Home Ownership in West Virginia: Quality vs. Quantity

As many people may know, West Virginia ranks very high in home ownership among the 50 states. In fact, according to the latest Assets & Opportunities Scorecard released by the Corporation for Economic Development, West Virginia had the 3rd highest rate of home ownership in the nation in 2011 at 72.3 percent.  While home ownership is not an end in itself, it an important part of the American Dream and it allows people to build assets (equity) and be more in control of where they live. However, according to the Assets Scorecard, West Virginia also had the highest share of high-cost mortgage loans.

The flip side to West Virginia’s high home ownership rates is that the value of the homes is very low. How low? As the chart below illustrates, the median value of owner-occupied units in West Virginia is lower than any other state. 

The median home value was just $99,300 in 2011, compared to $173,600 nationally. One reason West Virginia has such low home values is the large share of mobile homes in the state. Approximately 15 percent of all housing units in the state are mobile homes.

Among the 50 states, West Virginia had the 4th highest share of mobile homes in the country in 2011. The national average was 6.5 percent. Over the last several decades the share of mobile homes in the United States has grown, although at a faster pace in West Virginia. In 1970, approximately 4.6 percent of housing units were mobile homes in West Virginia compared to 3.1 percent nationally. 

Another interesting facet of West Virginia’s high home ownership rates is that it is clearly not predicated on the federal mortgage interest deduction, which is one of the largest incentives to purchase a home. That’s because the mortgage interest deduction mostly benefits the wealthy who represent a relatively small portion of tax filers in West Virginia. In 2010, West Virginians paid nearly $1 billion in mortgage interest according to the IRS. Tax filers making over $75,000 (AGI) represented just 17 percent of total tax filers but nearly tw0-thirds (64.3%) or $615 million of the itemized interest paid in 2010.

While having higher rate of home ownership is positive thing for West Virginia, it is important to keep in mind it has a lot to do with the low value of homes in the state and the fact that the state is very rural with fewer apartments and condos that are more typical in metropolitan areas. Moreover, the large share of mortgages in the state that have higher-than-average interest rates should make us cautious about encouraging home ownership if it puts families at a greater risk of foreclosure and a loss of home equity. 

Education Reform – Beyond the Numbers

Over the past few weeks, Ted and I have looked at education in West Virginia, both as a reaction to the governor’s education audit, and the likelihood that education reform will be a major topic in the upcoming legislative session. First I broke down West Virginia’s education spending, and found that with a few exceptions, our per pupil spending levels aren’t all that out of line with the national average; and that the savings found in the education audit aren’t that significant, suggesting that despite the perception, maybe we aren’t that inefficient after all.

Then Ted looked at poverty and education, finding that childhood poverty is strongly associated with lower education outcomes, and that West Virginia’s high levels of poverty are likely a large factor in our poor education outcomes.

If we take these findings together, what do they mean for education reform? If we truly want to see better outcomes for our students, we need to look beyond the dollars, the efficiency audits, and the budgets and start looking at ways we can increase the economic health and security of our families, as well as ensuring all of our students have equal opportunities for success. Some of these ideas include:

1) Increase Economic Opportunities. 

High unemployment, an unhealthy and aging workforce, and a stagnating middle class all create challenges for growth and prosperity in the state, and all play a role in keeping families and children in poverty. By turning our attention to these issues, we can address the major underlying source of our poor education outcomes. The WVCBP’s series, The State of Working West Virginia, contains many policy prescriptions to address these challenges.

2) Support Those Families in Poverty.

Research has shown that by simply supplementing the income of poor families, particularly through the Earned Income Tax Credit (EITC), can significantly increase the scholastic achievement of their children. West Virginia can capitalize on this finding by creating a state EITC, building on the federal EITC, and help lift more families out of poverty. 

Other research has shown that poor health and lack of health care associated with poverty also negatively impact educational outcomes. Continuing to support and protect access to healthcare, through SCHIP and expanding Medicaid, is also a key factor.

3) Invest in Out-of-School Activities.

