How Should We Pay for Our Roads?

As we stated last month, West Virginia, like most states, is finding it increasingly difficult to pay for construction of its road and bridges because its gas tax can’t keep up with the growth of fuel-efficient vehicles and the increasing number of miles driven on state roads. And while a vehicle miles traveled (VMT) tax might be a better option in the long-run for the state, in the short-run we will need to find additional sources of revenue if we want to maintain our roads and bridges. As the chart below illustrates, total State Road Fund revenue is projected to decline over the next several years from $698.2 million in 2014 to $662.2 million by 2016. (The good news is that the projections from the Department of Revenue tend to be conservative.)

According to the WV Department of Revenue, the decline in revenue collections is driven primarily by a predicted decline in fuel consumption over the next several years. This is because the flat rate of the gas tax, 20.5 cents per gallon, will decline as consumers purchase less gas over the coming years. Meanwhile, the variable gas tax rate, which is equal to five percent of the average wholesale price, will become a larger share of motor fuel tax collections but will not be large enough to offset the declining power of the flat rate.

As mentioned in the previous post, WVU economist Tom Witt studied the financing of West Virginia highways back in 2010 and recommended several options, including raising the motor fuel flat tax rate by 1.6 cents, increasing the variable gas tax rate and the sales (privilege) tax rate from five to six percent, and indexing registration fees to inflation. Witt also recommended looking at bonding, Public-Private-Partnerships (P3s), and the transfer of more authority over the local government. All of these are sensible options, but, of course, face many political barriers.

While there are several options the state could pursue, the best approach might be a combination of smarter investments, efficiency, new revenue, and enhanced partnerships. 

What Does Freedom Mean?

Budget Beat for April 26, 2013

Evidence Counts – the WVCBP blog

Freedom means different things to different people. The Mercatus Center at George Mason University ranks West Virginia 42nd in overall freedom and recommends that the state cut employment and corporate income taxes, reform liability laws, and stop mandating full-day kindergarten attendance. Read more in Sean’s blog post. The ranking places the priorities of corporations and the wealthy above low-income families as Ted points out in his blog post and does not measure items most of us find important like access to a quality education.

WVCBP Executive Director at Appalachia’s Bright Future Conference

photo by Rebecca Roth

This week Ted traveled to Harlan, Kentucky to present at the Appalachia’s Bright Future Conference. Read more here. He also attended the Kellogg Foundation’s America Healing conference in Asheville, NC where he gave a presentation on using data for racial equity. Learn more about the conference here.

WVCBP in the News

This week several newspapers, some outside of West Virginia, reported on the passage of the Feed to Achieve Act as the first of its kind in the nation. WVCBP data on the number of children living in poverty in the state appeared in the AP coverage. Read it here.

Freedom for Whom? 50 State Index Guided By Libertarian Ideology, Not Freedom

Yesterday, Sean showed that ranking well on the libertarian 50 State “Freedom” index doesn’t mean your state performs better economically nor does it have any relation to low poverty or higher wages. While Sean looked at the numbers, I would like to talk about the qualitative side of the equation. What does the Mercatus Center mean when it says “freedom?” Freedom for who, exactly? After reviewing the index, it is hard not to come to the conclusion that the Mercatus Center values economic freedom for corporations and the wealthy at the expense of freedom for working families and children.

Freedom as defined by the Mercatus Center is lower taxes, less government spending, less regulation of corporations and legal reform that benefits corporations. Nothing in the index measures the freedom to have access to a quality education or health care or the freedom to drive your car on state roads or to flush your toilet. And they never look at externalities of corporations that deprive people of freedom by shifting their costs onto other folks in terms of poorer health, higher prices, and so forth.

As Matthew Yglesias points out here, the “freedom” index picks and chooses which issues to consider when assigning rankings. Social issues like same-sex marriage and reproductive rights are given little consideration.

West Virginia Lacks “Freedom,” Should We Worry?

Earlier this month, the Mercatus Center at George Mason University released the 3rd edition of the Freedom in the 50 States rankings, which measures fiscal, regulatory, and personal “freedom.” The study shares some similarities with the previously discussed Economic Freedom Index, both in how it defines freedom, and its relationship with real world economic measures.

Freedom in the 50 States uses a multitude of measures to determine levels of freedom. The biggest include tax burden and freedom from tort abuse, as well as right to work laws and crime statistics. According to the index, West Virginia ranks 42nd  in overall freedom. In order to increase freedom, the study recommends that West Virginia cut state employment, cut corporate income taxes, reform liability laws, and stop mandating full-day kindergarten attendance.

