1. West Virginia Higher Education Board of Governor’s Summit August 2013 Mike McKown State Budget Office 1

2. 2 The West Virginia Fiscal Picture Little or No Revenue Growth in FY 2014 Coal Mining in decline; Will Gas pick up slack? Foreign Exports key to growth – Declining in 2013 Baby Boomers now becoming senior citizens Transfer Payments growing Teacher Retirement System: Only 20 More Years Funding with 10%+ of Total General Revenue Workers’ Compensation Solvent by CY2016? Federal Health Care & Medicaid

3. 3 National Fiscal Concerns Major U.S. Cities Pension Funds Stressed Detroit in Bankruptcy, Chicago downgraded due to $19 Billion unfunded pension debt Illinois - just 5 years from exhausting its pension fund. (Unfunded liabilities at $96 Billion and climbing) Nationwide Public Retirement Systems – The number of retirees is growing 5 times faster than the number of working members. Federal Government accumulates over $1.75 Billion of new debt every day. Estimated FY13 Federal government expenditures $3.455 Trillion Estimated FY13 Federal government receipts $2.813 Trillion Estimated FY13 Federal government deficit $0.642 Trillion Future deficits are still predicted to be $630 Billion per year even with current budget adjustments Medicare, Medicaid & Social Security make up 62% of Federal spending Federal Government's accumulated debt continues to grow - $16.7 TRILLION. (debt per citizen $53,000, debt per taxpayer $148,000) US Debt Ceiling is $16.7 Trillion - another budget battle looming this Fall US GDP as of June 2013 = $16.5 Trillion

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15. 15 State of West Virginia General & Lottery Appropriations % of DepartmentFY 2009totalFY 2014total Public Education 1,918,411,29844.24% 2,075,009,88246.10% Health & Human Resources $ 862,091,04919.88% $ 982,565,98721.83% Higher Education 483,015,42311.14% 483,031,84510.73% All Others 1,073,107,89124.75% 960,888,86921.35% Total $ 4,336,625,661 $ 4,501,496,583

16. 16 State Of West Virginia General & Lottery Revenues (in millions $) FY 09FY 10FY 11FY 12FY 13FY 14FY 15FY 16FY 17FY 18 GeneralActual BudgetEstimate Personal Income Tax1,5581,4471,5931,6891,7461,7671,8721,9802,1442,241 Sales / Use Tax1,1101,0961,1481,2161,1931,2041,2311,2561,3041,360 Corporate Net Income270233303188238230218209192183 Severance Tax360400441468410431454440421409 All Others604582579542517504495525560561 total3,9023,7584,0644,1034,1044,1364,2704,4104,6214,754 % change-3.7%8.1%1.0%0.0%0.8%3.2%3.3%4.8%2.9% Lottery Racetrack Video310275258274230174172 Limited Video206199 265204188 Traditional Games414036463832 Table Games181732383432 total575531525623506426424 % change-7.7%-1.1%18.7%-18.8%-15.8%-0.5%0.0%

17. 17 Rainy Day Funds Balances As of June 30 % of Rainy Day Gen Rev Part APart BTotalApprops 1995 $ 20,564,051 1996 54,706,193 1997 57,370,043 1998 67,562,784 1999 64,580,523 2000 73,218,878 2001 79,085,244 2002 56,178,309 2003 57,750,613 2004 53,574,931 2005 79,302,478 2.29% 2006 124,153,400 $ 234,897,672 359,051,0729.97% 2007 235,075,887 279,869,088 514,944,97513.75% 2008 289,801,853 291,275,043 581,076,89614.65% 2009 236,619,573 236,006,003 472,625,57511.99% 2010 276,949,590 279,073,100 556,022,69014.65% 2011 342,320,538 316,806,578 659,127,11517.38% 2012 523,689,609 327,698,977 851,388,58520.06% 2013 557,992,969 356,472,702 914,465,67121.09% Today 552,195,242 348,811,176 901,006,41921.78%

18. 18 General & Lottery Funds FY 2015 Summary of Requested 7.5% Budget Cuts (in $s) BeginningExcluded Basefrom DepartmentBudget7.5% cut Legislative24,742,872 0 Judicial121,511,992 0 Executive44,348,62903,326,147 Administrative81,580,11855,524,3811,954,180 Commerce76,737,30918,067,1254,400,264 Public Education2,109,458,8771,995,102,6968,576,714 Education & The Arts51,179,44014,171,7782,775,575 Environmental Protection7,739,8410580,488 Health & Human Services1,085,999,074920,542,39912,409,251 Military Affairs & Public Safety365,876,222217,641,49211,117,605 Revenue39,796,93912,000,0002,084,770 Transportation6,717,8210503,837 Veterans' Assistance11,321,6946,836,188336,413 Senior Services63,049,49640,736,4581,673,478 Higher Education482,429,96949,000,00032,507,248 Miscellaneous Boards66,400,000 0 Total4,638,890,2933,542,277,38182,245,968

19. 19 Six Year Financial Plan Through FY 2018 General & Lottery Revenues (In Thousands $) (as of 8/9/2013) DRAFT ActualBudgetedProjected 201320142015201620172018 Estimated Revenue General Revenue$4,104,138$4,136,001$4,270,201$4,410,171$4,620,600$4,754,050 General Revenue - Surplus from previous FY214,76500000 Lottery177,308136,982127,955127,956 Lottery - Surplus from previous FY(4,491)35,4810000 Excess Lottery202,988163,922170,949 Excess Lottery - Surplus from previous FY(5,023)96,5440000 Total Available$4,689,685$4,568,930$4,569,105$4,709,076$4,919,505$5,052,955 Estimated Expenditures Base Budget$4,520,291$4,638,891$4,852,509$4,932,979$5,072,373 Expenditure Growth: Retirement Systems538,25038,9232,000 Medicaid426,063149,69599,21336,05849,68656,862 PEIA338,424(3,647)21,00028,00024,00017,000 Salary Enhancements0650,575051,0000 Public Education1,412,901(11,321)55512573752 Higher Education486,882(26,719)5000(3,000)0 All Other1,317,771(28,337)40,27513,90015,13513,000 Total Ongoing Base Budget$4,520,291$4,638,891$4,852,509$4,932,979$5,072,373$5,161,987 One Time Expenditures & Adjustments135,516(48,931)24,58035,0005,000 Estimated Balance (Gaps)$33,878($21,030)($307,984)($258,903)($157,868)($114,032) Note: This six-year financial plan is a tool for analyzing future budgets and any gaps must be balanced.