Monday Morning Review: Free Market Fantasies, Sequestration, and Medicaid Expansion

On Sunday, Gazette gossip columnist Phil Kabler pointed out that John Raese – a West Virginia Republican politician and owner of Greer Industries in Morgantown – “was No. 2 among the top 100 purchase card vendors in the state, making $12,998,945 off the state in 2012.” The fact that Mr. Raese receives so much money from the state is hard to couple with his devotion to “free markets” and “less government.” It just goes to show that many of the folks that often espouse admiration for free enterprise are often the ones taking the most from government. As economist Dean Baker has pointed out time and time again, many wealthy conservatives don’t mind government as long as it distributes money upward and to them.

In other news, the White House released fact sheets yesterday on the impact of sequestration on March 1st in all 50 states. The impact to West Virginia would be cuts in several areas, including

Teachers and Schools:  $5.8 million, Education for children with disabilities: $3.6 million, Work-Study Jobs: 200 fewer jobs

Head Start: Eliminate 500 children from program, Environmental Funding: $2.5 million in funding and grants

Military Readiness: 2,000 furloughs, resulting in $9.9 million reduced gross pay, Law Enforcement: $96,000

Job Search Assistance: $247,000, 9,240 fewer people getting help, Child Care: 100 children lose access to child care

Vaccines for Children: $52,000, resulting in 760 fewer children receiving vaccines, Public Health: $669,000

Domestic Violence: $39,000, Nutrition Assistance for Seniors: $160,000,

Yesterday, WV Public New Service reported on a new study by the Urban Institute and the Robert Wood Johnson Foundation that found that Medicaid expansion could provide health coverage to one third of the 11,000 veterans in West Virginia who currently do not have health insurance.

Budget Beat – February 21, 2013

Children in Poverty

Along with the WV Healthy Kids and Families Coalition, this week the WVCBP released the report Children in Poverty: A Growing and Persistent Problem. With one in four West Virginia children living in poverty, the issue is getting much-needed attention right at the beginning of the 2013 Legislative Session with the Senate Select Committee on Children and Poverty meeting for the first time this week (and every Wednesday during the session) and Children’s Day taking place on Tuesday, February 26 at the state Capitol.

West Virginia has markedly decreased the poverty rates of its senior citizens so we know that it is possible to make positive change. Doing so for children would have life-long impacts including reducing their rates of teen pregnancy, high school drop-outs, obesity and crime, and help to break the cycle of generation after generation living in poverty.

 

WVCBP in the News

The release of this week’s report was covered statewide by the Charleston Gazette, the Charleston Daily Mail and West Virginia Public News Service. Ted presented the report’s findings at the Worth Our Care symposium in Charleston on Tuesday.

Flexing his home-rule muscle, Charleston Mayor Danny Jones wants to raise taxes to pay for renovations of the city’s Civic Center. While improving infrastructure is important, how to pay for it needs to be carefully thought out. The Charleston Gazette ran this article on the issue.

Evidence Counts – the WVCBP blog

Another issue promising to make headlines this session is the WV Future Fund. Legislation was introduced last week by Senate President Jeff Kessler and Ted blogged about the resource “curse” this week.

Ted also put together information on Mayor Danny Jones’ proposal to raise taxes to pay for the Civic Center and what his ideas mean to low- and middle-income families who are likely to take the brunt.

Next Week’s Budget Hearings

Look for our analysis of Governor Tomblin’s FY 2014 budget in next week’s Budget Beat

Monday, February 25
House: Senior Services at 2PM
Senate: State Treasurer at 3PM, Public Service Commission at 3:45PM

Tuesday, February 26
House: Treasurer’s Office at 9AM, Military Affairs and Public Safety at 1PM
Senate: Department of Health and Human Resources at 3PM

Wednesday, February 27
Senate: Supreme Court of Appeals at 3PM

Thursday, February 28
House: Lottery Commission at 9AM, Department of Revenue at 1PM
Senate: Department of Education at 9:30AM, School Building Authority at 3PM

Friday, March 1
House: Department of Health and Human Resources at 9AM

The Charleston Tax Shift: Is It Worth It?

