BRADENTON, Fla. – West Virginia has passed a law giving the governor the power to pay debt service if a budget has not been enacted on time.
State lawmakers agreed that bondholders should be insulated from political discord amid debate during the recent legislative session that saw delayed passage of the state's fiscal 2017 budget.
Both chambers voted by near-unanimous margins to pass House Bill 116.
The bill provides "certainty" for bondholders that they will be paid, S&P Global Ratings said Monday.
"The law solidifies the state's priority of payment of debt service in statute and untangles debt service from politics that may govern the timing of budget adoption, as we've observed in other states," said S&P analyst Nora Wittstruck.
During the recent session, disagreement over how to close a $270 million deficit endangered bond payments as a government shutdown loomed.
"The passage of HB 116 removes uncertainty for bondholders in the absence of a budget, which we view positively," Wittstruck said.
On June 8, Gov. Earl Ray Tomblin vetoed the Legislature's budget, saying that it maintained structural imbalance and unwisely used too much from reserves - $182 million – needed for emergencies and to protect the state's credit.
The governor's rejection of the budget meant a government shutdown was imminent without a compromise because West Virginia does not have a process for enacting a continuing resolution to operate in the absence of an approved budget on July 1, when the fiscal year begins.
Following a special session in which lawmakers agreed to raise revenues and use only $70 million from reserves, Tomlin signed the budget on June 17, the same day he signed HB 116, the bond payment bill.
"Ensuring payment of the debt service on the notes and bonded indebtedness of the state and its agencies, boards and commissions is necessary and proper to ensure the solvency and fiscal well-being of the State of West Virginia," according to the bill.
S&P said the possibility of late budget adoption put the debt service payments on the state's lease-revenue bonds at risk because the rental payments are subject to annual appropriation and are issued without the benefit of a debt service reserve fund.