Students spend a small fraction of their time in school. While year-round schooling addresses this issue, high-achieving students often are provided a rich set of opportunities for learning outside of school, either after school, on weekends or during the summer, with music lessons, travel, and camps. These activities matter, “not only because they are enriching in their own right but also because they provide experiential background useful for learning as children progress through school.”

However, the families of children in poverty often aren’t able to provide these activities for their children, and this puts them at a significant disadvantage to their peers. By exploring more after school and summer programs, as well as extended year programs, and early childhood education initiatives, West Virginia could find ways to improve learning and educational outcomes. 

Higher Education Already Squeezed Before Proposed Cuts

Today’s Charleston Gazette noted that the State Advisory Council of Students is planning to petition Governor Tomblin over proposed budget cuts to the state’s higher education system. The students are concerned that any state cuts would result in higher tuition, making college less affordable for many students, and pushing more students into debt.

However, even without the proposed cuts, the state has already significantly divested in higher education, and the costs of a college degree have already greatly shifted onto students and their families.

State appropriations for higher education have dropped 10 percent from 2002 to 2011, from $574.8 million to $516.1 million, after adjusting for inflation.

But while appropriations have dropped, enrollment has grown 26 percent from 2002 to 2011, from 65,848 FTE enrollees, to 82,911. 

So while in 2002, the state appropriated $8,730 per FTE enrollee, in 2011 only $6,224 was appropriated, after adjusting for inflation, a decrease of 29%.

And, while state support falls, the cost of tuition has soared. The average in-state tuition at a public West Virginia college rose from $3,522 in 2002 to $5,147 in 2011, after adjusting for inflation, an increase of 46%.

The cost of room and board has also grown across the state, in some cases rising by double-digit percentages  in less than five years.

And as a result of the disinvestment by the state and rising costs, the debt burden for West Virginia students has grown, rising by an inflation adjusted $5,700 between 2003 and 2010, an increase of 24%.

So even without the proposed cuts to higher education, rising tuition and other costs, combined with falling support from the state, have hurt West Virginia’s future. Piling on more cuts will do even more damage, and instead of looking at higher education as a target for budget cuts, we should renew our commitment to higher education, and recognize the consequences of its neglect.

Happy Snow Day and Budget Beat Time!

Tax Credit Would Help Low-Income Working Families

Today’s Charleston Gazette endorsed the idea of a state Earned Income Tax Credit (EITC) for West Virginia. Low-income working families have long been able to use a tax credit on their federal returns and in some states can do the same on their state returns. In today’s OpEd, WVCBP Policy Analyst Stuart Frazier states that typically families use the credit for just a short time before moving on to higher paying jobs. Putting more money into the hands of the state’s poorest residents would help reduce the rate of children in poverty which stands at 26%.

Blog Wrap-Up

This week Sean O’Leary looked at how West Virginia ranks nationally in education spending compared to 10 years ago. Answer? Unchanged at 17th. Check out future blog posts at Evidence Counts to find out what this means in terms of education outcomes and policy decisions in light of the recent education audit.

So if we eliminate the personal property, an idea being considered in many states, how would we replace the lost revenue? There is no simple answer, especially one that does not shift the burden to West Virginia’s working families. Read more in part six of Sean’s series.

In his blog post today, Ted disputed the Charleston Daily Mail’s editorial which blames “family disintegration” for why the state’s poverty rate is so high. Citing much more recent research, Ted’s blog post offers several workable solutions to helping low-income families, even those headed up by single parents, to provide the best family life possible for their children.

Advocating for Policy Change

Perhaps the best way to successfully create change is to time it during a Policy Window, AKA the perfect storm of a problem + favorable political climate + practical policy solutions. See more on how to implement change in Ted’s presentation, Advocacy Strategies to Advance Policy Change, available now on our website.

Setting the Record Straight on Marriage, Welfare and Poverty

Yesterday, the Daily Mail published an editorial claiming that “family disintegration”, or the lack of marriage among low-income West Virginians, is the central reason why the state ranks low in several social and economic welfare indicators, such as poverty, truancy, and crime to name a few. To make its case, The Daily Mail  relied on an outdated report from the Heritage Foundation that was published before the passage of “welfare reform” in 1996. 