Some of the items of note on West Virginia’s page include our change in rank, as well as our change in population and personal income, the implication being that states that improve their ranking will see population and income growth. But, as the chart below shows, that is not the case. Going back to 2001, there is almost no correlation between a change in a state’s freedom rank and change in its per capita personal income. In fact, in an odd bit of symmetry, the state with the biggest fall in rank, Wyoming (which saw its rank fall from 10 to 36), had similar per capita personal income growth (53% vs 44%) as Oklahoma, the state with the biggest jump in rank (31 to 5).

 

So if improving our “freedom” doesn’t look like it will attract people and money to the state, could it be because the states that already are more free are doing better? Not really. First, much like the Economic Freedom Index, (and the tax competitiveness index, and the best states for business rankings) the Freedom in the 50 States rankings are a poor predictor of job growth. The chart below compares the 2007 rankings with private sector employment growth in the next five years. And as the chart shows, there is a negative, but very weak correlation between a state’s ranking and subsequent growth, with no real tendency for states with more freedom to have better job growth. The correlation falls to -0.01 when one removes the outlier of North Dakota.

Our state’s level of freedom also has little to do with some of the state’s major problems. Take poverty, for instance. The chart below shows essentially no correlation between a state’s freedom ranking and poverty rate in 2011. The results are the same for the other years available as well. If poverty remains one of the state’s biggest challenges, pursuing freedom won’t help.

The same is true for West Virginia’s low levels of labor force participation. One would think that in a “free” state, people would be more free to work. But that’s not the case, as labor force participation has a very weak correlation with a state’s freedom ranking.

Like the other rankings, the Freedom in the 50 States rankings do have a moderate correlation with at least one economic measure. But, like the others, it’s a bad one. A state’s freedom rank has a moderate correlation with its median wage, but it’s the states with more freedom that tend to have lower wages. But since the index hurts states for having right to work and minimum wage laws, it’s no surprise that “freedom” in this case means the freedom for businesses to pay their employees less.

While rankings like the Freedom in the 50 States can attract a lot of attention, and make for an attractive soundbite, they don’t tell us anything that matters. A state like West Virginia faces many challenges, from poverty, to education, to healthcare. Making it harder on ourselves to address these problems makes little sense, even if improves our rank on some arbitrary scale.

Tax Day – Where Do Your Tax Dollars Go?

Budget Beat for April 19, 2013

Evidence Counts – the WVCBP blog

This week was all about taxes and budgets. While the House and Senate met to work out differences between their budget bills and the one presented by the governor in February, there really wasn’t much to talk about as any disparities were minimal. And in this era of budget cuts that the state is facing, we can look back and remember they are a result of tax cuts to corporations and businesses as Ted points out in this week’s blog post.

What WERE the Differences Between the Budget Bills?

Want to know how the legislative budget bills differed from the governor’s bill? Read all the details in a WVCBP report released this week. In an op-ed appearing in the Charleston Gazette on Tax Day, Ted and Sean discuss the “power of the purse” and how, in West Virginia, that authority falls largely under the Executive branch. Balancing out the power and giving West Virginia citizens a greater say in budget decisions could be done if the state joins the other 40 that have a Legislative Fiscal Office, an independent, non-partisan legislative agency that looks at the costs of proposed legislation.

WVCBP in the News

As we all wrote those checks for Tax Day, it is important to note that corporations pick up a smaller and smaller portion of the tab. To make up for it, West Virginians paid an average $620 extra in taxes last year while corporations enjoyed $150 million in tax credits and cuts. Read more in this week’s Charleston Gazette article.

Where do these important tax dollars go? To many very important programs and services:

 

Now that the 2013 Legislative Session is over, advocacy groups await Governor Earl Ray Tomblin’s decision on Medicaid Expansion. A West Virginia Public News Service article this week featured WVCBP analysis on the issue.

WVCBP research was also cited this week in an article appearing in the State Journal on rebuilding West Virginia. The article refers to our analyses on West Virginia’s employment picture.

US EITI Names Co-Chair

WVCBP Executive Director Ted Boettner was nominated late last year to be a member of the US Extractive Industries Transparency Initiative (EITI). This month the organization selected Danielle Brian as its Co-Chair. Ms. Brian is the Executive Director of Project on Government Oversight (POGO), a Washington, DC based nonprofit that champions good government reforms. The EITI is an international initiative that requires governments to publicly disclose their revenues from oil, gas, and mining assets, and for companies to make parallel disclosures regarding payments. By signing onto the global standard that EITI sets, the U.S. government can help ensure that American taxpayers are receiving every dollar due for the extraction of these valuable public resources.

