Happy Labor Day from the WVCBP staff and board (see rare photo of Rick Wilson)

Budget Beat for August 30, 2013

What’s Good for Natural Gas May Not Be Good for Coal

Natural gas production in West Virginia is expected to grow rapidly. As lawmakers plan for the future they may learn that policies for coal and gas may be at odds with each other. Read more in Sean’s blog post.

When Attorney General Patrick Morrisey told members for the West Virginia Chamber of Commerce this week that the state has the higher combined individual and corporate tax rates than any of its neighbors, he was misleading. Check out the facts in Ted’s blog post this week.

In the News

More editorial support this week for Governor Tomblin’s decision to allow PEIA members to enroll their children in CHIP, saving money for both the state and the employees themselves.

Last week’s policy workshops in Bridgeport and Beckley drew hundreds of participants and dozens of organizations, a great foundation for September’s Policy Symposium on September 24 and 25. Coverage of last week’s meetings included the Clarksburg Exponent-Telegram and the Charleston Daily Mail.

Last week, WVCBP Executive Director Ted Boettner traveled to North Dakota with a group of West Virginia legislators to learn about that state’s Legacy Fund. Senate President Jeff Kessler hopes West Virginia can learn from other states as it considers its own Future Fund. North Dakota’s fund has swelled to over $1 billion since 2010. Discussion about the trip and legislative plans for the future appeared on West Virginia Public Broadcasting, and in the Charleston Daily Mail and the Charleston Gazette.

North Dakota FF trip

WVCBP Executive Director Ted Boettner and WVCBP board member Rick Wilson (far left) join lawmakers in North Dakota, August 23, 2013.

Heat Start Vigil

There will be a vigil on September 5 at 6 PM outside Robert C. Byrd Federal Building in Charleston to acknowledge the loss of over $3 million dollars, 400 Head Start seats, and 80 jobs. These cuts have been devastating for West Virginia children and working families and another round of sequester cuts may be coming. There will be over 400 empty chairs and cribs signifying the cuts to Head Start.

Last Day to Register for 2013 Strengthening Families Conference

Learn new tactics and ways to strengthen and sustain families in your community. Register for the 2013 Strengthening Families Conference sponsored by KISRA to be held on Friday, September 6. Today is the last day to register.

Morrisey Misleading on West Virginia Business Tax Climate

Attorney General Patrick Morrisey misinformed business leaders and elected officials this week at the WV Chamber of Commerce’s Annual Business Summit when he said:  “We know that if you look around to all the states West Virginia touches, we have the highest combined individual and corporate tax rate.”

There are several problems with this statement. First, looking at tax rates tells us very little. This is because states have all different kinds of exemptions, loopholes, deductions, credits, and other tax expenditures that drastically reduce tax rates making them somewhat meaningless. What matters is the effective tax rate. 

While state tax rates tell us very little about business climates, there are two standard ways to evaluate a state’s tax burden. The first is by estimating the effective tax rate by looking at tax revenues as a share personal income and the other is by looking at tax revenues per capita. As the two charts below reveal, West Virginia does not rank last in either category. And the central reason why we rank higher in taxes as a percent of personal income is that we have low-paying jobs and higher rates of poverty. (It’s also important to note that the state has reduced its corporate net income and business franchise tax since 2011.)

percent of income

percapita

Lastly, why would you combine the tax rates of corporate and personal income to make your point about a high business tax burden? In general, S corporations pay the personal income tax, while C corporations pay the corporate income tax. Rarely does the same business pay both. Therefore, it makes little sense to combine the two.

According the Gazette, Mr. Morrisey also cited Forbes Magazine saying that West Virginia ranked as the 45th best state for business. If you read the Forbes index for “Best States for Doing Business” you will notice that the reason West Virginia ranks 45th isn’t our tax burden. If fact, Forbes says we rank 13th best in the ‘cost of doing business’ category that includes taxes. As Sean has discussed on many occasions (see here, here, and here,), business climate indexes are very poor at predicting economic growth and tell us very little about what is actually good for working families or state economies.

