New Treasury Rules Block Backfilling Budgets, But Justice Remains Optimistic About Federal Funding

With response to the coronavirus translating to a projected shortfall in the state budget of about $500 million, Gov. Jim Justice remains optimistic that West Virginia will be able to get federal aid to backfill losses in revenue. That’s despite federal guidelines released Thursday from the Trump Administration that dictate how states can use funds. 

According to guidelines issued by the U.S. Department of Treasury, states are not allowed to use funds from the CARES Act to backfill revenues lost as a result of the pandemic. 

“Funds may not be used to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify under the statute,” the guidelines state. “Although a broad range of uses is allowed, revenue replacement is not a permissible use of Fund payments.”

The question remains how the state will manage to make up missing revenue and whether the Legislature will be called upon to make use of part of the state’s $850 million in Rainy Day funds. 

This week, Justice said West Virginia received the federal minimum of $1.25 billion in relief funding under the federak CARES Act. Asked during recent virtual briefings how he would address a budget shortfall, Justice said he hoped the federal rules would allow state officials to cover an anticipated deficit. West Virginia is expected to lose nearly half a billion dollars, according Revenue Sec. Dave Hardy. 

Despite the newly-released federal guidelines, Justice said he remains optimistic about being able to use federal funds to shore up the state’s bottom line. 

“I think that there’s a high probability that the rules will be changed to allow the backfilling of the revenue and I’m very confident things are gonna be just fine,” he said when. 

But Justice didn’t say why he believes the federal guidelines would be changed.

“I can’t go into a lot of the inside baseball stuff that, maybe, I know. But I really feel like we’re gonna be able to weather this storm from a financial standpoint in very good shape,” he said. 

If federal funds are not authorized for the budget shortfall, state lawmakers would have to return to session to address the funding gap before June 30. 

Asked whether it would be most prudent to begin to make cuts to the state budget sooner rather than later when, Justice said that layoffs and furloughs of state workers are not being planned at this time.

State lawmakers who would be called back for the budgetary tweaks say there are a lot of unknowns about what might play out, given the uncertainty around federal aid how states can use the funds. 

“It’s a wait-and-see situation,” Senate Finance Chair Craig Blair, R-Berkley, said by phone Thursday. 

Blair said he expects a special session to address the budget would be done quickly, but he said not to plan on it before mid-June. 

“I think it will be an effort done with the House and Senate and governor combined, but I don’t think you’ll see a special session before the primary election,” Blair said. “There are a lot of unknowns right now and to do anything would be premature.” 

The state’s primary election is set for June 9. 

Members of the minority party also say there are a lot of unknowns about the state’s fiscal situation. 

“I think the reality is that we will need to address this,” said House Finance Minority Chair Mick Bates, of Raleigh County. “I don’t see any other way to fix a fiscal hole in 2020.”

Bates said the state should begin to make quick use of aid from the CARES Act.

“If he’s gotten the $1.25 billion, we need to be spending it,” Bates said Thursday, while questioning whether the Legislature should play a role in how federal aid is rolled out. 

But like Justice, Bates also is optimistic that federal funds will wind up being used to cover any gaps in the state’s budget. Regardless of whether it comes from the latest relief package or others pending in Congress. 

“I do think, ultimately, there will be federal funds to close holes in budgets,” Bates said. Subsequent bills [from Congress] may allow for additional flexibility.”