While it is certainly true that a higher share of low-income families are headed up by single parents (see graph below) and that children do best in married-couple families with low conflict, the state’s welfare program (a.k.a. Temporary Assistance for Needy Families) doesn’t directly penalize marriage (two-parent families).  In fact, two of the four purposes of TANF are to prevent and reduce the incidence of  out-of-wedlock pregnancy and encourage the formation and maintenance of two-parent families. Since the replacement of AFDC with TANF in 1997, West Virginia has spent $130 million of its TANF dollars on “two parent family formation and maintenance” and about $30 million on preventing out-of-wedlock pregnancies.

As the Urban Institute points out here, West Virginia is one of 37 states that has removed marriage penalties on two-parent families’ eligibility that were in place under Aid to Families with Dependent Children (AFDC)  from 1935 to 1996. Today, eligibility is based solely on financial circumstances and the state does not restrict assistance to two-parent families. (As I pointed out above, the Heritage Foundation report was written when AFDC was still in place. This might help to explain why the Daily Mail seems confused about marriage penalty rules under welfare.)

One way TANF (also called West Virginia Works) in West Virginia may discourage two-parent families or married couples would be its relatively low eligibility limits that make it hard for couples to qualify.  According to the Urban Institute, West Virginia’s income eligibility limits (65% of federal poverty level) are lower than 35 other states. In response to rules that make it harder for states to serve two-parent families, the West Virginia Legislature created a separate TANF program in 2007  targeted at two-parent families that allows each parent to receive income support, child care, wage subsidies, and employment services.

In a review of the academic literature on TANF and marriage, the Center for Law and Social Policy found:

  • The ability to access TANF benefits may have a positive effect on low- income couples’ stability. While access to benefits does not necessarily lead to marriage, it does appear to increase the likelihood that a child will live with both parents.

  • In order for rules to have the hoped-for effect, public education is needed to insure that couples know that the rules have changed and that they can obtain cash assistance to create a stable home for their child.

  • Low-income couples value marriage. However, welfare benefits per se are not going to lead to marriage. Other services such as employment and training and alcohol/drug abuse counseling are needed, and at this point, much remains unknown about which, if any, public policies could increase marriage rates or could increase healthy marriages without having undesirable incidental effects. Moreover, domestic violence issues need to be addressed as does male/female distrust.

As the second bullet highlights, it seems that the Daily Mail is not alone in being  unaware about the rule changes under TANF for couples.

While marriage is an important and valuable institution that can help provide children with a safer and more financially secure environment, it is not an end in itself. The quality of marriage is much more important than the quantity. Some children and families are much better off separated than together. No one should stay married in cases of domestic violence which tends to happen more frequently in households receiving welfare. 

If we want to strengthen families and improve child well-being, we would be much better off focusing on decreasing teen pregnancy, helping low-income fathers meet their financial and parenting responsibility, and most importantly helping single mothers. As Princeton professor Sara McLanahan remarked several years ago in her article on parental absence and poverty, “reducing the economic insecurity of single mothers is probably the most effective tool for protecting children from the negative consequences of family disruption” and that “[i]f single mothers were more economically secure, they might take more time in selecting a new partner, which, in turn, might make remarriage more beneficial for children.”

More On Education Spending

Following up on my previous post on education spending, here are some more data on the issue. Last time, I broke down the state’s per pupil spending into several categories, and made comparisons to spending nationwide. I found that for the most part, education spending in West Virginia is about on par with spending nationally, with a few notable exceptions: 

Function (2010) WV U.S. Difference WV Rank
Total $11,527 $10,600 $927 17
Instruction – Salaries and Wages $3,821 $4,277 -$455 32
Instruction – Benefits $2,490 $1,468 $1,023 3
Instruction – Other $646 $682 -$36 22
Pupil Support Services $499 $578 -$78 31
Instructional Staff Support Services $404 $501 -$98 36
General Administration $222 $194 $27 25
School Administration $595 $562 $33 17
Operation & Maintenance $1,131 $986 $145 13
Pupil Transportation $815 $448 $366 3
Other Support Services $185 $354 -$169 43
All Other Functions $719 $550 $169 7

