Eliminating the Personal Property Tax: Part 5 – What’s at Stake for the State

(Continued from Part 4 – published on 1/4/2013)

While the overwhelming majority of property tax revenue is collected at the local government level, the state of West Virginia does levy a small property tax. In FY 2012, total property taxes levied by the state of West Virginia amounted to $6,042,911, or about 0.4 percent of the total. Of that, approximately $1.8 million was from taxes on personal property.

Property tax revenue only accounts for one-tenth of one percent of the state’s revenue. The revenue raised from personal income tax, sales tax, corporate income tax, and severance tax matters much more to the state budget than the revenue from the property tax. But while the state only raised $1.8 million through personal property taxes, the financial impact on the state of eliminating the personal property tax is much larger.

Why? Because as I showed in Part 3, eliminating the personal property tax would result in the state shelling out an additional $117.5 million through the school aid formula. Once that is considered, the total fiscal impact to the state is $119.4 million. That is equal to about three percent of the General Revenue Fund. And with the state’s finances already tight, eliminating the personal property tax could result in even more spending cuts and even larger funding gaps than we are currently experiencing.

Budget Beat – January 11

Fiscal Cliff’s Impact on West Virginians

In his blog post this week, Stuart Frazier explains the impact the fiscal cliff negotiaions will have on West Virginians including the good (extension of Child Care Tax Credit) and the bad (expiration of Payroll Tax Holiday) policies that were part of the compromise. Read more about how the decisions in Washington will affect us and our paychecks.

Just the Facts

WVCBP’s Jobs Count is a monthly report on data released by the government on how different employment sectors are faring. So it suprised us this week when Charleston Gazette columnist Phil Kabler accused uscomparing apples to oranges in our reporting of the jobs numbers last month. Sean O’Leary’s blog post this week sets the record straight.  

Mary Reynolds Babcock Foundation – Report on State Policy Infrastructure

The WVCBP is proud to be a grantee of the Mary Reynolds Babcock Foundation. Yesterday the Foundation released an innovative report on the importantce of organizational infrastructure to implementing policy changes. Here’s a brief excerpt from the Executive Summary: 

Ideally, a robust infrastructure for impact on state policy would include a mix of well-connected, high-performing organizations that anchor and support a diverse ecosystem of partners using a range of strategies in order to advocate on structural issues that influence economic opportunity and poverty. Progressive policy infrastructure organizations pursue important end goals that benefit low-wealth communities and help them change the conditions that underlie poverty. Equally important, they bolster and leverage the efforts of other groups working to move people and places out of poverty.
 

Education Audit – Numbers Behind the Headlines

Headlines about the Board of Education audit abound but what are the numbers behind the news? Learn more in Sean’s blog post about where are education dollars go. You may be surprised!

Where Do Our Education Dollars Go?

The education efficiency audit initiated by Governor Tomblin has attracted a great deal of attention in the state, and will likely be a major part of the upcoming legislative session. The audit was produced with two goals for the state: 1) producing the best possible outcome for its students, and 2) receiving the highest return on the educational dollars it spends. But in order to properly achieve goal 2, you need to first understand where the state spends its education dollars.

After noting that the state ranks 8th in education spending as a percent of personal income, the education audit identifies five state level areas where five-year savings of $115.7 million could be found, or an average of $23 million per year. According to the U.S. Census Bureau, in 2010, education spending in West Virginia totaled $3.27 billion, so state level savings from the audit amount to less than one percent of total spending. (A review of a sample of local  districts identified an additional $5 million in savings, which, if the results were replicated statewide, would result in savings of $70 million, bringing total annual savings of $93 million, or 2.8 percent of total spending.)

The table below shows the five function areas and their five-year savings identified by the audit. (Note: Human Resources was identified as a function area, but did not have a dollar amount of savings.)

Function  Estimated Five-Year Savings
Administration  $21.2 million
Facilities $34.8 million 
Transportation $10.0 million 
Ancillary Services  $45.8 million 
Regional Coordination  $3.9 million 

 

Education Spending in West Virginia

The savings proposed by the audit are premised on the fact that West Virginia is ranked 8th in education expenditures relative to income, and 7th in salaries exclusive of benefits, and that the state, “cannot be said to stint on education spending.” But spending relative to income is a little misleading, because as a poorer state with relatively low income, West Virginia will typically skew high when making comparisons relative to income. The audit notes that West Virginia ranks ahead of rich states like Massachusetts on education spending as a share of personal income, where as on a per pupil basis, Massachusetts outspends West Virginia by more than $2,000.