The reason business taxes matter so little is that they are a very small part of the cost of doing business. As I explained in an earlier post:

the corporate net income and business franchise tax made up just 0.2 percent of the cost of doing business in West Virginia.* You would be hard pressed to make the case that reducing this amount from 0.2 to 0.1 percent would significantly impact economic growth. A much better case can be made that the real goal of reducing these two business taxes has to do with good ole fashion rent-seeking (aka lobbying), not economic evidence or theory.

While we should be doing all that we can to build a strong economy in West Virginia, more ineffective  tax cuts are not going to get us there. We need policies that are going to build and strengthen the middle class so business have a stable source of demand for their goods and services. Through the promotion of human capital and education, and by nuturing entrepreneurs and encouraging participation in political and economic institutions, we can provide sustainable growth that will make us all stronger.

For ideas for how to strengthen the middle class in West Virginia, please see our 2013 State of Working West Virginia that will be released this Saturday.

Coal and Gas at Odds With Each Other

Last year, using projections from the Energy Information Agency’s Annual Energy Outlook report, we showed that coal production in Central Appalachia was heading for a steep decline, with or without new environmental regulations. This year’s report tells the same story. Under the EIA’s baseline model, Central Appalachian coal production is projected to decline from 186.4 million short tons in 2010 to 87.2 million short tons in 2040. Under the “no green house gas concern” model, which assumes that no greenhouse gas reduction policies are implemented and the market never anticipates any, there are hardly any changes from the baseline model, showing that the decline in Central Appalachian coal production isn’t driven solely by environmental regulations.

coal - no greenhouse

However, there are other scenarios modeled by the EIA that do have an effect on Central Appalachian Coal production. For instance, under the low coal cost scenarios, which assume higher productivity and lower labor costs, Central Appalachian annual average jumps from 115.0 to 118.8 million short tons per year, an increase of 3.2%.

coal - low coal

On the other hand, under the high coal cost scenario, with lower productivity and higher labor costs, Central Appalachia’s annual average production falls to 110.6 million short tons per year, a decline of 3.9 percent from the baseline production.

coal - high coal

But changes to coal production don’t happen in a vacuum, and what’s good for coal isn’t necessarily good for natural gas. As the projections show, one side effect of cheaper coal is less production of natural gas. Northeast natural gas production, which includes the Marcellus Shale, is projected to increase from 1.3 trillion cubic feet in 2010 to 6.6 trillion cubic feet in 2040, for an annual average of 4.5 trillion cubic feet. But under the low cost coal scenario, natural gas production declines to an annual average of 4.4 trillion cubic feet, a decline of 1.3 percent. 

nat gas - low coal

But if the cost of coal is higher than expected, then natural gas would reap the benefits. Under the high cost coal scenario, average annual northeast gas production jumps to 4.6 trillion cubic feet per year, an increase of three percent over the reference case.

nat gas - high coal

Right now, discussions around West Virginia’s economy are often dominated by these two industries. But the ugly truth is that they are often in opposition to each other, and efforts to help one can come at the expense of the other. Moving forward, maybe we would be all better off if instead of asking what’s best for a particular industry, we asked what’s best for the people of West Virginia first.

More Good News from the Health Care World

Budget Beat – August 23, 2013

Health Care Costs Rising, But Not As Quickly

Health care costs continue to rise but at a slower rate than in the past, this according to a new report by the Kaiser Family Foundation. In fact, annual increases in health care are at their lowest levels since the 1960s. Read more about why this changing trend is important and what it could mean to West Virginia’s budget in Brandon’s blog post.

