Adding Up the Cuts in the Vetoed FY 2018 Budget.

The budget bill passed by the legislature on the last night of the session and later vetoed by the governor balanced the state’s $497 million budget gap by taking $90 million from the Rainy Day Fund and cutting General Revenue appropriations by $402.6 million below the governor’s proposal. The governor’s FY 2018 proposal had originally increased General Revenue appropriations by $317.9 million above FY 2017’s level, meaning that the FY 2018 budget that was vetoed by the governor had represented a $84.6 million cut in General Revenue from FY 2017. Here are where the legislature’s budget made those cuts.

Education
The FY 2018 budget cuts $17.2 million from the State Department of Education. These cuts including eliminating state funding for the Regional Education Service Agencies (-$3.5 million),  Innovation in Education zones (-$2.5 million), and 21st Century Community Learning Centers (-$1.7 million).

For State Aid for Schools, the state’s share of school funding decreases by $24.8 million compared to FY 2017, while the local share also decreases by $12.5 million, netting the state a $12.1 million decrease in total basic state aid for schools. Overall, State Aid for Schools increased by $17.1 million over FY 2017, with increases in retirement systems payments causing the increase.

Education and the Arts
General Revenue appropriations for Education and the Arts are cut by $1.7 million in the FY 2018 budget compared to FY 2017. The cuts include a $1 million cut to the Education Broadcasting Authority, whose funding was fully eliminated in the governor’s proposed budget.

Health and Human Services
The FY 2018 budget cuts $49.0 million from DHHR, with most of the cuts coming from General Revenue appropriations for Medicaid. The FY 2018 budget cuts $46 million from Medicaid’s General Revenue appropriations compared to FY 2017, but replaces the cut with transfers from the Rainy Day Fund and increased Lottery fund appropriations. However, funding for Medicaid remains $56.3 million below the governor’s FY 2018 proposal.

Other cuts to DHHR include eliminating state funding for the CARDIAC Project (-$427,500), the Center for End of Life Care (-$420,198), the Healthy Lifestyles Coalition (-$147,034), the Osteoporosis and Arthritis Program (-$158,530), the Tobacco Education Program (-$3.0 million), and the WV Women’s Commission (-$156,408).

Military Affairs and Public Safety
The FY 2018 budget cuts $1.6 million from DMAPS compared to FY 2017. Appropriations for the State Police are increased by $7.7 million, while appropriations for correctional facilities are cut by $7.9 million. Other cuts to DMAPS total $1.4 million.

Higher Education
The FY 2018 budget cuts Higher Education by $30.7 million, including $26.6 million in cuts to 4 year colleges and universities, $1.8 million in cuts to the HEPC, including eliminating funding for WVNET, $2.2 million in cuts to community and technical colleges, and an $156,816 cut to the Council for Community and Technical Colleges.

Other Cuts
Other cuts in the FY 2018 budget include $2.1 million in cuts to executive branch agencies (Governor’s Office, Auditor, Treasurer, Agriculture, Conservation Agency, Attorney General, Secretary of State, State Election Commission), $533,302 in cuts to the Department of Administration, $4.3 million in cuts to the Department of Commerce, $172,064 in cuts to the Department of Environmental Protection, $653,287 in cuts to the Department of Revenue, $355,709 in cuts to the Department of Transportation, $143,508 in cuts to the Department of Veterans’ Assistance, and $733,387 in cuts to the Bureau of Senior Services.

                                                                                                                                                                                                                                                                

 

When Would the Income Tax Phase Out in the Compromise Tax Plan Begin?

One of the major aspects of the “compromise tax plan” between the governor and Senate leadership is the deep cuts to the personal income tax. The proposed tax compromise plan condenses the state’s five income tax brackets into three brackets and reduces the rates, a move that would reduce income tax revenue by $356-$380 million per year, with most of the savings favoring the wealthy. Even with those major cuts to the personal income tax, the compromise tax plan has the potential to make even further cuts, with the goal of eliminating the personal income tax altogether.

After the initial cuts to the personal income tax rate, the compromise tax plan calls for a further 0.1 percentage point reduction in each tax bracket’s rates if General Revenue tax collections are at a certain level. If general revenue tax collections in a particular tax year are higher than they were five years ago, after making a special inflation adjustment, then the personal income tax rates are reduced for that year. The special inflation adjustment, or “trigger index”, calculated by taking the percentage increase in that year’s June Consumer Price Index for all Urban Consumers (CPI-U) over the average June CPI-U of the past five years, and adding 0.5 percent to it.

Here’s how that would work. For FY 2019, June 2018’s CPI-U is projected to be 251.97. The average CPI-U for the five years prior to that is 239.57., for a 5.2 percent increase between the June 2018 CPI-U and the average of the previous five years. Add 0.5 percent to that, and you get the “trigger index” for FY 2019 of 5.7 percent.

Next, that “trigger index” of 5.7 percent would be applied to General Revenue collections from five years prior, in this case FY 2014. In FY 2014, general revenue collections were $4.104 billion. Increase that by 5.7 percent and you get $4.339 billion. If revenue collections in FY 2019 are greater than $4.339 billion, than the income tax rates would be lowered by 0.1 percentage points.

Based on current revenue and CPI-U projections, including the fiscal impact of the compromise tax plan, the personal income tax could potentially see further reductions as early as FY 2021, the first year projected revenues would exceed the General Revenue threshold to trigger a tax cut.

 

(Note: FY 2019-FY2022 revenue projections are the WV Budget Office adjusted to include the estimated fiscal impacts of the compromise tax plan. FY 2023 projections are based on historic General Revenue growth rates.)