So on a per pupil basis, West Virginia ranked 17th in 2010, spending $11,527 per pupil, compared to the national average of $10,600, a difference of $927 per pupil. While not quite a top 10 ranking, it’s still above average (and the audit seems to imply that a rank of 32, which is the state’s rank relative to income when adjusting for the pay-down of the unfunded pension liability, is also high). Using census data, you can get an even clearer view of West Virginia’s education spending, by breaking down per pupil spending by function. The following table breaks down per pupil education spending into 11 categories, comparing West Virginia to the national average, as well as West Virginia’s rank in each category. 

Function 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

 

Where is West Virginia Education Spending High?

As the table shows, West Virginia’s per pupil education spending is in the middle of the pack for most categories. While Instruction salaries and wages are the biggest area, accounting for one-third of total spending, West Virginia ranks 32nd, spending $455 less per pupil than the national average. And while the audit finds major administrative savings, West Virginia ranks right in the middle at 25th, spending only $27 more per pupil on general administration than the national average.

There are two notable exceptions, the most obvious being instruction benefits, for which West Virginia ranks 3rd, spending over $1,000 more per pupil than the national average. But as the audit acknowledges, this is a current anomaly due to the pay-down of the unfunded liability of the Teachers’ Retirement System. According to the audit this amounts to an average of $333.6 million per year. If you exclude that anomaly, West Virginia’s rank falls to 8th, with the difference between WV and the national average falling to $689 per pupil, which, while still high, is mostly offset by lower spending on salaries and wages. It is also important to remember that the state ended the retiree health benefit benefit for teachers and school service personnel hired after January 1, 2010 and that the state capped the retiree subsidy for those currently in the system.

The audit does address the other function where West Virginia ranks highly, transportation. The audit found $10 million in savings over five years for transportation, and West Virginia ranks 3rd highest in per pupil transportation spending, spending $366 more per pupil than the national average.   But the $2 million per year in savings recommended by the audit would account for less than 1% of the $231 million spent on pupil transportation, which suggests that rather than inefficiencies, there are structural challenges that are hard to avoid that are driving costs.

The same is true for another area that in which West Virginia ranks highly. West Virginia’s operations and maintenance spending, which includes spending on heating, electricity, air conditioning, property insurance, and care and upkeep of grounds and equipment, ranks 13th, with $145 more per pupil spent than the national average. The audit identifies $34.8 million in facilities savings, or about $7 million per year, but this only accounts for about 2% of the $321 million spent on operations and maintenance in 2010.

West Virginia also ranks high in the other functions category, but low in the other services category, with the per pupil differences canceling each other out, which suggests there’s likely discrepancies among the states in reporting other services versus other functions, and taken as a whole, West Virginia’s “other” spending in right at the national average.

What does this all suggest? That the savings found in the audit aren’t necessarily the areas that are driving education spending in the state. Instead it’s the factors like the past under-funding of pensions, transportation costs, utilities costs, and the upkeep of our aging schools that are inflating education costs in the state. And there is little the state can do to control many of these factors, as the meager savings found by the audit in these areas proves. And, absent these areas, West Virginia’s education spending isn’t all that high compared to other states, and, in fact, is closer to the bottom than to the top in many aspects.

 

UPDATE

Here’s another look at education spending, this time comparing how much each category accounts for total spending in West Virginia and nationally.

Again, this shows the biggest difference between WV and the national average is in spending on benefits. Instruction benefits spending accounts for 22% of education spending in WV, compared to 14% nationally, while spending on salaries and wages accounts for 33% of WV spending, compared to 40% nationally. These discrepancies nearly cancel each other out, as overall instruction spending accounts for 61% of education spending both nationally and in WV. 

The other major difference is again, transportation, which accounts for 7% of WV spending, but only 4% of spending nationally. All other spending categories are within 1 percentage point of each other.

