Fiscal year 2015: Change is coming - WTRF 7 News Sports Weather - Wheeling Steubenville

Fiscal year 2015: Change is coming

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Brooks McCabe Brooks McCabe
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Sen. Brooks McCabe, D-Kanawha, is managing member and broker of West Virginia Commercial LLC. He has been involved in commercial and investment real estate for more than 30 years, and he also is general partner of McCabe Land Co. LP. He has served in the West Virginia Senate since 1998 and is a special project consultant to The State Journal.

Through much trial and tribulation, the Legislature passed a balanced budget for fiscal year 2015. 

It included a $4.25 billion general revenue budget along with a lottery and excess lottery budget of $141 million and $242 million, respectively. When added to the road fund, special revenue accounts, federal funds and federal block grants plus surplus funds, the total appropriation was $12.2 billion. 

Non-appropriated special and federal revenue funds add another $10 billion dollars for a total fiscal year 2015 state budget in excess of $22 billion. This is a significant amount of money, yet the vast majority of time and effort is focused on general revenue and lottery funding. 

The general revenue appropriations are divided up, with $2 billion going to public education, $1 billion to the Department of Health & Human Resources, $417 million to higher education and $372 million to the West Virginia Department of Military Affairs and Public Safety. That leaves $439 million, only 10 percent of the general revenue budget, for everything else. The lottery and excess lottery funds provide additional revenue, but most of that has been tied up in statutory transfers. 

This is an unmanageable system going forward, given the needs of the state. The Senate and House of Delegates finance committees at the Legislature are facing an increasingly difficult task that may be unsustainable. Increasing taxes appears the only way out of this budget quagmire unless the system is structurally changed. The restructuring process had a meager beginning this year, but it was a start. It should not be underestimated.

The House passed HB 4333, which reduced certain categories of statutory funding in the excess lottery accounts. Through intense negotiations, funding to cities and counties ended up being restored in the bill. This was the governor's bill intending to free up money for the budget and — most importantly — provide more debt service coverage for the bond issues funded by lottery proceeds. 

The Senate Finance committee took up a committee substitute prepared by the governor's office and West Virginia Lottery Commission, which incorporated the changes made by the House. It also moved a number of accounts out from under statutory funding provisions and made the accounts subject to annual appropriation. Among those accounts subject to annual appropriation were the thoroughbred purses ($50 million) and thoroughbred development fund ($5 million) as well as the comparable greyhound accounts. This created a firestorm of controversy and prevented the final passage of the bill. It was ultimately passed in the special session (as SB 1001) with the racing accounts remaining in statute but a variety of other lottery accounts subject to annual appropriation. 

The key point is to illustrate the difficulty of moving established accounts that are statutorily defined into the annual legislative appropriation process. The Legislature realizes it needs to have more flexibility in allocating state revenues and that as many of the lottery accounts as possible need to be appropriated so the bonds can maintain healthy debt service coverage, thereby maintaining a top bond rating. Agreeing in general is easy, but agreeing to the specifics is not. 

The lottery revenue bill discussed above ended up keeping not only the racing industry subsidy ($80 million) in place statutorily, but also the funding for local government ($40 million) and the racetrack pension fund ($7 million). It moved $60 million in heretofore statutory accounts into the appropriation process. This represents 15 percent of the $383 million in the lottery and excess lottery budget and 1.3 percent of the general revenue and lottery budgets combined. One could say this is a modest win given the magnitude of the problem. In reality, it is of major significance because it represents the first time the governor and the Legislature have consciously removed the statutory straitjacket from a significant amount of funding for established accounts. Some of the accounts now subject to appropriation include the infrastructure council, state park improvement, Development Office promotion fund and the capitol renovation and improvement fund. These are important accounts and they will continue to be funded. The key difference is that they will be appropriated by the Legislature just as the West Virginia Constitution intended. Hopefully, this is the start of a multi-year effort to bring more accounts under the appropriation process. It also shows the Legislature's desire to protect the state's bond rating as the lottery funding increases in volatility. 

Sometimes major victories do not receive the attention they deserve. Credit needs to be given to the chairmen of the Senate and House finance committees as well as the governor and his capable staff for shepherding through SB1001, for it may reflect a new way of looking at how the West Virginia budget process needs to be structured.