Now let’s look at the same categories, but this time from 2000 instead of 2010

Function (2000) WV US Difference WV Rank
Total $7,093 $6,836 $257 17
Instruction – Salaries and Wages $2,886 $3,027 -$142 23
Instruction – Benefits $1,153 $761 $393 5
Instruction – Other $256 $376 -$120 44
Pupil Support Services $228 $330 -$101 44
Instructional Staff Support Services $201 $306 -$105 45
General Administration $181 $135 $46 18
School Administration $383 $383 -$1 26
Operation & Maintenance $726 $650 $76 13
Pupil Transportation $455 $280 $175 4
Other Support Services $95 $212 -$117 44
All Other Functions $529 $377 $152 4

As you can see, West Virginia’s overall rank is unchanged at 17, and while we rank high in benefits and transportation expenditures, we rank low- or mid-range for most other categories. And as for which areas are growing the fastest, it comes as no surprise:

Source: U.S. Census Bureau

Total per pupil spending in West Virginia has grown faster than the rest of the country, however, West Virginia remains 17th overall. Instruction Benefits has been the fastest growing category both nationally and in West Virginia, with spending in West Virginia outpacing spending nationwide, due in part to the unfunded liability pay down. Support service spending, both pupil and instructor, has grown faster in West Virginia than it has nationwide, but West Virginia still spends $345 less per pupil than what is spent nationally in this category. Pupil transportation spending has also grown faster in West Virginia than it has nationally.

Instruction salaries (which is the biggest piece of the pie), on the other hand, has grown slower in West Virginia than it has nationally. The gap in per pupil instruction salary spending between the national average and WV has grown from $142 in 2000 to $445 in 2010. Other categories have experienced relatively similar growth.

Eliminating the Personal Property Tax: Part 6 – Replacing the Revenue

(Continued from part 5 – published 1/14/13)

Eliminating the personal property tax would cost a substantial amount of revenue at all levels of government across the state. Eliminating the personal property tax without some replacement revenue would be wildly irresponsible, and would have devastating effects on local services and education throughout the state. And to its credit, the WV Chamber of Commerce acknowledges that if the tax is eliminated, the levying bodies will need a way to recoup the lost revenue. 

So what options are out there to replace the hundreds of millions of dollars in lost property tax revenue? One way could be to simply raise property taxes on real property. However, that is not as easy as it sounds. The first stumbling block comes from the state’s constitution – maximum property tax rates are set in the constitution. But maxing out the levy rates across the state wouldn’t bring in nearly enough revenue. For example, when the proposal was only exempting business personal property, rather than all personal property, maxing out rates left school districts $10 million short. Fully eliminating the tax would only create a bigger hole to fill.

For the sake of argument, let’s assume that we can exceed the maximum rates and raise real property taxes enough to offset the lost personal property. What would that look like? Let’s assume that the classes of property are left unchanged, other than the elimination of personal property. That means class II property would consist of owner-occupied homes, and classes III & IV would consist primarily of commercial and industrial real estate, or business property. If the ratio between the tax rates on class II and classes III & IV remains the same (with the class II rate equal to 1/2 the class III and IV rate), then the average effective rate for class II property would rise from 1.2% to 1.7% and the average effective rate on class III & IV property would rise from 2.4% to 3.5%.

  Total Assessed Value Total Revenue Effective Rate
Real & Personal      
Class II $30,334,751,040 $358,256,806 1.2%
Class III & IV $45,261,736,698 $1,081,229,839 2.4%
Total $75,596,487,738 $1,439,486,645  
       
Real Only      
Class II $30,045,307,112 $521,741,598 1.7%
Class III & IV $26,424,893,000 $917,745,047 3.5%
Total $56,470,200,112 $1,439,486,645  

 

Now the question is, would the higher rates on real property result in higher or lower taxes for a typical taxpayer. Let’s look at two examples, a business paying the class III & IV rate, and a homeowner paying the class II rate. For the business, we’ll use the Gestamp stamping plant as an example, since we know its personal vs real property breakdown. In this example, the business has real property assessed at $9.9 million, and personal property assessed at $23.4 million.