Policy Workshops, PEIA Changes and Possible Future Fund

Ted joined lawmakers in Bismark, North Dakota this week where they are studying that state’s Legacy Fund, passed with bipartisan support in 2010. Senate President Jeff Kessler hopes this fact-finding trip will build support for the West Virginia Future Fund in the upcoming legislative session. Read more in the Charleston Gazette and West Virginia Public Broadcasting, and coverage by WV MetroNews and the State Journal.

This week Governor Tomblin announced that he would seek federal approval to allow public employees to enroll their children in CHIP, a policy that, before the Affordable Care Act, was not permitted. This change could save the state and its employees tens of millions over the next decade as the Affordable Care Act gets into full swing. For more, check out the WVCBP issue brief released last week and today’s stories in the Charleston Gazette and Clarksburg Exponent-Telegram.

In Beckley and Bridgeport this week, the Our Children Our Future campaign held policy workshops with dozens of organizations and hundreds of attendees participating. Ways to lift families and children out of poverty were discussed in both sessions. Coverage of the Beckley session is in the Beckley Register-Herald and the Charleston Daily Mail.

Our Children Our Future with Children Silhouette

Education + Workforce = Strong Economy 

Want a stronger economy for West Virginia? Invest in education. According to a report released this week by the Economic Analysis and Research Network (EARN), a well-educated workforce is the best way to grow the state’s economy while cutting business taxes promotes a race to the bottom that undermines a state’s ability to invest in its workforce.

The Rising Cost of Health Care Is Slowing Down…Wait, What?

BREAKING NEWS: Health care costs are slowing down!

Now to be clear, health care costs are not going down, they’re just growing less quickly than before.  Putting it like that doesn’t make it sound all that promising but the truth is that it is actually a pretty big deal and caught most everyone flat-footed.  It’s also rather old news in the world of health policy but the average person probably wouldn’t know it based on the headlines and continuous murmur of health-care costs.

Supporters of the Affordable Care Act point to it as proof that the law is already working, while critics quickly dismiss that notion and claim it has to do with the recent recession.  The truth, as with most things it seems, is probably somewhere in the middle, but neither side is debating the cost slow down. 

According to a report out this week by the Kaiser Family Foundation, the average family premium increased last year by four percent, a rather modest increase compared to the average 8.8 percent annual growth between 1999 and 2009, the year before the ACA was signed into law.

slide-3-1024

The rise in health care costs is at its lowest level since the 1960s.  The bad news is that even at these historically low levels of growth, the cost of health care is still rising faster than average household income and inflation.

What’s most important about this though is the long-term impact these lower growth rates have.  It had become a fact of life that health care costs would continue to rise meteorically forever, quickly making projections for programs like Medicare and Medicaid seem unsustainable.  With lower rates of growth, however, these projections change dramatically for the better.  For example, the Medicare Board of Trustees most recent report extended the solvency of the program by two years from the previous 2012 estimate.

Slower rates of growth will also make tremendous differences in state and local budgets.  In West Virginia, where Medicaid costs have grown from $350 million in state funds in 2000 to over $800 million in 2012, a single percentage point drop in projected growth means a difference of tens of millions of dollars per year in the future.

The big question keeping health economists on the edge of their seats is if these rates will continue, or even slow further, or revert to their ugly ways of double-digit growth as has been the case for much of the last two decades.

At least for now we can all breathe a slight sigh of relief and hope that perhaps this recent phenomenon becomes the new fact of life.  

What Are the Healthiest Counties in West Virginia?

Budget Beat – August 16, 2013

How Healthy is Your County?

Where you live matters when it comes to your health. This week the Robert Wood Johnson Foundation released a report that ranks all the counties in the nation in terms of health factors. One of the least healthiest counties in the nation is McDowell County. How does your county rank? Read more in Brandon’s blog post.