Newsflash: Not All Government Employees Work for the State

In an awkward criticism, gossip columnist Phil Kabler at the Charleston Gazette has taken exception to our monthly Jobs Count report, which is a straight forward report on the employment and unemployment numbers in the state, with the data coming directly from the Bureau of Labor Statistics.

Phil’s point of contention with last month’s Jobs Count is that government employment had fallen by 5,700 jobs between January and November of 2012. Phil finds this hard to believe because “the number of permanent state employee FTE positions grew from 37,709 in January 2012 to 38,149 as of December,” therefore most of the jobs lost are simply temp jobs, and the loss is much ado about nothing.

While Phil is right that the job numbers reported in Jobs Count include both full time, part time, and temporary positions, he seems to be forgetting that there is more than one level of government employing people in the state. While the state of West Virginia may employ 38,000 FTE employees, the lion’s share of government workers in the state are school teachers and service personnel that are employed at the county level.  The  federal government also employs people in West Virginia, not to mention the state’s 55 county governments, and 200+ municipal governments. In fact, only about one-third of the state’s 149,500 “government” employees are employed by the state government.

So Phil is right when he guesses that most of the 5,700 jobs lost were not full-time state government jobs, just not for the right reason. If Phil had  checked our sources, he would have found that the BLS reports (and Workforce WV) that most of the lost government jobs were local government jobs.  

Government Employment, West Virginia, Seasonally Adjusted

 

Jan-12

Nov-12

Change

Federal

23,300

23,400

100

State

51,000

49,000

-2,000

Local

80,900

77,100

-3,800

Total

155,200

149,500

-5,700

Source: Bureau of Labor Statistics, Current Employment Statistics

Our Jobs Count report “claimed” 5,700 jobs were lost in the government sector because that’s what the data show. There’s no bending, twisting, or “comparing apples to oranges.” We compared total jobs in January 2012 to total jobs in November 2012 for each major employment sector. Phil is trying to compare state government with total governments. If anyone is comparing apples to oranges, it’s him.

After The Cliff: What The Payroll Tax Holiday Expiration Means To West Virginia

Although a “fiscal cliff” deal to prevent tax hikes and sweeping spending cuts was brokered at the eleventh hour, West Virginians will still see a tax increase. The rarely mentioned payroll tax holiday has officially expired, impacting the paychecks of about 900,000 working West Virginians.

Enacted in 2010, the payroll tax holiday was designed to bolster consumer spending and pull the weakened economy out of stagnation. The money came from taxes paid to fund Social Security, half of which is paid by employers, half paid by workers. The workers’ share was reduced from 6.2 percent to 4.2 percent, providing an additional $855 in take-home pay for the average West Virginia worker.

Now that the payroll tax holiday has expired, workers can expect their paychecks to shrink. This can potentially hurt working families trying to make ends meet in this tough economic environment. Below is a list of occupations in West Virginia and the potential impact of the payroll tax expiration. The Wall Street Journal has also created a payroll tax cut calculator that shows how much more a worker will pay in 2013. 

Impact of Payroll Tax Cut Expiring

Occupation

Average Salary

Increase In Taxes

Home health aide

$17,990

$360

Cashier

$18,110

$362

Hairdresser

$23,320

$466

Truck Driver

$34,230

$685

Machinist

$35,520

$710

Real Estate Broker

$37,600

$752

Plumber

$45,980

$920

Electrician

$49,700

$994

Computer Programmer

$54,960

$1,099

Registered Nurse

$56,820

$1,136

Marketing Manager

$74,490

$1,490

Source: Bureau of Labor Statistics, May 2011

Even though the payroll tax holiday has expired, West Virginia Senator Jay Rockefeller remains optimistic about the other aspects of the fiscal cliff legislation

“If Congress had failed to pass this bill, tax credits that help low- and middle-income West Virginia families pay their bills and afford college would have disappeared,” stated Rockefeller.

