Bigger Middle Class Can Push Job Growth

According to a relatively new report from the WVU Bureau of Business & Economic Research, the Mountain State is predicted to see average annual job growth of just one percent over the next five years. While many may see this as positive news for the state – especially given the recent economic recession and austerity at the federal and state level – it is not only well below the job growth we experienced in the 1970s, but also that seen in the 1990s.

As the chart shows below, West Virginia’s average annual job growth during the 1970s was 2.75 percent. The state also experienced stronger job growth 1990s, growing at 1.5 percent annually.

Decade Job Growth

As Dr. Deskins points out in the report, if West Virginia wants to see better job growth in the future, more people will need to stay and move into the Mountain State over the next decade. If this is going to happen, we need to stop reducing our investments in the things that will make our state a more attractive place to live, work, and raise a family and we need to start making sure that we grow the middle class – which is the engine that creates a strong and vibrant economy. 

Beating a Dead Horse: Sorry, but Tax Cuts Have Hurt the Budget

Members of the state’s media have once again refused to accept that the state’s recent series of tax cuts have directly lead to its ongoing budget problems. Last week Budget Office Director Mike McKown told legislators that the state budget faces an $80 million gap that will be need to be closed before the end of the fiscal year. What Director McKown neglected to mention was the role recently enacted tax cuts have played in reducing revenue, which Ted thoroughly explained here, showing that while we may face an $80 million gap for FY 2014, the elimination of the food tax, corporate tax cuts, and the low-income family tax credit will cost the state an estimated $316 million.

In today’s Charleston Gazette, Phil Kabler attempts to deflect blame for this year’s $80 million budget gap, and next year’s $260 million budget gap away from the tax cuts, and instead claims that the the $390 million a year the state has to put into the Teachers’ Retirement Fund is a bigger contributor to the budget gap, (a refreshing change of pace from the usual scapegoat, Medicaid). Makes sense, right? After all, $390 million is bigger than $316 million. Unfortunately, it is not that simple.

While the state is paying $365 million this year to pay down the Teacher’s Retirement unfunded liability, which does account for about 10% of the general revenue fund, to blame it for the current and future budget gaps, you have to ignore a lot of facts.

First, the state has been paying into that fund since 2007, and the payments have been consistently between 7.4% and 9.3% of the general revenue fund.

1

Source: WV Budget Office (*projected)

And for several of those years, despite making $300+ million payments each year, the state ran a base budget surplus. In fact, in the first year of payments, the state ran a $106 million surplus, which then-Governor Manchin trumpeted, as well as praising the efforts to pay down the unfunded liability.

2

Source: WV Budget Office (*projected, thousands of $).

So, while the state’s payments into the retirement fund remained stable, the budget surpluses shrunk, and the budget gaps began to grow. And if you look at the charts closely, you’ll note even as the payment’s share of the general revenue fund is projected to fall next year, the budget gap is projected to grow.

So what happened? Why were we able to dedicate 9.2% of the general revenue fund to payments to the Teacher’s Retirement Fund in 2007, while enjoying a  $106 million surplus, to paying 8.6% in FY 2015 and facing a $265 million deficit? The answer? We’ve enacted a series of costly tax cuts that have drained the state of revenue, and will continue to do so. As Ted pointed out, they cost an estimated $316 million this year, and will continue to grow.

Revenue has been an ongoing problem for the state, and in particular, the business tax cuts are just now starting to get expensive, as the linked chart above shows, with their costs doubling between 2012 and 2013. If that doesn’t demonstrate the state’s revenue problems, then consider this: according to the Budget Office’s revenue reports, general revenue collections grew at an annual average rate of 3.6% between 1998 and 2012. But they didn’t grow at all in 2013 and are projected to grow less than 1% this year.

3

Source: WV Budget Office

That’s nearly two years with almost no revenue growth, which, no surprise, is putting the state in the hole. If revenue collections had grown at the historical average in FY 2013 and 2014, it would have resulted in an additional $146 million in FY 2013 and an extra $263 million in FY 2014. The state would be running surpluses each year. 

Instead, that money is being used for tax cuts, putting the state in a deep fiscal hole. The effectiveness of these tax cuts in achieving their goals, be it encouraging economic growth or helping families, is debatable. Their effect on the budget is not.

Budget Beat: Senator Manchin Calls For Delay in Key Component of Obamacare

In response to the bumpy roll-out of the Obamacare website, Senator Joe Manchin is promoting a delay in the individual mandate which requires people to sign up for health insurance by April 1. In this blog post, Brandon explains why the delay is not a good idea and how it would be costly to West Virginians. Look for more in the Charleston Gazette and West Virginia Public Radio.