Overall Health Rankings

West Virginia County Health Rankings – by quartile
Least healthy counties are in southern part of state

 

In the News – Moving PEIA Children to CHIP is a Cost Saver

This week the WVCBP released an issue brief on the savings the state could expect if it were to allow public employees covered under PEIA to move their children to CHIP. Seven other states have made this switch, now allowed thanks to the Affordable Care Act. The Charleston Gazette covered the story on Thursday stating that Governor Tomblin is considering whether or not to take action on this policy change that would put more money into the hands of West Virginia’s low-income working families.

Budget Shortfall Could Reach $300 Million

Tax cuts are continuing to hit home as the state prepares for a $300 million budget shortfall in Fiscal Year 2014. The WVCBP continues to ask not only if the tax cuts are worth it but if they are keeping their promises. Read more from Sean in this West Virginia Public News Service coverage.

In Case You Missed It

On Wednesday, the WVCBP released its report “West Virginia Should Extend CHIP Coverage to Public Employees.” Moving children from PEIA to CHIP, should Governor Tomblin decide to allow it, could save the state’s budget, and the budgets of many low-income working West Virginia families, tens of millions of dollars over the next decade.

Social Security just turned 78. Did you know that in 2011 this important program lifted 21 million people out of poverty? Read more from the Center on Budget and Policy Priorities. Interesting fact: almost half of the nation’s elderly would be poor if they did not have Social Security.

Where You Live Might Determine Your Health

Want to be healthier and live longer?  Then you might want to move to Aspen, Colorado, home of the healthiest county in the U.S.  You’ll also want to avoid our own McDowell County, one of the least healthy counties in the country.

Every year, the Robert Wood Johnson Foundation and the Population Health Institute at the University of Wisconsin release the County Health Rankings, which rank the overall health of every county in the U.S.  It evaluates counties by a whole boatload of factors including obesity rates, smoking rates, physical inactivity, STD rates, number of physicians, education rates, water quality, etc.  It jams all of these numbers into a machine, turns the magic crank, and spits out an apples-to-apples comparison of every county in the country.

Figure 1: 2013 West Virginia County Health Rankings – By Quartile

Overall Health Rankings

Source: County Health Rankings 2013, www.countyhealthrankings.org

What you find by exploring these data may be surprising, disheartening, or completely expected.  Regardless of what your take is though, it tells us one very important factor we often overlook when thinking about health – place matters.

In fact, location plays such a pivotal role that researchers can accurately predict your current health status just by knowing your zip code.  Although the data presented in the annual County Health Rankings isn’t broken down to that level, it still paints an interesting picture of health in West Virginia.

For instance, the unhealthiest counties in the state are almost all in southern West Virginia, while the healthiest are in the Eastern Panhandle (Figure 1 above).  A resident of McDowell County is twice as likely to be a smoker than a resident of Monongalia County, while a child growing up in Berkeley County is at half the risk of living in poverty as a child in Clay County.  

Take a look at the maps below to see just how much factors that contribute to health status change from county to county.  If you want to explore even more, check out the County Health Rankings website here or download the data set here.  (Monongalia County, home of WVU, is the healthiest county in West Virginia, if you were wondering.)

Figure 2: Smoking Rate by County – By Quartile

Smoking Rate by County

Source: County Health Rankings 2013, www.countyhealthrankings.org

Figure 3: Obesity Rate (>30 BMI)  by County – By Quartile

Obesity Rate by County

Source: County Health Rankings 2013, www.countyhealthrankings.org

Figure 4: Child Poverty by County – By Quartile

Child Poverty by County

Source: County Health Rankings 2013, www.countyhealthrankings.org

Figure 5: Access to Healthy Foods by County – By Quartile

Access to Healthy Foods by County

Source: County Health Rankings 2013, www.countyhealthrankings.org

 Figure 6: Ratio of Primary Care Physicians Per Population – By Quartile

PCPs by County

Source: County Health Rankings 2013, www.countyhealthrankings.org 

More Cuts Possible For Next Year’s Budget

Budget Beat – August 9, 2013

Nonprofit Hospitals With Large Profits  

West Virginia’s ten largest nonprofit hospitals had $227 million in net profit in 2011 while having tax-exempt status and paying their CEOs six-figure salaries. In his blog post this week, Brandon introduces possible ways these hospitals could contribute financially to the local communities that support them with important services, while maintaining their tax status.