We Must Invest in Our Communities, Our Families, and Our Economy

Taxes are how we pay for the things we do together for our communities, our families, and our economy. Working together through government allows us to accomplish things that are vital to us in West Virginia and that we cannot do alone. Our roads allow us to get to work each day and they allow businesses to move their products to market. Our schools educate our children and strengthen our workforce. Our police and fire fighters keep our neighborhoods safe and the safety net protects us when we fall on hard times.

Recently, however, we have not taken the necessary steps to make sure we invest in what makes families strong and creates jobs. About six years ago, our state made tax policy choices that have shaped state policy ever since.  At the time, our economy was stronger and we were experiencing large surpluses. Tax cuts seemed like a good idea to many. However, as we argued at the time, when you cut taxes at the state level you can almost always count on corresponding cuts to programs and services at some point. And this is exactly what has happened. In 2007, we started cutting the corporate income tax and have been gradually eliminating the business franchise tax. All together, these tax cuts have cost us close to $150 million per year and nearly $200 million once full implemented.

The state also eliminated the food tax over this period, which will cost an estimated $175 million next year. We also let our estate tax vanish with the federal estate tax, losing around $20 million per year. Meanwhile the governor’s FY 2014 budget cuts services and programs by $75 million, including nearly $35 million in higher education. Meanwhile, tuition is skyrocketing and debt is piling up on the backs of our college students.

Over the next several days, the legislature will be considering the state budget. While there will be little changes to the bill, for reasons we’ve documented here, the budget is the single most important bill we pass each year. It will directly shape our economy and impact each one of the state’s 1.8 million people. 

We know that a modern economy needs a quality transportation system to function, and ours is at risk. We also know that the ability of a state to create and attract jobs that pay good wages depends on having a well-educated workforce. Investments in both of these areas can strengthen our economy by allowing our people and businesses to be more productive.

For this to happen, we need to stop wasting money on inefficient business tax cuts that drain wealth out of our state and start by  investing in our children, our communities, and our economy so we can build a broadly shared prosperity and help move the state forward. 

Problem With Priorities? Tax Breaks for Coal, Budget Cuts for Education – Budget Beat for April 12, 2013

Evidence Counts – the WVCBP blog

Governor Tomblin has asked the Senate and House leadership to restore a small amount of the 7.5% in budget cuts requested in his FY 2014 budget. For more details on the governor’s most recent proposal, read Sean’s latest blog post.

This week HB 3072 passed out of the Senate Energy Committee. It does not look like the bill will make it out of Senate Finance which shows wisdom by Senate leadership. The bill would have provided a tax giveaway to coal in a year of budget cuts to higher education and other important programs. The stated purpose of the bill was to encourage coal production and create jobs but there is little evidence that it would do either. Read more in Ted’s blog post.

Health and Economic Disparities in West Virginia

This week we teamed up with the Minority Health Advocacy Group to map where people of color and ethnic minorities live in West Virginia. In addition, we looked at the health and economic disparities between African American and white populations.

 

Broadband Policy Recommendations

This week the Central Appalachian Regional Network (CARN) released its report on broadband policy recommendations for West Virginia and surrounding states. The WVCBP was a contributor to this report.

Medicaid Expansion – Making the Case

On the heels of last weekend’s Medicaid Expansion forum, we have posted a report from the American Friends Service Committee on our website this week. The report goes beyond making the financial case for expansion and gives real life examples of people whose lives have been impacted by the loss of health care coverage.

Appalachia’s Bright Future Conference – April 19

Kentuckians for the Commonwealth is hosting a three-day conference next weekend on how to build a diverse and sustainable economy in eastern Kentucky and central Appalachia. The conference will feature information on the changing economy, lessons from other regions that have gone through transition, and examples of entrepreneurs and communities beginning to build for the future. Registration is available online.

Is the Coal Tax Credit a Giveaway?

Yesterday, the Senate Energy Committee passed out HB 3072, which gives West Virginia coal companies a severance tax credit of $3 per ton for coal that is sold to power plants in the state that is an excess of what was sold in 2012. As we noted in an earlier post, the tax credit could not only drain money out of the general revenue fund and local governments but it could be a giveaway to the coal companies and could do little to encourage the use of West Virginia steam coal.

The effectiveness of the credit hinges on its ability to encourage utilities to purchase additional West Virginia coal instead of cheaper Western coal or halt power plants from moving to natural gas for electricity generation. To accomplish this goal, the entire value of the credit would have to be passed along to the power plant and the marginal cost of the credit would have to be large enough to encourage the purchase of West Virginia coal.