The true value of the minimum wage had declined from its peak in 1968 ($10.72) to today ($7.25). WVCBP research on how raising the wage to $10.10 would help over 190,000 West Virginia workers was covered by the Huntington Herald-Dispatch and West Virginia Public News Service this week. Another reason to raise the wage? Research shows that half of the country’s fast food workers rely on public assistance to get by. 

While the debt ceiling debacle and the government shutdown have ended until next year, Congress will again start grappling with the problem in December. To get you ready, read this article from Dylan Mathews of the Washington Post to better understand how the debt, deficit, and money work in our economy.

Last week, we talked about the need for West Virginia to ensure that out-of-state drivers pay their share of the costs for maintaining the state’s roadways. This policy was supported by the Charleston Gazette this week.

West Virginia faces an $80 million budget shortfall for the next fiscal year. In his blog post this week, Ted points out that the state would not be in this position if the legislature had not passed $316 million in tax cuts in recent years.

With Halloween just around the corner, what might be the scariest part of the season for many West Virginia low-income families is November 1 when those relying on food stamp benefits will all see a cut. Nearly 40% of those affected will be children. Read more in Sean’s blog post.

SNAP-Cuts-fact-Final_WV

November 1 SNAP Cuts Will Affect 350,000 in West Virginia

As Ted first pointed out back in August, the 2009 Recovery Act’s temporary boost in Supplemental Nutrition Assistance Program (SNAP) benefits ends on November 1, 2013, which will mean a benefit cut for each of the nearly 48 million SNAP recipients in the country, including 350,000 here in West Virginia.

Without the Recovery Act’s boost, SNAP benefits will average less than $1.40 per meal. The cut will equal about $29 per month for a family of three, or the  equivalent to about 16 meals a month based on the cost of the U.S. Agriculture Department’s “Thrifty Food Plan.” 

10-24-13fa-f1

The benefit cut will affect all households that receive SNAP, the majority of which include children, seniors, or people with disabilities. About 40 percent of West Virginia’s 350,000 SNAP recipients are children, and 28 percent are either elderly or disabled. Overall, 141,000 children and 98,000 elderly or disabled persons in West Virginia will have their benefits cut.

SNAP WV

In addition to increasing hardship by making it more difficult for families receiving SNAP benefits to put food on the table, the cuts to SNAP will drain $36 million out of West Virginia’s economy. And, since SNAP benefits are spent quickly by their recipients on food, the impact will have a ripple effect. Research has shown that every $1.00 spent on SNAP can create $1.70 in economic activity, in an depressed economy.

While this cut to SNAP is taking place,  the House and Senate Agriculture Committees are beginning their conference committee negotiations on the Farm Bill, which includes a reauthorization of, and proposed cuts to, SNAP. The House version of the bill would cut SNAP by nearly $40 billion over the next 10 years, denying benefits to about 3.8 million people in 2014 and an average of three million people each year over the coming decade, which would create even more hardship for West Virginian families.  

Sen. Manchin Wants to Delay the Individual Mandate, Here’s Why That’s a Bad Thing

West Virginia Senator Joe Manchin announced this week that he is working on a bill delaying the individual mandate of the Affordable Care Act for one year. On the surface, that sounds like it might be a perfectly fine idea, but here’s the rub: it won’t work.  All in all, even though it may seem like a reasonable compromise at first, Senator Manchin’s support of the individual mandate delay would have serious consequences for the Mountain State, including more uninsured West Virginians and more expensive health insurance premiums.  

 As the Center on Budget and Policy Priorities reported back in September, delaying the individual mandate would undermine the goal of health reform, which is to allow uninsured Americans the opportunity to find affordable coverage.  The impact of a delay of the individual mandate would be a double whammy—first, it would dramatically decrease the number of people gaining health insurance, and secondly, it would send insurance premiums skyrocketing. 

9-24-13health

The Congressional Budget Office estimated that delaying the individual mandate would result in around 11 million fewer Americans gaining health insurance, while other analysts have estimated from around 8 million to as high as 24 million Americans would remain uninsured.

Meanwhile, monthly health insurance premiums in the individual market are estimated to increase from around 10 percent to 25 percent of the current Marketplace premiums.

Finally, there are other impacts beyond the consumer worth considering as well.  For example, hospitals would see a significant increase in uncompensated care placing them at serious financial risk, especially the smaller, more rural hospitals like we have here in West Virginia.  Another negative impact would occur for health insurers who would see a greater percentage of sick patients signing up, skewing their risk pool, and putting them at serious financial risk also. 