Today we learned that Charleston Mayor Danny Jones is proposing a tax reform package to pay for upgrades to the Charleston Civic Center. The tax reform package includes both tax reductions and the adoption of a city sales tax. The tax reductions include eliminating the Business and Occupation (B&O) tax on manufacturing and reducing the B&O tax on retail in the city from 0.5 to 0.35 percent. Under the state’s home-rule pilot project, the city would implement a 0.5 percent sales tax on everything but automobiles and non-prepared foods.

 

CHARLESTON TAX REFORM PROPOSAL
Business & Occupation Reductions  
Eliminate B&O on Manufacturing ($350,000)
Reduce B&O on Retail from 0.5% to 0.35% ($2,250,000)
Estimated Annual B&O Tax Reduction ($2,600,000)
   
Sales Tax Implementation  
0.5% sales tax $7,500,000
Less: Automobile Exemptions ($625,000)
Less: Food Exemption ($700,000)
Estimated New Sales Tax Revenue $6,175,000
   
TOTAL $3,575,000

 

According to city officials, the $3.6 million in estimated new revenue would go toward renovating the Civic Center  – which is estimated to cost between $45 and $60 million once all renovations are complete. While the Civic Center may need to be renovated, what is unclear is why the city would use this as an opportunity to lower taxes on manufacturers who likely sell much of their products out of state. On the other hand, the strategy of lowering the B&O rate on retailers is more clear. I imagine it is because most sales tax revenues are collected by retailers and that they are afraid that increasing the sales tax will hurt their businesses, therefore they need to lower their B&O tax.

However, instead of lowering their B&O tax why not impose a smaller sales tax rate? For instance, based on the figures above, a 0.3 percent sales tax would produce $3.7 million and lower the rate for consumers. One thing we know for certain is that a new sales tax will fall heavily on low- and middle-income taxpayers. As the chart below from ITEP’s “Who Pays?” report highlights, sales taxes are highly regressive and fall disproportionately on families with low incomes. For example, the bottom 20 percent of West Virginia families paid 3.1 percent of their family income in sales taxes (6.4% if you include sales and excise taxes) while the top one percent of income earners only pay 0.6 percent of their income in sales taxes (1% if you include all sales and excise taxes).

The Business & Occupation tax functions as a gross receipts tax on annual gross income of business.  While no one knows for sure who ultimately pays the local B&O tax, much of it may be exported out of state (perhaps close to 50%), a lot of it falls on consumers, some may fall on workers, and a good portion falls on business owners as a cost of doing business. The last part is probably why businesses prefer the sales tax, because the B&O tax may be harder to pass along to consumers in a competitive market. 

Another question is why city residents should pay for the Civic Center renovations instead of the hotels and retail stores that will be the biggest beneficiaries? If I was wearing my libertarian policy wonk hat, I’d say that if the Civic Center renovations are needed so badly why doesn’t the private sector make the investment? Don’t they know a good investment when they see one?  While I am all for jobs and a strong economy in Charleston, I need to know that businesses have some more skin in the game. After all, they benefit just as much as families from emergency services and public goods and it is important that they also contribute their fair share.

Want to Avoid the Resource Curse? Build a Mineral Permanant Fund

Last week, Pulitzer Prize winning journalist Tina Rosenburg had an op-ed in the New York Times on how countries can avoid the resource curse. While the brunt of the article focused on how unstable countries are vulnerable to building a shared prosperity from their rich natural resources, Rosenburg highlighted Alaska and its permanent fund as an example of how countries can beat the resource curse:

Todd Moss, a senior fellow and vice president for programs at the Washington-based Center for Global Development, believes they might. He points to an unlikely source of inspiration: Alaska. The state of Alaska is bound by law to put at least a quarter of its revenues from oil into the Alaska Permanent Fund, which was established in 1976. The money is invested and each year, every resident of Alaska gets a share of the dividends; for consistency, the amount is calculated using an average of the fund’s earnings over the past five years. The dividend check is considered taxable income. Last year, the check was for $878. In 2008, the high point, every Alaskan got $2,069.

These payments stimulate the economy and reduce income disparities. They have contributed (pdf, p. 12) to a large reduction in poverty in Alaskan Natives, the state’s poorest group.

