CHARLESTON, W.Va. -- Standard & Poor's Ratings Services on Tuesday cut the ratings outlook for the state School Building Authority's excess lottery revenue bonds to negative, citing a one-in-three chance declining gambling revenues could force the firm to downgrade the bonds within two years.
The authority has roughly $260 million outstanding in school improvement and construction bonds tied to the state Lottery's Excess Lottery Fund. The fund helps pay off the bonds at a host of state agencies, including the state Economic Development and School Building authorities.
The School Building Authority each year uses about $19 million of that revenue -- generated mainly by video gaming proceeds at the state's four racetrack casinos -- to make payments on its debt.
While West Virginia used to have a regional monopoly on racetrack casinos, neighboring states have opened up their markets to gambling in recent years.
As a result, new casinos in Ohio, Pennsylvania and Maryland have siphoned away money from West Virginia's panhandle casinos -- and away from state coffers.
During the 2012 fiscal year, racetrack video lottery contributed about $141 million to the Excess Lottery Fund. That figure declined 32 percent, to $95.7 million the following year.
With even more out-of-state casinos planning to open in coming years, Standard & Poor's decided to downgrade the outlook on the state's gambling-related bonds.
"The outlook revision reflects declines in revenue and the potential for weaker debt service coverage in the future due to increased competition from neighboring states," analyst John Sugden said.
Changing the outlook to negative is typically the first step toward an overall ratings downgrade.