget cuts that extend to school aid.

The unexpectedly swift action came in a special session of the legislature called by Gov. Gaston Caperton as his first official act since being sworn in on Jan. 19. The Governor asked for, in addition to the tax hikes and budget cuts, a reorganization of state government and the enactment of ethics regulations for state officials.

Without drastic action, the state would have faced a $300-million deficit this year and approximately the same shortfall next year, said Steve Cohen, Mr. Caperton's spokesman.

On Jan. 31, the House voted 77 to 22 and the Senate voted 25 to 7 to adopt $400 million in new revenue proposals outlined by Mr. Caperton.

The bulk of the new tax money will come from extending what had been a temporary 1-cent increase in the state sales tax and removing the sales-tax exemption on food.

Legislators also ordered a 3 percent reduction in funding for education and a 5 percent cut for other state agencies. Because the state is midway through its fiscal year, however, the reductions will actually mean that school districts must trim their budgets by 6 percent and that other agencies will face 10 percent cuts.

"Obviously, it will impair the abil some counties to continue to deliver quality education," said John Pisapia, acting state superintendent. Mr. Pisapia said districts were preparing impact statements that the state board of education was to review this week.

He said many districts are laying off substitute teachers, postponing capital-improvement projects, eliminating travel reimbursements, and cancelling new education programs.

One district wanted to reduce its school year by eliminating teachers' planning days, Mr. Pisapia said, but state law will not allow such a move.

The new state chief, appointed in December after the resignation of Thomas McNeill, said the budget cuts were particularly frustrating in light of the adjustments educators were forced to make last July, due to state-aid cuts in the 1989 budget.

Some educators have argued that a 1983 decision by the West Virginia Supreme Court declaring the school-finance system unconstitutional should shield districts from budget cuts. But Mr. Pisapia disagreed.

"The Governor has the right to cut the budget as long as he follows the [education] code and gives preferential treatment to education," Mr. Pisapia said. "He has attempted to give education preferential treatment."

Even with the tax increase and the budget cuts, said Mr. Cohen, there "are still a lot of problems." The state's economy is stagnant, its population is decreasing, and student enrollment is declining.

The Governor's spokesman said Mr. Caperton had inherited a financial crisis from the previous administration. State government had, in effect, stopped paying its bills, he said, because it had no money.

According to a finance task force, state agencies had stopped paying vendors on time, sometimes lagging by 120 days or more. The state did not have enough money, the panel said, to repay $17 million owed businesses in 1988 tax refunds. It also ran behind on monthly state-aid payments to public schools.

The state also stopped making payments to a public-employee insurance agency's account, producing an estimated $71 million in unpaid medical claims and forcing several hospitals to stop taking teachers or state employees as patients.

And it stopped allocating its share of funds to the now insolvent teacher-retirement system.

The West Virginia Education Association last week refiled a lawsuit in circuit court that would force the state to repay retirement-system funds. It was granted an injunction preventing the state from taking money from the retirement fund to pay for retirees' insurance coverage.

A hearing will be set later on the union's charges against the state. A similar suit had been filed with the state supreme court but the case was dismissed because the court ruledel15lthat the circuit court had jurisdiction.

Observers say that the tax increase and the $50 million in budget savings will mean that the state can pay its bills, but there will be little left over.

David Haney, assistant executive director of the West Virginia Education Association, said officials will not know how the remaining tax revenue will be spent until Mr. Caperton unveils his budget during the legislature's regular session, which begins Feb. 8.

Mr. Haney noted, however, that both the financial task force and the Governor have stated that the sol4vency of the state insurance program and the teacher-retirement fund should be priorities.

The teachers' union will lobby lawmakers to make those issues top priorities as well, Mr. Haney added.

He said teachers are hoping the proposed reorganization of state government might also result in financial savings that could then be used for a pay increase.

But Mr. Haney noted that until the state pays its bills, it cannot move forward. Officials are watching for Mr. Caperton's next move, he said.

"We're hoping he will put forth an exciting plan to move education along," said Superintendent Pisapia.

Vol. 08, Issue 20

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