While I applaud Senator Manchin for trying to take a moderate approach that he believes is a compromise, it’s of utmost importance that he realizes his position will cost West Virginians and hospitals dearly.

 

The Missing Tax Cuts…The Source of State Budget Woes

Another day, another budget presentation that fails to mention the tax cuts that are at the heart of our state budget woes. According to the Gazette, the State Budget Director informed an interim committee that the current budget faces a $80 million shortfall and next year’s budget will face a gap of $260 million. This is on top of the $75 million in cuts this year and the $134 million in cuts a couple of years ago.  The Budget Director failed to mention the recent tax cuts that have reduced our revenues by at least $316 million this year. This is like reducing your hours at work and wondering why your paycheck is lower than it was when you were working full-time. It makes no sense. And it’s simple math.

While the growth in Medicaid and the sluggish economic recovery (however, keep in mind we ranked 10th highest in real GDP growth from 2011 to 2012) have impacted revenues, the tax cuts are the most obvious reason for why revenues continue to be unable to support government services and programs.

According to the 2013 Tax Expenditure Report, the food tax elimination – which took place this year – reduced sales tax revenue by $145 million last year and will cost the state $174 million in 2013 (FY 2013/FY2014).  The low-income tax credit – which our organization has supported – cost the state $16.3 million according to a recent fiscal note. Meanwhile, the large business tax cuts have cost us at least $126 million. I say “at least” because this is the amount the WV Commerce Department says businesses saved in FY 2012 (which was 1.5 years ago). It is unclear whether this figures includes the manufacturing investment property tax credit that was established in 2008 to reduce inventory and equipment taxes and cost the state an estimated $3.3 million in 2008. 

Tax Cuts 2013

As folks may recall, the corporate net income tax rate has dropped from 9% in 2007 to 7% in 2013 and will make its final plunge to 6.5% next year. The business franchise tax (a tax on the net-worth of a business) rate has dropped from 0.70% in 2006 to 0.21% in 2013. Beginning in 2015 the tax will be eliminated.  

As we’ve pointed out before, the revenue from these two business taxes are at a 12- year low and they represent a smaller portion of  private sector GDP than at any time over the last 22 years. One thing we also know is that business tax expenditures have not grown dramatically over the last several years, so it isn’t because we’ve enacted a slew of tax credits or new deductions.

 CNITBFTshare of Pgdp

And another thing we know for sure is that the business tax cuts did not “expand the base” and increase revenues (supply-side effects), which the president of the WV Chamber of Commerce said back in 2011: “We may be able to lower the rate, but generate more tax revenues because of increased business activity.”

The elimination of the food tax – which is not my favorite tax since it hits low- and moderate-income families especially hard – has also greatly impacted revenues. How lawmakers can praise the reduction of the sales tax rate on food on one day and the next day mourn the decline in revenues needed to support budget priorities is beyond me. It seems like cognitive dissonance or policymakers wanting to have their cake and eat it, too (probably the latter).

While lawmakers can be somewhat excused for this behavior (it’s politics, after all!), the high-level functionaries in the West Virginia Budget Office or Department of Revenue really have no excuse for not pointing out that the recent tax cuts are a major driver of our budget gaps. You’d expect that both of these agencies would be data-driven, not politically driven to look the other way on the tax cuts and egg on more budget cuts with comments like “there’s no appetite for raising taxes.” 

As we concluded in our report on the business tax cuts more than five years ago:

Last year, significant reductions were made to the business franchise tax without replacing the revenue lost to the General Revenue Fund, and the same course of action is being pursued today. The additional cuts in business taxes embodied in SB 465 and SB 680 threaten to significantly undermine the ability of the state to provide quality public services. Some combination of a sharp drawing-down of the state’s reserves, reductions in state services, and increases in other taxes seems almost inevitable during the next decade.

In acting upon SB 465 and SB 680, it is important for policy makers to consider the fiscal implications, not just on a short-term basis but also for the long term. It is in the “out” years that state policymakers will have to make difficult choices concerning whether to raise taxes or cut government services. In the end, policy-makers should balance the short-term marginal effects of cutting taxes for businesses against the long-term benefits of investing in quality public structures.

Not to say we told you so, but we told you so. It’s time for policymakers to accept that most of our budget problems are self-inflicted and not the result of a mysterious revenue problem or coal-severance tax declines. If we want to have a strong and productive economy, we need to be investing in our children, our workforce, and our infrastructure and not giving costly and inefficient tax cuts that are depriving our state of what it needs to get the job done. This starts by not leading the nation in budget cuts.

