Understanding the 2015 budget quagmire - Beckley, Bluefield & Lewisburg News, Weather, Sports

Understanding the 2015 budget quagmire

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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.

Most legislators will agree that the proposed fiscal year 2015 general revenue, lottery and excess lottery revenue estimate and budget is the most difficult in recent memory. 

Gov. Earl Ray Tomblin has presented a balanced budget but in so doing has cobbled together a complicated array of proposed legislation that must be reviewed in concert with the actual budget bill (SB 306). The significance of this legislative package has the Senate Finance Committee Chairman Sen. Roman Prezioso, D-Marion, and others gravely concerned. He and his staff members are trying to work their way through the issues and create other alternatives which may be less onerous on the affected stakeholders. These issues are significant and can be highlighted by a brief overview of Tomblin's legislative package. The analysis which follows is largely based on the work of Prezioso and Senior Budget and Policy Analyst Michael Cook.

The current situation is compounded by budget actions required in the last two years. Fiscal year 2013 was $90 million below the estimate so the Legislature passed SB 664 to reduce the general revenue appropriations by $28 million. The Income Tax Reserve Fund of $45 million was spent and Tomblin issued Executive Order (6-13) which reduced the available funding for Medicaid by $17.7 million. 

Fiscal year 2014 has proved to be no better than the previous year. Tomblin is projecting a budget shortfall of $60 million, and some estimates for the shortfall top $100 million. To address this major budget problem, Tomblin has instituted a hiring freeze, issued Executive Order (1-14) to reduce general revenue-funded agencies by $33 million and has SB 345 currently before the legislature. That measure would allocate $27 million from the Legislature's TRAFFIC Fund. If shortfalls exceed $60 million, other actions will be necessary.

The fiscal year 2015 budget bill is based on a $4,271,251,000 revenue estimate and represents a tightly managed fiscal program. This budget already includes the $150 million taken out of the base budget in the last two fiscal years. 

The fiscal year 2015 budget is contingent upon seven separate and distinct legislative actions necessary to provide the projected revenue estimate. 

Those actions are outlined below:

  • Senate Bill 328 — would eliminate the strategic research and development tax credit: $1 million now, up to $4 million by 2018;
  • Senate Bill 329 — would call for a two-year suspension of $4.3 million in general revenue fund transfers to the West Virginia Department of Transportation's Public Port Authority for infrastructure development;
  • Senate Bill 331 — would change the due date for certain monthly sales and use taxes from July to June, which would create a one-time budget increase of $30 million;
  • Senate Bill 332 — would reduce the current allowable 5 percent property tax unable to be collected in local share to 4 percent, which would reduce the "State Aid to Schools" by $5 million;
  • Senate Bill 334 — would call for a two-year suspension of $13 million in consumer sales and use tax to the West Virginia Division of Highways for road maintenance and improvements;
  • Senate Bill 344 — would make a supplemental appropriation expiring $89 million from various funds, including an additional $28 million for the Legislature's TRAFFIC fund;
  • Senate Bill 385 — would redistribute certain statutory West Virginia Lottery distributions by 15 percent or $19 million, and also would suspend $20 million in payments for the West Virginia Infrastructure Council for the last three years.

And lastly, Tomblin is using $12 million from the Abandoned and Unclaimed Property Account in the Treasurer's Office to complete the balancing of the budget.

If nothing else, this represents the seriousness of the current budget situation. There is a real pushback on expending all of the reserves and going into the rainy day fund, but at the same time pay raises are being authorized. The pullback on infrastructure funds for sewer, water and intermodal facilities is troubling. Reducing state aid to schools and lottery funds to cities and counties has created major concerns. Reducing the funding for the Division of Highways seems shortsighted to many. 

It is not a pretty picture, and there are no easy choices. The Senate and House finance committees have their work cut out for them. The real problem is that this budget shortfall is more than a one-year event. Significant concern arises when one looks several years down the road. Everything seems dependent on a turnaround of the economy. If that is delayed, or less vibrant than expected, what will happen then?