  Assessed Value Rate Tax
Real $9,900,990 2.4% $236,519
Personal $25,380,000 2.4% $606,287
Total     $842,806
       
Real $9,900,990 3.5% $343,865
Personal $25,380,000 0.0% $0
Total     $343,865

As the table shows, the business would save $606,287 by through eliminating the personal property tax, and would pay an extra $107,346 in higher real property taxes, for a total savings of $498,941, a decrease of over 60%.

Now for the changes to class II property, we’ll assume a homeowner will real property assessed at $100,000 and personal property assessed at $5,000.

  Assessed Value Rate Tax
Real $100,000 1.2% $1,181
Personal $5,000 2.4% $119
Total     $1,300
       
Real $100,000 1.7% $1,737
Personal $5,000 0.0% $0
Total     $1,747

In this scenario, the taxpayer would save $119 in personal property taxes, but pay $556 more in real property taxes, for a total increase of $437, an increase of 37%.

Replacing the personal property tax with increased real property taxes would likely result in savings for businesses with a great deal of personal property, like manufacturers, but would result in higher taxes for homeowners and small businesses without much personal property.

But even it isn’t even as simple as that. These are the statewide average tax increases needed to replace the revenue, with personal property taxes accounting for about 1/3 of all property tax revenue. But as previous posts have shown, in several counties, personal property taxes account for well over half of all property tax revenue. These counties would see even more skewed results to keep it revenue neutral, with dramatically higher real estate taxes to offset the loss.

Other options are equally impractical. The state can’t simply replace the revenue, as the $447 million needed to do so is equal to about 11 percent of the general revenue fund. Nor could the state simply allow the localities to levy a sales tax, as it would take a 38% increase in what the sales tax currently brings in to replace the revenue, not to mention that a sales tax increase would be regressive.

No matter which way you slice it, it would be very difficult to replace the lost revenue without raising taxes on working families and homeowners, and even then, there remains significant challenges in getting the revenue to the right places.

Baby Boettner and Budget Beat – January 18, 2013

Best Education Reform? Reduce Child Poverty

Newly inaugurated Governor Earl Ray Tomblin is making education reform one of his policy priorities. This week, Ted’s blog post discussed several studies that show that children who live in poverty are more likely to score poorly on tests and have other poor outcomes in terms of education. Since West Virginia has such a high poverty rate, its policymakers need to address this root of the problem. A place to start? Provide quality child care and early childhood development programs for the state’s youngest children.

 

 

 

 

 

 

 

 

 

 

 

Lucy Boettner visits the WVCBP office and receives quality child care

Blog Wrap-Up

With one-third of tax credits going out of state, more accountability and transparency are needed when reporting on tax incentives the state offers to industry. Read more in Eli’s blog post.

In the latest in his series, Sean explained how eliminating the personal property tax would impact the state overall. Losing that revenue would change the school aid formula and require the state to contribute an additional $117.5 million.

Jobs Count

West Virginia ended 2012 on a positive note by ending a 10-month streak of losing jobs. This month’s issue takes a closer look at link between wages and education and how this connection has grown stronger over the past few decades.

In the News

The Charleston Gazette reported on Senator Joe Manchin’s roundtable discussion on fiscal issues where Ted Boettner addressed the need for more jobs in West Virginia.

Ted’s blog post on education was mentioned in the Charleston Gazette. He also appeared on Howard Monroe’s radio show today to talk about the issue.

Ted’s appointment to the Department of Interior’s Extractive Industries Transparency Initiative made headlines this week particularly since the WVCBP will be the only group on the panel with a state, as opposed to national, focus.

Addressing Child Poverty is the Best Education Reform We Can Make

As state lawmakers and others review and debate the findings of the recent education audit, it is important that they consider the economic and social conditions of our state’s children. This is especially true when evaluating our state’s K-12 education outcomes, which likely has more to do with the income of a student’s parent than any other factor.

As the graph below makes clear, there is a there is a strong negative correlation (-0.71) between a state’s child poverty rate  and how proficient 4th graders read in each state. In general, the lower a state’s child poverty rate the better its children score on reading proficiency tests. 