____

Grammatical Correction: h/t to Ken Ward noting that I meant to say “latter” not “ladder” and @WVPundette who noted via Twitter that I meant to say accept, not except.

Healthcare.gov is Dysfunctional. West Virginia Could Have Done it Better

State Run Exchanges

Source: Kaiser Family Foundation, State Decisions for Creating Health Insurance Marketplaces

Almost all of the success in the Obamacare roll out to date has occurred in the dark blue states. Note, West Virginia is not dark blue.

On the very same day that the federal government shutdown a few weeks ago, the Obamacare online Marketplace, www.healthcare.gov, went live.  That the shutdown stole the headlines might have been a very good thing for supporters of the health law, considering that the roll out of the Marketplace has been anything but smooth.  The site was so overwhelmed with web traffic in the beginning that very few people were able to shop for, much less purchase, health insurance.  The site was also found to have a host of glitches on the back end as well, which has only been exacerbated by the demand.  In short, it’s pretty much been a disaster.  On the other hand, state-run exchanges in places like Kentucky, New York and Connecticut have hit the ground running, enrolling tens of thousands of their residents in new insurance plans.  The lesson?  West Virginia should follow their lead and begin planning now for its own state exchange in 2015. 

When the Affordable Care Act was first passed in 2010, West Virginia became one of the first states in the country to pass legislation to pursue the creation of a state-run insurance exchange.  For a whole host of reasons (understaffing, underfunding, and good old fashioned politicking just to name a few), the goal of state-run exchange fell by the wayside and was replaced with a federal-state partnership exchange.  Essentially, this meant that the federal government would bear the burden of operating the West Virginia insurance exchange on the same website as it was running the other 36 Marketplaces in states which opted not to pursue their own exchange.

The West Virginia Offices of the Insurance Commissioner won’t be releasing information on the number of applications we’ve had in West Virginia until the feds release their numbers in November.  However, there’s no doubt that the problems healthcare.gov has had across the country have hampered those in West Virginia who want to shop for health insurance and compare plans.  Meanwhile, many of the other states who did create their own exchanges have been releasing their numbers and the news is overwhelmingly positive.  For example, in its first three weeks, the exchange in Kentucky called KYnect has had over 32,000 applications completed.

Hindsight is 20/20, but it’s obvious the problems with the healthcare.gov website today could have been avoided in West Virginia had we stuck it out and created our own exchange.  Doing so would have had loads of other benefits, as well, including millions of more dollars in federal funding and much more flexibility in creating a product that would meet the needs of West Virginians. 

The good news is that it is not too late to move forward with the creation of our own exchange.  While chances are that the feds will work out the glitches in healthcare.gov in the coming months and shopping or purchasing insurance will be much easier down the road, there should be little doubt that West Virginia can create a Marketplace better suited to the needs of West Virginians than a cookie-cutter federal approach. 

Budget Beat: Raising the Minimum Wage Helps One in Four West Virginia Workers

Who do you think would be most affected by an increase in the minimum wage? It might not be who you were thinking. 

low-wage-worker-WV

Sean explains how an increase in the minimum wage would benefit not only West Virginia workers but the state’s economy as well here. For much more on what increasing the minimum wage could do for the state’s workers, check out this issue brief.

West Virginians used to have more higher quality jobs available from manufacturers like Weirton Steel. As those jobs were lost, they were replaced with low-paying retail positions, like at Wal-Mart, the state’s largest employer. Read this great oped from Rick Wilson which explains how we could change this reality.

As West Virginia policymakers decide on ways to pay for transportation costs, should they look to Virginia for possible solutions? Read more in Ted’s blog post for reasons why Virginia’s plan might not be ideal for the Mountain State and how shifting the costs to those who use the roads makes sense.

VA Road Package

Last week we told you how West Virginia leads the nation in prescription drug overdose deaths. Now a new study shows that West Virginia doctors write more prescriptions than those in other parts of the country for seniors using Medicare Part D. And evidence suggests that this is true for other parts of the population. Read more in Brandon’s blog post on West Virginia’s place in the Prescription Belt.

As West Virginia residents continue to enroll for health care through the state’s Marketplace, there are some who work for one of the state’s largest employers who might be losing their coverage. Read more in this Charleston Gazette article on how CAMC plans to cut health care benefits for its part-time workers.

Even though the government shutdown has finally ended, the expensive ripple effects are likely to be felt for some time. Read more in Alyson’s blog post on how the federal shutdown affected West Virginia right down to the community level.

Should West Virginia look to Virginia as a model for funding transportation?