But the fund has other benefits. “I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity,” wrote Jay Hammond, Alaska’s governor at the time. Governments often try to save for lean years by paying a portion of oil revenues into a walled-off, legally untouchable fund. Unfortunately, temptation is often more powerful than the law. Venezuela’s oil fund, for example, has been raided (pdf, p 16) by Hugo Chavez, dropping from $6 billion to $3 million in the last decade — during a time of record-high oil prices.

The dividend, by contrast, protects the Alaska Permanent Fund. Hammond’s achievement was to “protect against its invasion by politicians by creating a militant ring of dividend recipients who would resist any such usage if it affected their dividends.” (See here for a quirky summary of criticisms of the fund. )

Scott Goldsmith, an economist at the University of Alaska, writes that the dividend has some unanticipated consequences. “Some would compare this generation of Alaskans to trust fund babies, because there are no personal taxes and receipt of the dividend carries no public responsibilities, the two together undermine the sense of community that comes from the need to collectively choose and fund public services. They also foster a disconnection between government and residents, leading to a deterioration of the quality of government.”

While Alaska is endowed with rich oil deposits that far surpass the value of West Virginia’s coal, natural gas, and oil reserves, the strategic importance of creating a permanent fund applies equally to West Virginia. This is especially true since West Virginia, unlike other states, does not own the land or the minerals and has far less control over regulating the extraction of its rich natural resources.

Creating a Future Fund, like the one championed by Senate President Kessler, would go a long way  to ensuring that future generations benefit from the mineral wealth of their state.  As Rosenburg points out, without a permanent fund, the economic benefit from the natural resource extraction will decline along with the natural resources themselves and could leave our state less prosperous and more vulnerable  in the future.

As Victor Hugo noted many years ago, “Nothing is more powerful than an idea whose time has come.” The time has come for West Virginia to avoid the mistakes of the past and chart of better course for our future.

_____________

For more information on state permanent severance tax funds, see our report

And the Biggest Heart Breaker is….

Happy Day After Valentine’s Day!

Liam O’Leary – the shirt says it all

Evidence Counts – the WVCBP blog

Continuing our conversation on children in poverty, Ted blogged this week that one in three young children in West Virginia lives in poverty. Much more to come next week when the WVCBP co-releases its report on poverty with the West Virginia Healthy Kids and Families Coalition.

It was good to hear Governor Tomblin talk about education and funding child care progams during his State of the State address on Wednesday. For a quick recap of the speech’s highlights, read Ted’s blog post from today.

The governor released his FY 2014 budget this week. Puzzling part is that while asking for agencies to cut back he has also proposed new tax cuts. Read more in Sean’s blog post out today and look for our full analysis next week.

WVCBP in the News

As the 2013 Legislative Session started this week and policymakers announced their agendas, the WVCBP was mentioned in good news (Tomblin Proposes $17 Million in Child-Care Subsidies) and not-so-good news (Tomblin Speech Light on Talk of Energy Issues) both in the Charleston Gazette on Thursday.

While Governor Tomblin may not be talking about the Future Fund as a legislative priority, Senate President Kessler is, along with many other great initiatives including battling child poverty.

Good News in Legislative Session’s First Days

Speaking of the Future Fund, Senator Kessler introduced his bill today to create a Future Fund, SB 167, along with nine cosponsors. It has been double-referenced to the Senate Economic Development and Finance Committees.

On the first day of the session, the Senate introduced and immediately passed Senate Resolution 6 to create a Senate Select Committee on Children and Poverty. Senator John Unger was the resolution’s lead sponsor joined by nine other senators. The committee’s 11 members will include the chairs of the Judiciary, Finance, Education and Health and Human Resources Committees, along with seven others to be selected by the Senate President.

Mr. Boettner Goes to Washington

On Wednesday, Ted attended the first meeting of the U.S. Extractive Industries Transparency Initiative Multi-Stakeholder Group. The group plans to meet throughout 2013 and Ted’s role will be to represent the public, joining others there from government and industry. The group’s goal is to “develop new ways to bring greater transparency to the revenue that is generated and collected from extractive processes of our nation’s natural resources.” To learn more about the U.S. EITI click on this video.

Children in Poverty

Senate leaders appear poised to tackle West Virginia’s high level of child poverty this legislative session. Who lives in poverty in our state?