The alternative fuel tax credit has become a victim of its own success. The West Virginia Department of Revenue greatly underestimated how many people would take advantage of the credit and the incentive has now been repealed. Sean’s blog post questions why this particular tax give-away has gotten so much attention when there are bigger credits that have also contributed to the state’s budget shortfall.  

In the News – Future Fund in the Headlines

On Thursday, Ted appeared on WRVC Talk Radio to discuss the Future Fund. As the date for Senator Kessler’s trip to North Dakota nears (see below), the idea is getting more attention across the state.

Are Tax Cuts Worth It?

State officials announced this week that another round of budget cuts might be coming in Fiscal Year 2015. Some state agencies may be forced to trim 7.5% from their budgets. The Charleston Daily Mail today quoted Ted suggesting that it’s time to see if all the tax cuts and subsidies of recent years are doing their intended jobs and if these budget cuts are worth the price.

SNAP Benefits To Be Reduced For Thousands of West Virginians

Last week’s WVCBP report on SNAP benefits being reduced to 350,000 West Virginians come November was covered from Charleston to Kansas City. “For many of these families, this modest assistance is providing a lifeline to those who are struggling to find work, or are working at jobs that do not pay them enough to put food on the table,” stated Ted Boettner in the coverage.

SNAP-Cuts-fact-Final_WV

Ted Going to North Dakota

Two weeks from now Senate President Jeff Kessler is taking a coalition of legislators to North Dakota to learn more about that state’s Legacy Fund. For the past two years, Senator Kessler has introduced legislation to create a similar plan for West Virginia, called the Future Fund. WVCBP Executive Director Ted Boettner will accompany the group, along with state leaders and policymakers.

Empowering Fathers and Families

On Friday, September 6, KISRA will host the 2013 Strengthening Families in West Virginia Conference at the Charleston Town Center Marriott, Lee Street, Charleston.  The theme of the conference is “Empowering Fathers and Families for the Future.”  Twenty-seven workshops are planned with top-notch local and national presenters. There will be a breakfast plenary with updates on KISRA’s WV Pathways to Responsible Fatherhood Initiative (WVPRFI).  The special luncheon keynote speaker will be New York Times best-selling author and Chef Jeff Henderson.  For more information, please visit the conference website.  

The Profits of Non-Profit Hospitals

Hospitals serve a vital role in any community, providing life-saving care to the injured and ill while contributing significant dollars and hours to community service.  For example, an article in yesterday’s Charleston Daily Mail proclaims that the Charleston Area Medical Center (CAMC) “reports $115 million in area benefit” in 2012.  These benefits included training classes for hospitals and clinicians around the state, charity care, and other community health improvement services. 

On top of that, hospitals also tend to be huge economic drivers, often being the largest employers in a region, providing good paying jobs that stimulate the local economy.  Most hospitals in West Virginia are also non-profit, meaning they are not required to pay most federal, state, or local taxes.  As non-profits, they do not answer to a Board of Shareholders or need to worry about their stock prices or quarterly dividend payments, however, that doesn’t mean they have no concern about their bottom line.

The 10 largest non-profit hospitals in West Virginia generated a combined $3.4 billion in gross revenue in 2011. 

WV Hospitals Gross RevenueSource: IRS 990 filings, accessed at www.guidestar.org, 2011 most recent year for which reports were available. Princeton Community Hospital information provided by PCH Financial Department.

Of that $3.4 billion in total revenue, $227 million was net profit after all expenses, which includes salaries, charity care, bad debt, operating costs, and everything else.

