Addressing the State’s budget challenges

By Delegate Eric Nelson

Rep – Kanawha County

The state of West Virginia’s finances through seven months of this fiscal year are $170 million below estimates. Projections indicate the shortfall will reach and possibly exceed $350 million by the end of June.

The House and Senate Finance committees are working diligently to fill this fiscal 2016 gap and construct a balanced budget for the 2017 fiscal year that begins July 1.

In the way of background, our state operates on roughly $12.5 billion, comprised of $4.5 billion in federal government funding, $4.3 billion in general revenue originating from income, sales, severance and a few other taxes, and the remainder is supported by special revenue sources such as our fuel tax, lottery, special fees and miscellaneous taxes on services.

These funds are spent primarily on health care ($5 billion), education ($3 billion) and roads ($1 billion).

Multiple measures are planned to fill the 2016 general revenue gap. To date, these include the governor’s mandated cuts imposed on all branches of government, including education, that total approximately $95 million; another $52 million from our $850 million Revenue Reserve Fund (a.k.a. the Rainy Day Fund); transferring the payment of $53 million in Medicaid expenses from General Revenue to Lottery (a one-time measure to utilize excess Lottery funds); and transferring $95 million of scheduled payments into our old Workers’ Compensation Fund obligation to the General Revenue Fund.

The remaining projected gap will be closed by transferring monies from various accounts that have excess balances. Serious consideration and debate will also be given to enact new revenue measures, such as additional tobacco taxes or eliminating the consumer sales tax exemptions on certain groups.

But serious work remains to address the long-term problems that affect our economy and budget.

The growing number of weekly job loss notices is becoming an increasing concern. Many jobs have been lost in our energy sectors of coal and natural gas exploration.

These job losses are also affecting many support industries that supply goods and operate the restaurants and stores in our communities. Ultimately, the state will collect less income and sales tax.

I mentioned in a Daily Mail Opinion column in January of the need for a ‘paradigm shift’ in the way we review our state structure and expenditures. Here are a few ideas that require serious debate and ultimate action:

* First, we need the state Supreme Court to step up. The Supreme Court is the only branch of government that refused to participate in the 4 percent cut all other agencies have taken in 2016. The court also continues to over-fund its pension by more than $2 million annually.

* Second, let’s consider combining county administrations (education and county governments). Let’s also review what education superintendents are being paid in counties experiencing student loss. In the private sector when times are difficult, and prior to layoffs, we look for areas of operating efficiency by consolidating and implementing pay cuts instead of protecting high paying administrative positions. Given the significant losses in the southern counties, shouldn’t we consider combining county and education administrations and operate as a region?

* Third, let’s consider rescheduling or refinancing our pension plans. Annually, the state spends more than 10 percent of its budget — or $470 million — on funding pension obligations. In the mid-1990s, the pensions were set up on a payment plan to ensure they be fully funded by 2034. This obligation is now more than 60 percent funded, interest rates are at all-time lows and people are living longer.

Many homeowners refinance their mortgage when rates are low and equity has increased. I contend we do the same with our pensions and save more than $50 million annually with no change in meeting the state’s retirement commitments.

* Fourth, let’s review the current structure and makeup of our education system. Should we combine our K-12, community and technical colleges and four-year programs under single leadership and eliminate significant duplication and inefficiencies? Do we move to a regional environment instead of 55 separate county structures?

* And fifth, let’s re-evaluate how we make distributions from the state’s Lottery earnings. I contend all earnings should be subject to appropriation as we do with other general revenue, instead of allowing these funds to flow through special revenue accounts.

We must seriously debate these paradigm shifts in order to move West Virginia forward in the 21st century.

Additionally, I also need to address the misinformation about our PEIA situation. The Legislature and the governor are working on funding solutions for PEIA next year. The management of this program has kicked the issue down the road the past four years.

We will address this issue in the 2017 budget and will have additional monies to fund PEIA.

These monies will result in slight premium increases across the board that are still much less than the premium increases seen in the private sector, but — more importantly — will avoid any increases in participants’ out-of-pocket maximums and deductibles. Any proposed changes will not go into effect until July 1, 2017.

Our citizens demand and expect leadership at this critical time. The Legislature is the primary policy setting body and also has significant input into the annual budget.

But don’t forget, we are required to annually balance the budget and the budget is also subject to line-item vetoes by the governor.

Only the governor directly controls these many agencies, and is the only true position to effect change and implement cost-saving efficiencies.

Like that of most states, West Virginia’s economy has seen astounding change since the state budget process and constitution were developed. It’s time to review how we manage our finances and adapt to those changes.

Delegate Eric Nelson, R-Kanawha, is chairman of the House Finance Committee and represents the 35th District, including St. Albans, Dunbar and parts of Charleston and South Charleston.
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