Tax cuts re-enacted under the new legislation include:

  • Earned Income Tax Credits, which returned $329 million to almost 160,000 working West Virginians in 2011 — more than $2,000 for each person who qualified.
  • Expanded Child Tax Credits of $1,000/child that help 102,000 West Virginia children and their families.
  • American Opportunity Tax Credits that gave 33,000 West Virginians $64 million in 2011, averaging almost $2,000 per student in college. This credit can be used to pay for tuition, living expenses and textbooks.
  • The New Markets Tax Credit, which has provided more than $55 million in new investments for economic projects in low-income and rural communities, including hardware stores, child day-care centers and local coal mines. The program has created 300,000 jobs in low-income communities.

Continuing the payroll tax holiday would be beneficial for working West Virginians, however, as President Barack Obama stated, “nobody can get 100 percent of what they want.” While this may translate to smaller paychecks, a state Earned Income Tax Credit that can provide supplemental cash to working families and Medicaid expansion that reduces uncompensated care costs and saves the state millions of dollars could both help ease the financial strain on low-income families.

Budget Beat – January 4, 2013

Happy New Year!

Congratulations to Senator Dan Foster!

The Charleston Gazette named Senator Dan Foster as the West Virginian of the Year for 2012. Senator Foster is wrapping up a decade of legislative service this month and will be missed at the Capitol. He was a champion of issues that affect low-income West Virginians such as health care, civic engagement, education and the environment. We applaud his years of service!

WVCBP Executive Director to Serve on National Taskforce

Just before the holidays, WVCBP Executive Director Ted Boettner was nominated to serve as a primary member of the Department of Interior’s Extractive Industries Transparency Initiative (USEITI) Advisory Committee. This committee will oversee and guide implementation of the Initiative and represents government agencies, companies and public stakeholders.

The Extractive Industries Transparency Initiative is “a voluntary, global effort designed to increase transparency, strengthen the accountability of natural resource revenue reporting, and build public trust for the governance of these vital activities.”

The committee’s first meeting is next month.

New Year’s Resolution: Check Out the WVCBP Blog!

This week’s blog posts touched on education and health care. Ted Boettner’s post on Wednesday stressed that West Virginia needs to break its “resource curse” as it plans for a future in the current natural gas boom. West Virginia cannot afford to lose sight of the need to diversify its economy and the influx of jobs related to the natural gas industry could veer the state off course. The Charleston Gazette picked up on Ted’s blog post in Coal Tattoo when it discussed the politics of usual surrounding the decline of coal.

Ted and Stuart made a case for expanding Medicaid to 130,000 West Virginians under the Affordable Care Act: the cost to hospitals. By expanding Medicaid, a large portion of hospitals’ uncompensated costs will disappear.

Sean continued his series on the impacts of eliminating the personal property tax. Perhaps hardest hit would be West Virginia’s school systems which rely on personal property taxes for 30 percent of their funding. See what the impact would be in your county.

Eliminating the Personal Property Tax: Part 4 – What’s at Stake for Schools

(Continued from Part 3 – published 12/19/12).

Nearly $1.5 billion in property tax revenue was raised in West Virginia during FY 2012, and West Virginia’s schools were by far the largest recipients of the revenue. County school districts collected a total of $967 million in property taxes, nearly two-thirds of the total. Overall, property taxes account for roughly 30 percent of school district funding.

Of the $967 million in property tax revenue raised by school districts in West Virginia, an estimated $299 million was raised through taxes on personal property. But, if personal property taxes were eliminated, school districts would not lose the whole $299 million, because of the way school financing works in West Virginia.

While property taxes are an important source of revenue for schools in West Virginia, they actually receive most of their funding from the state, through the school aid formula. The school aid formula determines the amount of funding each school district needs to operate, called the total basic allowance. Each school district then raises whatever revenue it can through its current property tax levy, the rate of which is set by the legislature and uniform throughout the state. A percentage of the revenue from each school district raised through the current levy, known as the local share, is deducted from the total basic allowance, and the state provides the remainder to each school district, which is known as the total state aid.

Last year, the total basic allowance was $1,579,583,138, while the local share was $380,935,932, meaning that the state sent $1,198,647,206 to the local school districts.

School districts can also raise additional revenue through excess levies, if approved by the voters. Revenue from excess levies, bond levies, and other levies are do not affect the school aid formula. 

