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Jun 21, 2010

Case Study: West Virginia Supports Arts, Education and Human Services, With No Plans for Budget Cuts

I have written in the past about the philanthropic food chain and how nonprofits are at the bottom. Government grants, government contracts, corporate “program” giving, and donor restricted gifts increasingly make nonprofits more as contractors to the donors than independent arbiters of the community’s needs and priorities. One of the consequences of being at the bottom of the food chain is that the ups and downs of the financial fortunes of donors get translated into similar disruption of nonprofits through their financial dependency.

Therefore, a nonprofit’s efforts to be sustainable are highly dependent on its grantors and funders also having sustainable programming and financial health. On the governmental side, federal support is reasonably stable because the government doesn’t seem to worry about deficit spending. In sharp contrast, state and local governments usually have balanced budget requirements so that the current weak economy and tax revenues directly translate into reduced funding for nonprofits.

Many are aware of states with serious financial difficulties and sharp cuts in support of cultural and social services. I was pleasantly surprised to see a neighboring state that does not—West Virginia.

Put aside any stereotypes of that state and be prepared to see a best practice worth emulating. I ran across the West Virginia budget in my role as a budget reviewer for the Government Finance Officers Association of the United States and Canada, an organization of government finance professionals which sponsors the Distinguished Budget Awards Program. Mirabile dictu:

West Virginia has not, and does not budget to cut next year, support for education, arts, health and human services, environment, commerce, and senior services. While there are surely many details that are not so rosy, this achievement is remarkable.

I am not expert enough to know how they have done this but there are a few things I can know from studying their budget:

  1. Their budget document is clear, understandable, and specifically links goals and achievements to how money is spent and personnel are allocated.
  2. They participate in the Government Finance Officers Association budget review program so that they get the benefit of the expertise of outside reviewers every year.
  3. They have a functioning rainy day fund, which they funded during the boom coal years this decade and have drawn on to support services when the boom ended. While the fund has been tapped out this year, next year looks to be good enough to maintain services with current revenues.
  4. They clearly discuss how they forecast their revenues and they use independent, third party forecasters for the economic data that underlie their revenue analysis. They also include a detailed economic outlook report by academic experts in their budget document.
  5. They have a six year financial plan that includes revenues, expenses, and program goals, whose first year is tightly linked to the proposed budget. How’s that for disclosure?!

The West Virginia budget document is a blueprint for executing the principles of strategic governance and finance that is laid out in my first book, Linking Mission to Money: Finance for Nonprofit Board Members. I welcome any of you who are familiar with West Virginia state government to give us some insights on how West Virginia came to this approach.