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Joint Committee: After record year, slow growth of state investments to be expected

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West Virginia investments have struggled to stay in positive territory in the first four months of the 2021-22 budget year, something Investment Management Board executive director Craig Slaughter said Tuesday is to be expected, after IMB investments grew by an all-time record of 32.1 percent during fiscal 2020-21.

“When the markets see that rapid movement, it’s not surprising that it stalls out at that point,” Slaughter told the legislative interim Joint Committee on Government and Finance.

For the record year of 2020-21, which ended June 30, state pension fund assets grew from about $16 billion to more than $20 billion, and total assets jumped from $20 billion to $25 billion.

Through the first two months of the 2021-22 budget year, the IMB was seeing a 1.2% return on investments, but those earnings were wiped out during a weak September, he said.

“October was a good month, so we’re up again,” he said.

A primary factor keeping investors on the sidelines right now is inflation concerns, Slaughter said.

“The big question now,” he said, “is this inflation transitory, or does it have more legs?”

Long-term, the 20-year performance outlook is showing 8.1% annual growth in state pension funds, above the needed 7.5% annual return for pension funds.

“Given the fact we’re still above that 7.5% makes me feel good,” he said.

Also during Tuesday’s Joint Committee meeting:

  • West Virginia’s Unemployment Compensation Trust Fund closed September with a balance of $317.03 million, thanks to an infusion of $218 million of federal CARES Act pandemic stimulus funds, Chris McCaulty, director of unemployment for WorkForce West Virginia.

Assuming there isn’t an unanticipated jump in unemployment, that balance will allow the state to reduce unemployment insurance premiums to employers in February, he said.

The Justice administration also used $185 million of CARES Act funds in August to repay federal loans used early in the pandemic to cover a surge in unemployment claims, he said.

  • Deputy Revenue Secretary Mark Muchow said a 250% jump in severance tax collection accounts for about half of the state’s $181.4 million year-to-date budget surplus.

He said that’s driven largely by a spike in natural gas prices, which have gone from $1 per million btu in August 2020 to $4.64 per million btu currently.

Muchow said natural gas prices will top out in the next couple of months, before starting to decline.