So if taxes on personal property were eliminated, the revenue lost from school current levies would be partially replaced by the school aid formula, but the revenue lost from excess and other levies would not. The table below shows the potential revenue lost for each school district, after adjusting for the school aid formula.

School District Total Loss
Barbour $197,657
Berkeley $6,400,282
Boone $8,018,620
Braxton $665,815
Brooke $4,171,443
Cabell $10,716,553
Calhoun $251,144
Clay $381,202
Doddridge $2,505,224
Fayette $3,713,522
Gilmer $675,979
Grant $183,638
Greenbrier $3,115,697
Hampshire $143,520
Hancock $4,211,850
Hardy $151,888
Harrison $8,578,689
Jackson $4,173,938
Jefferson $3,405,377
Kanawha $17,864,266
Lewis $1,512,761
Lincoln $1,850,893
Logan $7,624,461
McDowell $5,939,262
Marion $7,140,768
Marshall $3,068,333
Mason $5,261,584
Mercer $3,126,567
Mineral $2,556,618
Mingo $5,640,918
Monongalia $8,923,830
Monroe $479,592
Morgan $617,119
Nicholas $2,026,644
Ohio $5,117,520
Pendleton $58,988
Pleasants $1,408,643
Pocahontas $77,649
Preston $1,545,557
Putnam $4,619,898
Raleigh $8,895,713
Randolph $1,000,288
Ritchie $1,135,177
Roane $259,398
Summers $48,772
Taylor $834,343
Tucker $127,883
Tyler $1,307,822
Upshur $1,671,235
Wayne $3,925,642
Webster $137,010
Wetzel $2,214,625
Wirt $253,918
Wood $6,839,752
Wyoming $4,786,928
Total $181,562,416

 Source: WVCBP analysis of State Tax Dept  and WV School Finance Data

Eliminating personal property taxes would cost the school districts $145 million in current levy revenue, but the school aid formula would replace about  $117 million, resulting in a total loss of about $27 million. However, the school districts would lose an additional $154 million from their excess and other levies, resulting in a total loss of $182 million.

According to the Office of School Finance, there were approximately 282,000 students enrolled in WV school in the 2011-12 school year. The table below shows the per student cost of eliminating personal property taxes for each school district. As the table shows, on average school funding would decrease by $644 per student. But in several counties, the loss is even more dramatic, with school districts losing well over $1,000 per student. The Doddridge county school district would stand to lose a devastating $2,143 per student. 

Schools in West Virginia have by far the most to lose from the potential elimination of the personal property tax.

School District Total Loss Enrollment  Loss per Student
Barbour $197,657 2,499 $79
Berkeley $6,400,282 17,720 $361
Boone $8,018,620 4,545 $1,764
Braxton $665,815 2,220 $300
Brooke $4,171,443 3,363 $1,240
Cabell $10,716,553 12,700 $844
Calhoun $251,144 1,122 $224
Clay $381,202 2,071 $184
Doddridge $2,505,224 1,169 $2,143
Fayette $3,713,522 6,827 $544
Gilmer $675,979 943 $717
Grant $183,638 1,887 $97
Greenbrier $3,115,697 5,247 $594
Hampshire $143,520 3,590 $40
Hancock $4,211,850 4,308 $978
Hardy $151,888 2,297 $66
Harrison $8,578,689 11,128 $771
Jackson $4,173,938 5,046 $827
Jefferson $3,405,377 8,845 $385
Kanawha $17,864,266 28,458 $628
Lewis $1,512,761 2,605 $581
Lincoln $1,850,893 3,679 $503
Logan $7,624,461 6,449 $1,182
McDowell $5,939,262 8,104 $733
Marion $7,140,768 4,778 $1,495
Marshall $3,068,333 4,381 $700
Mason $5,261,584 3,559 $1,478
Mercer $3,126,567 9,611 $325
Mineral $2,556,618 4,373 $585
Mingo $5,640,918 4,573 $1,234
Monongalia $8,923,830 10,731 $832
Monroe $479,592 1,921 $250
Morgan $617,119 2,617 $236
Nicholas $2,026,644 4,076 $497
Ohio $5,117,520 5,370 $953
Pendleton $58,988 1,065 $55
Pleasants $1,408,643 1,278 $1,102
Pocahontas $77,649 1,183 $66
Preston $1,545,557 4,600 $336
Putnam $4,619,898 9,631 $480
Raleigh $8,895,713 12,372 $719
Randolph $1,000,288 4,294 $233
Ritchie $1,135,177 1,578 $719
Roane $259,398 2,505 $104
Summers $48,772 1,551 $31
Taylor $834,343 2,395 $348
Tucker $127,883 1,053 $121
Tyler $1,307,822 1,419 $922
Upshur $1,671,235 3,867 $432
Wayne $3,925,642 7,448 $527
Webster $137,010 1,534 $89
Wetzel $2,214,625 2,844 $779
Wirt $253,918 1,010 $251
Wood $6,839,752 13,462 $508
Wyoming $4,786,928 4,229 $1,132
Total $181,562,416 282,130 $644