Source: 2011 American Community Survey and National Center on Children in Poverty

Next Week’s Budget Hearings

The 2013 Legislative Session kicked off this week. Tune in here for a list of upcoming budget hearings:

Monday, February 18
House: Public Service Commission at 2PM
Senate: Secretary of State at 3PM, Consumer Advocate Division at 3:30PM

Tuesday, February 19
House: Auditor’s Office at 9AM, Veterans’ Assistance at 1PM
Senate: Department of Administration at 3PM, Bureau of Senior Services at 3:45PM

Wednesday, February 20
Senate: Attorney General’s office at 3PM, Auditor’s Office at 3:45PM

Thursday, February 21
House: Secretary of State’s office at 1PM
Senate: Division of Corrections at 9:30AM, Department of Military Affairs and Public Safety at 3PM

Friday, February 22
House: Department of Administration at 9AM

FY 2014 Budget Preview

The governor’s FY 2014 budget was released this week. We’ll have our full analysis of the budget next week, but for now, here’s a preview:

Revenues are expected to be down, with the General Revenue Fund projected to bring in $4.140 billion, a $9 million decrease from FY 2013. And while the Lottery Fund is expected to bring in $137 million, $8.3 million more than last year, the Excess Lottery Fund is expected to fall by $10 million, to $164 million. Surplus funds from previous years are also expected to be smaller than last year. 

Recommended appropriations from the state’s General Revenue, Lottery, and Excess Lottery Funds total $4.457 billion for FY 2014. Public education makes up the largest slice of the budget pie, totaling $2.081 billion. The next largest piece of the budget belongs to Health and Human Services, which includes state spending for Medicaid, with appropriations totaling $930.8 million, followed by Higher Education, with appropriations of $480.6 million.

Total Appropriations – General, Lottery, and Excess Lottery Funds – Governor’s FY 2014 Recommended Budget (Millions of Dollars)

Source: Governor’s FY 2014 Executive Budget 

Due to declining revenues and rising health care costs, Governor Tomblin ordered state agencies to cut spending by 7.5 percent to keep the budget balanced. While some areas of the budget were spared from cuts, due to statutory and constitutional requirements, other areas saw sharp cuts. Higher education will experience the biggest cut, with a reduction of $34.8 million, while DHHR will see a $10.9 million cut. A total of 13 departments will split the $75 million in cuts.

 Source: Governor’s FY 2014 Executive Budget

 

On first glance, the state seems to be in stable financial condition, as it has in previous years. But the state’s fiscal position is precarious; while revenues are down, the full impact of the cuts to the corporate net income and business franchise taxes have yet to be felt, and the governor has highlighted an additional $40 million in tax cuts this year. Without these cuts, thee state’s fiscal outlook would be much more positive, and this year’s spending cuts would have been unnecessary. And while the state continues to find ways to fund its share of Medicaid, structural problems in its funding are beginning to surface. Keep an eye out for our full report on the budget next week, where we will address these topics and more.

On the State of the State

On Wednesday, the governor gave his annual State of the State address. From a policy point of view, Governor Tomblin made several pronouncements regarding education, child well-being, prison reform and substance abuse that deserve high praise. However, the Governor also left me scratching my head regarding his proposal to deal with the state’s budget gap of over $200 million. On the one hand, the governor is proposing across the board cuts of $75 million across 15 departments, while on the other hand he is touting tax cuts of $40 million in the upcoming year. The  interesting fact is that no one in the media seemed to pick up on the fact that these tax cuts are resulting in less revenue for investments in these various programs and services.

Pushing the tax and budget cuts to the side, the governor should be commended for the commitment he made to young children in his speech, including expanding enrollment in the state’s universal Pre-K program to 100 percent in three years, shoring up the West Virginia Child Care Assistance Program and Medicaid, and working toward a birth through 5 program with the Benedum Foundation. These commitments alone could potentially help thousands of low-income families and children in the state.

The governor also deserves adulation for tackling the state’s growing prison overcrowding problem, which we documented last year in our report Stemming the Tide. He also laid out some pragmatic steps regarding education reform, including giving counties the choice to go to a balanced calendar (year-round schools), providing 3rd grade reading programs, and coordinating truancy reduction efforts.

The governor’s attention to the growing epidemic of substance abuse is also well founded. However, it will take investments and more tax revenue for treatment and other programs to make a dent in the problem.