The Charleston Gazette reported this morning that three West Virginia lawmakers are planning a trip to Richmond, Virginia to learn how they recently restructured funding for their ailing transportation system. According to a recent report by the Virginia-based Common Wealth Institute, there are several major flaws with the transportation funding package that was signed into law in Virginia this year. The major flaws cited in the report include  shifting the cost burden away from drivers, who benefit the most from the roads, tax increases that fall heavily on low and moderate income Virginians, and federal action that is unlikely to take place.

The major changes in Virginia’s transportation(HB2313) funding package included:

1) Replacing the 17.5 cents-per-gallon tax for a 3.5 percent tax on the wholesale price of gasoline and a 6 percent tax on the wholesale price of diesel fuel.

2) Increasing the statewide sales and use tax from 5 percent to 5.3 percent and to 6 percent in Northern Virginia and Hampton Roads.

3) Increasing the hybrid registration fee from $50 to $64 dollars on electric motor vehicles and establishes a new $64 fee on hybrid electric vehicles and alternative fuel cars.

4) Increasing the car titling fee from 3 percent to 4.15 percent.

5) The package also requires federal action to allow remote sellers in Virginia to collect and remit sales taxes on purchases by Virginia residents – also known as the Marketplace Fairness Act –  that would be diverted to the state’s transportation fund.  If federal action is not taken, the wholesale tax on gasoline increases from 3.5 percent to 5.1 percent.

6) Other regional provisions include implementing a “regional congestion fee” of 15 cents per $100 of property value and an increase in the hotel tax by 2 percent in Northern Virginia. In Hampton Roads, the whole sale tax on motor fuels would be increased by 2.1 percent beyond its current rate.

If Virginia’s transportation package works out how lawmakers intend, it would boost revenues by $6 billion over the next five years. Only 11 percent – $667 million – would come from driving-related revenues (whole sale tax on gasoline and diesel fuels) while over $3.2 billion would come from sales and use tax collections (statewide sales tax, remote seller legislation, and sales tax diversion). The increase in the hybrid registration fee only brings in $43 million while the car titling tax increase is expected to bring in $1.1 million. By replacing the cent-per-gallon tax and replacing it with a tax on the wholesale price fuels it stands to lose $847 million over the next five years. Relying so heavily on the sales tax for transportation funding – instead of the gasoline tax – Virginia is moving away from the longstanding tradition of using the benefits principle of taxation to fund roads.

As this Commonwealth Institute graph makes clear, these tax changes  would fall  heavily on low and moderate income families who struggling to make ends meet. For middle income households it would raise taxes by $80 statewide and by $150 for households in Northern Virginia and Hampton Roads region.

VA Road Package

 

So, what can we learn from all of this?

First, it makes little sense to rely so heavily on revenue that depends on the U.S. House of Representatives to pass the Marketplace Fairness Act. If the debt default debacle has taught us anything, it’s that getting the House to pass anything with bi-partisan support is not easy.

Second, shifting transportation funding from its heaviest users (gas tax) to those who do not use the roads as much (sales tax) puts an undo burden on folks that are carpooling, use transit, walking to work, and those that are deciding to live near where they work. Moving away from the gas tax also means that it lets out of state drivers mostly off the hook. This is really important in West Virginia where we have a high share of out-of-state drivers.

Third, Virginia is a much wealthier state than West Virginia. In 2012, Virginia ranked 8th highest in per capita income while West Virginia ranked 47th. West Virginia also ranked 49th in per capita GDP, while Virginia ranked 19th highest. As Sean has pointed out, West Virginia is already making a large effort in transportation funding compared to most states.

Lastly, Virginia’s plan shifts the burden on those with the least ability to pay. As readers of this blog may know, state and local taxes are regressive and they already take a larger chunk out of low and moderate income families income that higher income families. By relying more heavily on low-income people who are barley able to make ends meet we are exacerbating income inequality.

While Virginia should be applauded for investing in its transportation system, it’s important for West Virginia lawmakers to learn from Virginia’s experience (and mistakes) so that we can equitably fund our transportation system which provides a solid foundation for economic growth and improves the quality of life in our state.

So far, it appears that the Governor’s Blue Ribbon Task Force is headed in the right direction by ensuring that out-of-state drivers pay their fair share and that we continue to tie our transportation funding to those that use our roads  the most while not placing an undo burden on those with the least ability to pay.

___

 Correction: The hybrid registration fee for hybrid electric and alternative fuel vehicles is a new fee ($64), not one that was increased from $50 to $64 dollars. Thank you Bill Tracey for alerting me to this mistake.

 

Who Would Be Helped By Raising the Minimum Wage?

 More than 1 in 4 workers would be affected – many are full-time workers, the majority are women.

low-wage-worker-WV