Source: WVCBP analysis of State Tax Dept  and WV School Finance Data 

 

 

Shale Boom Should Not Deter Education Investments

“Political leaders don’t have to do the hard work of building human capital and promoting sustainable economic growth — they can just coast along, riding the benefits of the resource boom.”

The above quote was taken from a new article in Foreign Policy Magazine by David Rothkopk. The article, “Cursed with Plenty,” looks at a theme familiar to many West Virginians: the resource curse. Rothkopk believes that the national shale energy boom could make the country complacent and render it unable to deal with our country’s crumbling infrastructure and education system, climate change, and long-term fiscal outlook. While Rothkopk is focused on the national scene, some of his insights equally apply to West Virginia -which is experiencing a boom in shale gas development in the northern part of the state.

For example, West Virginia has one of the most undereducated workforces in the country – with a little more than half of its workers with a post-secondary degree. According to a recent report by Workforce West Virginia, very few of the jobs in Marcellus Shale related industries require post-secondary attainment. This means that the state could grow complacent about putting adequate investments into higher education because the perceived demand and necessity for highly-educated workers is diminished. Shale extraction could also crowd out other businesses and entrepreneurs, as communities act rationally and place little stock in education as a means of securing future employment. The ability of a community to invest in education could also be negatively impacted by property tax abatements aimed at recruiting industries related to natural resource extraction, as we witnessed last year.

West Virginia would be wise to not repeat the mistakes of the past, where an over concentration in coal extraction has left the state with an undiverse and struggling economy. Luckily, there are plenty of solutions to ensure that the state benefits from natural resource extraction and that we continue to make the necessary investments in human and physical capital that will ensure a broadly shared prosperity and a sustainable future for our state.

 

Hospitals Need Medicaid Expansion to Reduce Costs

Hospitals in West Virginia will face higher costs if the state fails to expand Medicaid to 130,000 low-income West Virginians under the Affordable Care Act. According to a recent study by John Graves in the New England Journal of Medicine, hospitals will see a reduction in federal Disproportionate Share Hospital (DSH or “dish”) payments that provide hospitals with partial reimbursements to cover uncompensated care given to low-income and uninsured patients. According to the American Hospital Association, in 2010 uncompensated care costs hospitals about $39 billion or 6 percent of their operating costs.

Under the current DSH formula, West Virginia hospitals would receive about $158 per-patient-per day from 2014 to 2020. However, under the ACA, this drops by $25 if West Virginia forgoes Medicaid expansion. While the state will see a reduction of $47 per-patient-per day if the Mountain State fully expands Medicaid according to Graves, this reduction will have only a small impact on hospitals. This is because most of the uncompensated costs of hospitals is due to low-income patients that do not have health insurance. By expanding Medicaid to 130,000 low-income uninsured patients, a good chunk of the hospitals’ uncompensated costs will disappear.

If West Virginia fails to expand Medicaid, uncompensated care costs at hospitals will likely grow at the same time that DSH cuts occur. If this happens, hospitals will likely provide less uncompensated care or they will shift costs onto everyone else. If West Virginia adopts expansion, this would end covering more than half of the state’s uninsured citizens and help offset the reduction in DSH funds.

If the Governor is looking for another reason to adopt Medicaid expansion, the unintended cuts for hospitals that provide uncompensated care may provide the cover he needs to get on board.