Two large holes in the governor’s State of the State were whether the state will join other governors by implementing Medicaid expansion and how the state plans to deal with declining coal production in the southern part of the state. As we’ve noted before, enacting Medicaid expansion is a great deal for the state -it will save the state money, create jobs, and provide health care coverage to over 100,000 low-income West Virginians.

West Virginia needs to invest in transitioning our economy by ensuring that we use our rich natural resources to create sustainable wealth that is reinvested in our people. Creating a Future Fund would go along way to ensuring that we do not repeat the past and that we build wealth that stays in our communities and creates jobs.

Overall, the governor has laid out a positive and ambitious agenda for the upcoming legislative session. It provides a good foundation for moving forward to helping vulnerable children and parents who are struggling to just get by.

Here is the full text of Governor Tomblin’s State of the State.

Reducing Child Poverty in West Virginia

Today, nearly 1 in 3 young children (under age 6) in West Virginia lives in poverty. For a family of four that means living on a income of about $20,000 a year in 2012. Child poverty is a persistent and growing problem in West Virginia. That’s why it’s so important that State Senate Majority Leader John Unger announced his intention of creating a select committee on child poverty.

As the chart below illustrates, the share of West Virginia children under the age of 18 in poverty has grown over the last several decades while the poverty rate for seniors has dramatically declined and the overall poverty rate has slightly dropped.

There are numerous factors for why child poverty has increased nationally over the last several decades. According to scholars Mary Corcoran and Ajay Chaudry, the four largest factors include slower and more turbulent economic growth, increase in the number of single moms, immigration, and most importantly income and wage stagnation. This last one would certainly be a driving factor in West Virginia since the early 80s. For example, real hourly wages have stagnated or declined for most middle-class workers in West Virginia from 1979 to 2011.

 

One reason the poverty rate for seniors has declined dramatically is the federal investments that have been made to reduce poverty among this group. According to a 2012 analysis by the Urban Institute, public spending (federal, state and local) per child was $11,822, compared to $26,355 per senior in 2008.  The growth in public spending for seniors has been primarily in Social Security and the establishment of programs like Medicare that provides health insurance to those over age 65.

While it would be much easier to reduce child poverty with action at the federal level, states can and are playing an instrumental role. Of the $11,822 in per child spending, approximately 68 percent or $8,000 came from state and local governments whereas 97 percent of the $26,355 per senior spending came from the federal government.

Not only can states create new policies and build on existing programs, but they can create momentum at the federal level for change. As I remind my state and local government class each Thursday night, many of the important federal programs, laws, and regulations that we cherish happened first at the state level – such as the minimum wage, a woman’s right to vote, universal health care, and abolition of slavery

For West Virginia to reduce poverty, policymakers will need to focus on making investments in children instead of continuing their drive toward austerity with inefficient tax cuts and spending cuts. As Nobel Laureate James Heckman noted, “Investments in high-quality early education programs have the highest rate of return of any social investment” we can make. It is time we start making them.

Wild and Wonky – Budget Beat for February 8, 2013

WVCBP in the News

Ted was quoted in the State Journal on Wednesday talking about coal employment, how it dropped at the end of last year and what’s making that happen. Many factors are contributing to the loss of jobs in the mining industry and it’s unclear if this is a long-term trend or a short-term blip.

In continuing coverage on how many West Virginians have enough money set aside in their personal rainy day funds, Stuart was cited in West Virginia Public News Service coverage on the disadvantages facing the state’s low-income families if they were to lose their jobs or face another hardship.

When individuals and companies use offshore accounts to avoid paying taxes it hurts local and state budgets and costs the federal government $150 billion in lost revenues each year according to a new U.S. PIRG report. A West Virginia Public News Service article on the issue quoted Sean saying that there is no way to know what the state is losing since companies do not have to report anything about these tax havens.

Stay Tuned

On February 19, the WVCBP, along with the West Virginia Healthy Kids Coalition, will release a report on poverty in West Virginia.

Did you know?

 

Evidence Counts – the WVCBP blog
This week Sean continued his series on how eliminating the personal property tax, while touted as a job creation measure, would most likely have no effect at all on the number of jobs in the state. We need to look no further than Ohio to see that there is no connection between business taxes and job growth.