A look at national figures also indicates that low test scores on math and science are associated with higher child poverty. A recent study by Duke University found that one of the central problems with most education reform initiatives is that it does little to address large “body of evidence documenting that students from disadvantaged households on average perform less well in school than those from more advantaged families.” Another recent study funded by the National Institute of Health also found that poverty-induced stress –  such as crowded conditions, financial worry, and lack of adequate child care — “lead to impaired learning ability in children from impoverished backgrounds.”

In fact, numerous studies have shown that children who grow up in poverty are not only performing badly on tests, but are also more likely to complete less schooling, become a teen parent, have lower earnings as adults, engage in crime, and reduce our economic output. 

As professor Stephen Krashan of the Rossier School of Education at the University of Southern California recently pointed out in the Pittsburgh-Post Gazette:

“The problem is poverty: Our average test scores are mediocre because the United States has such a high level of child poverty, the second highest among economically advanced countries (23 percent). Study after study shows that poverty has a devastating effect on school performance.”

While pursuing education reform to find cost savings and improve programing is very important to our state’s future, it is equally – if not more – important that we look at underlying factors such as child poverty that appear to play a much larger role in education outcomes. One important step West Virginia could take to address child poverty would be to ensure that every child in West Virginia has access to quality child care and other early childhood development programs. This program not only ensures that young children get a better start in life, it also makes the state a better place to live, work, and raise a family. 

One-Third of Tax Credits Go Out of State

Last fall, the WVCBP published a report critiquing the state’s efforts at evaluating business tax incentives. One of the documents examined in the report was the state’s Tax Credit Disclosure List. Published every five years, the Tax Credit Disclosure List compiles a list of each individual claimant for any of the state’s multiple tax credits (remember though, tax credits are only one form of tax incentive).

The latest edition of the Tax Credit Disclosure List contains information from the state’s tax credits and their claimants in 2007. The list shows that there were a total of 588 tax credits claimed in 2007. Instead of a dollar amount for each claim, the Tax Credit Disclosure list offers a range of possible values. Most of the credits claimed fall in the $1-$50,000 range, however 12 claims fall in the $1,000,000+ range. Therefore, the minimum total value of the tax credits would be roughly $24 million; while the total maximum value of the tax credits can’t be calculated, we know it is greater than $66 million (See Table).

Value Range

Number of Claimants

Min Value

Max Value

$1 to $50,000

482

$482

$24,100,000

$50,000 to $100,000

38

$1,900,000

$3,800,000

$100,000 to $250,000

36

$3,600,000

$12,600,000

$250,000 to $500,000

13

$3,250,000

$6,500,000

$500,000 to $1,000,000

7

$3,500,000

$7,000,000

$1,000,000+

12

$12,000,000

$12,000,000+

Total

588

$24,250,482

$66,000,000+

 The Tax Credit Disclosure List also contains the address of those claiming each credit. 221 of the 588 total credits claimed, roughly 38 percent, went to businesses and individuals outside of West Virginia. Tax credits went to a total of 29 states other than West Virginia in 2007. The chart below shows that most of the out of state claims came from our neighboring states of Virginia, Ohio, and Pennsylvania, but claimants from states across the country received tax credits from West Virginia.

 

WV Tax Credit Recipients by State

Source: 2007 West Virginia Tax Credit Disclosure List

The Tax Credit Disclosure List contains which credit each claimant is receiving. Although a number of tax credits listed have since expired or have been phased out, due to their structure, businesses can continue to claim them for a number of years. The Industrial Expansion/Revitalization Credit was the most popular credit, with 167 claims, followed by the Manufacturing Investment Credit.

 

 WV Tax Credits by Number of Recipients

Source: 2007 West Virginia Tax Credit Disclosure List

So the West Virginia Tax Credit Disclosure List provides a lot more transparency than some of the state’s other documents cataloging business tax incentives. But it still has significant shortcomings: the data is out of date, one can’t compile a total value, and it actually isn’t found anywhere online. The report also doesn’t evaluate the effectiveness of any of the listed credits. By updating it more often, making it more openly available, including more business tax credits and incentives,  the state could go much further along towards transparency and accountability.