WV Hospitals ProfitSource: IRS 990 filings, accessed at www.guidestar.org, 2011 most recent year for which reports were available. Princeton Community Hospital information provided by PCH Financial Department.

Running a large hospital is certainly a daunting challenge, which means that hospital CEOs and other administrators are often well compensated.  For better or worse, most of these CEOs have backgrounds in business management with no clinical experience as physicians or nurses.  The total compensation in 2011 for the CEOs of the largest non-profits in West Virginia is found in the chart below. 

WV Hospital CEO salaries editedSource: IRS 990 filings, accessed at www.guidestar.org, 2011 most recent year for which reports were available. 

*Wheeling Hospital CEO Ronald Violi is paid as a contract employee through his consulting firm R&V Associates. Wheeling Hospital states his salary as CEO was $1,155,000 in 2011, however his firm received total compensation of $3,529,030 directly from the hospital, for “services as CEO and other consulting services.”

Earlier this year, the mayor of Pittsburgh made headlines when he announced he would be challenging the University of Pittsburgh Medical Center’s tax-exempt status, claiming the hospital does not perform enough charity care for the nearly $6 billion in gross revenue it takes in annually.  His position does not come without precedent, however, as a number of cities around the country have begun exploring Payment in Lieu of Taxes, or PILOT, programs.  PILOTs target non-profit organizations like hospitals and universities that often generate millions of dollars or more yearly but do not pay local property or income taxes. According to the Lincoln Institute of Land Policy, which has published a number of reports on the topic, non-profits may provide essential benefits to the people of a city, region or state yet they still pose a cost on the municipalities in which they are located by consuming public services, such as police protection and roads.
 
While going so far as to challenge a hospital’s non-profit status in West Virginia is overkill, it may be worth examining PILOTs around the state, especially as municipal budgets continue to shrink and hospitals continue to grow.  
 
EDIT: Updated CEO compensation graph to reflect officially listed salary of Ronald Violi at Wheeling Hospital rather than the $3.5 million his consulting firm received as initially posted.-bm

Alternative Fuel Tax Credit Isn’t the State’s Only Tax Giveaway

This weekend’s Charleston Gazette included another article lamenting the lost revenue from the alternative vehicle tax credit. When the tax credit was scaled back this past legislative session, it resulted in a rush of people claiming the credit before they become ineligible, pushing up its cost. Now, Deputy Revenue Secretary Mark Muchow thinks that the tax credit may eventually cost the state $100 million.

Muchow claims that the tax credit caught the department by surprise, since the fiscal note they prepared for the original bill did not reflect changes to the final bill, nor did they expect an increase in claims from its pending repeal, since they anticipated it to save the state $10 million (perhaps some fiscal note reform is in order).

While the revenue loss from the alternative vehicle tax credit has garnered plenty of attention lately, Ken Ward, Jr. of the Gazette asks why isn’t the state media concerned about other tax policies that cost the state just as much in revenue each year. Ward highlights the tax preference for thin-seam coal, which enjoys a reduced severance tax rate. This tax expenditure cost the state $75 million in 2011 alone, and has been growing every year.

The state gives away millions in tax credits and incentives each year, that not only go unremarked on by the media, but by state officials themselves.  The problem is, not only do we not know how many or much is given away, we don’t know if the tax cuts are doing their job. West Virginia does very little to keep track of or evaluate its tax incentives. Considering the state’s track record when this lack of transparency is called to light, it’s a wonder that any action was taken to end the alternative vehicle tax credit.

Maybe the tax credit was too expensive to ignore, but $100 million over three years is still less than the $75 million per year from the thin-seam tax preference, or the $190 million per year that the cuts to the corporate net income and business franchise tax cuts will cost the state, and there is no sign of action on them, despite continuing budget problems.

Writing better fiscal notes, keeping better track of tax expenditures, and repealing them when they do too much harm to the state budget are all good things. But it makes little sense to go after one particular example, blame it for the state’s woes, and turn a blind eye to all the others.