For example, in 2011 coal power plants purchased 16.2 million tons of West Virginia coal. Using this as our base year (2012), if power plants purchased 19.2 million tons – 3 million more than in 2011 – of West Virginia coal at the spot price of $67 per ton it would total $1,286,400,000. If we apply the $3 per ton credit to the additional 3 million of tons it would reduce this amount by only $9 million or to $1,277, 400,000. This is a marginal cost difference of 0.7 percent. Meanwhile, the $9 million would reduce coal severance tax collections by more than 2 percent and ultimately reduce investments in important government services and programs. Of course, this assumes that the goal of the bill is to increase the aggregate production of West Virginia coal used in the state and not just coal used by one individual power plant. 

This bill just doesn’t add up, nor does it encourage coal production or increase jobs. While there is little doubt the coal industry faces tough times ahead, we should not be giving away free money that will reduce our important investments in the public structures that we know create jobs.

Governor Requests Budget Adjustments

Last week, Governor Tomblin sent a letter to the House and Senate leadership requesting an adjustment to the FY 2014 budget, which he previously submitted to the legislature at the beginning of the session. Governor Tomblin restores some of the 7.5% budget cuts that were included in the original budget and includes new funding for programs relating to the education reform bill. The House Finance Committee has included these adjustments in its version of the budget.

Below is a table of the adjustments:

 

The driving force behind the adjustments seems to be a new estimate for the school aid formula. The governor’s request increases the local share of the school aid formula (which is determined by local property tax revenue) by $15 million, which then frees up $15 million in state funds. About $10 million of that is put back into education programs. The Supreme Court also reduced its request, freeing up an additional $4 million. 

$5 million was put into the state’s share of Medicaid, while the majority of the remaining adjustments were made to Corrections spending, as well as money for the WV State Police to add office space for the Criminal Records and Traffic Records sections.

Taken as a whole, the budget adjustments add $1.37 million in new spending. The letter does not explain where the revenue will come from for the increase, nor why certain adjustments were made in favor of other areas of the budget.

Budget Beat – April 5, 2013

Medicaid Expansion Forum – This Sunday

This Sunday join others from around the state for a forum and training on Medicaid Expansion. Registration and refreshments begin at 1PM, the event starts at 2PM – 3:30PM. Location: Christ Church United Methodist, 1221 Quarrier Street, East, Charleston. Speakers include Senate President Jeff Kessler.

 To find out about whether or not you would qualify for coverage under Medicaid Expansion, click here. To sign a petition urging Governor Tomblin to expand Medicaid coverage, click here.

 Medicaid Expansion will:

• give 120,000 uninsured, low-income West Virginians access to health insurance coverage through Medicaid,

• create about 6,200 new jobs throughout West Virginia in 2016, and

• bring in billions of new health care dollars by drawing down federal funding and increasing jobs and economic activity.

Film Screening Hosted by West Virginia Legislature  

Monday, April 8 at the Culture Center in Charleston will be a screening of a documentary on hunger in America, A Place at the Table at 6PM. Immediately following will be a panel discussion featuring film director Lori Silverbush and food expert Dr. Janet Poppendieck. For more information, contact Paul Sheridan at paul.sheridan@wvsenate.gov or 304-357-4490.

Effects of Sequestration on Nonprofits – From the West Virginia Non-Profit Association:  

The sequestration cuts will have an impact in every West Virginia community, and therefore will hit virtually every nonprofit, including those that do not receive government funding. The National Council of Nonprofits has launched a website to alert nonprofits about the need to capture information about the effects of sequestration and help them collect data to tell their stories about the negative effects of sequestration on real people in local communities across West Virginia and America.

Evidence Counts – the WVCBP blog

In reaction to lower-than-expected tax revenues, the West Virginia Senate this week passed a bill that would cut $28 million from the current state budget. This is in spite of the state’s rainy day funds which added $100 million in 2012. Read more in Sean’s blog post.

Banning the Box means removing questions on employment applications that ask about felony convictions. Seven states and 43 local governments have adopted this measure. While employers can still do criminal background checks, they would be less likely to automatically disqualify someone before looking at their other credentials. Read more in Ted’s blog post.

West Virginia, along with many other states, is grappling with how to pay the additional $1.3 billion it needs each year to improve and maintain its roads and highways. SB 354 would authorize the Division of Highways to study the alternatives to the gas tax which include the vehicle miles traveled tax. Read more in Ted’s blog post.

WVCBP in the News

The Senate bill that would establish free meals for all West Virginia students made national news. The bill was passed last Friday and would make West Virginia the first state to create such a program.

Responding to calls to make his decision on whether or not to expand Medicaid coverage, Governor Tomblin this week announced that he is waiting for more data on the issue from a study he commissioned. Wednesday’s Charleston Daily Mail story lists the WVCBP as a supporter of Medicaid Expansion.