Changes to the trigger index can result in different years that the income tax cuts occur in. For example, if the addition to the CPI-U increase is 1 percent rather than 0.5 percent, than the first year of income tax reduction is FY 2023 instead of FY 2021.

 

Further cuts to the personal income tax would make an already regressive tax system even more regressive, with the tax savings largely benefiting the wealthy. There is also little evidence that cuts to the income tax will boost economic growth, attract more people, or grow small businesses. Instead, more tax cuts will continue to undermine the state’s ability to invest in its public colleges, schools, public safety, and health-care services.

What is the impact of the “compromise tax proposal” on the budget and working families?

Earlier this week, the West Virginia Center on Budget and Policy examined the fiscal impact of the proposed compromise tax plan between Governor Justice and Senate leadership that will influence how the budget is finalized. It appears House leadership is saying “nope” to this plan and it is unclear how the plan would close the state’s looming budget gap of $500 million for FY 2018, since a corresponding budget plan hasn’t been put forth. As we noted in our recent report on the budget, the state budget that passed – and was later vetoed by the Governor  – included about $90 million from the Rainy Day Fund and no new revenue increases, along with significant cuts to the Governor’s proposed budget, including Medicaid, higher education, and other programs.

As Phil Kabler notes in the Gazette-Mail, it is also unclear what is currently included in the so-called compromise tax plan being advanced by Governor Justice. It has been rumored the tax plan is the same as Senator Fern’s amendment to SB 484 with the exception that the plan includes the Governor’s tiered severance tax rate changes and not the ones in the Fern’s amendment that significantly reduce severance tax collections.  If this is true, the revenue impact to the budget would be significantly reduced. (For more detailed account of the Ferns Amendment aka the proposed compromise tax plan, see our previous post here)

According to estimates provided by State Tax Department (via email), the proposed severance tax changes in  the Fern’s Amendment would result in a loss of an estimated -$135 million in severance tax collections in FY 2018 and between -$140-$150 million thereafter. Overall, the net result of the Ferns Amendment on the General Revenue Fund, according to the State Tax Department,  is an increase of +$50 million in revenues in FY 2018, and a net reduction of an estimated -$170 million in FY 2019 and FY 2020, and a reduction of -$220 million by FY 2021.

For FY 2018, this includes +$280 million in sales tax increases (7 percent rate and broader base), +$49 million in additional revenue from the new and temporary CAT or commercial activities tax (0.045 percent) and high-income tax surcharge, an increase of +$12 million from ending sales tax transfer to Road Fund from sales tax collected on highway construction, and approximately -$156 million less in personal income tax collections. (Note: The reduction in the personal income tax is -$380 million upon full impact. The income tax reductions do not begin until January 1, 2018, while the other tax changes take effect July 1, 2017 – the beginning of FY 2018 – but start June 1, 2017). It is also important to keep in mind the CAT and high-income tax surcharge expire on July 1, 2020 or the beginning of FY 2021).

If the severance tax changes in the Ferns Amendment are swapped for the Governor’s proposed severance tax rates that are estimated to be close to revenue neutral, this means that the net revenue impact on the General Revenue Fund would be an increase of +$185 million ($50m + $135m) in FY 2018, then a decrease of -$30 million in FY 2019 and FY 2020, and then a reduction of  -$70 million by FY 2021 assuming there is no phase-down of income tax rates.

While incorporating the Governor’s severance tax proposals into the tax compromise plan provides a significant revenue boost during the FY 2018 budget year, the sharp reductions in the income tax when it is fully implemented leads to revenue losses beginning in FY 2019 that will grow the state’s budget deficit and lead to additional cuts to vital programs and services. These declines will grow more over time, with the phase down of the income tax and the expiration of the CAT and high-income surcharge by July 1, 2020.

When all of the tax changes are fully implemented in their first year (not including sales tax transfer from Road Fund), it adds up to $280 million in additional sales tax increases, $49 million in increased revenues from the CAT and high-income surcharge, and $380 million in cuts to the personal income tax. This means the proposed compromise tax plan is actually reducing taxes on West Virginians upon full implementation, not increasing them when it comes to the General Revenue Fund budget.

While the compromise tax plans leads to one year of positive revenue growth for the General Revenue Fund and growing deficits thereafter,  the proposed revenue changes to the State Road Fund would increase revenues by about +$130 million in FY 2018 and +$138 million thereafter (if you do not include the transfer of sales tax collections from the Road Fund to the General Revenue Fund).

Altogether, the revenue changes in the proposed tax compromise plan – including General Revenue and State Road Funds – increase state revenues by approximately $315 million in FY 2018 and $108 million in FY 2019. To be clear, these estimates are subject to change at any time since there is no agreed upon tax bill or a full disclosure of what is being proposed between the Governor and legislative leadership.

The overall impact of these tax and revenue changes on households in West Virginia is the same as as has been reported in previous post, which did not include any severance tax changes because the tax is mostly exported out of the state and unable to be modeled because of difficulties obtaining proper information for the process.

Upon full implementation – which does not include any phase down of the income tax rates or the expiration of the CAT or high-income surcharge –  the proposed tax and revenue changes would, on average, increase taxes on 80 percent of West Virginia households making below $84,000 per year, while lowering them on the 20 percent of West Virginians that make more than $84,000 per year. Those making on average $11,000 per year would see their annual taxes rise by $121 or 1.1 percent of their income, while those making on average $778,000 (top 1 percent) per year would see an average tax cut of $3,713.

This means that the compromise tax plan – if this is in fact it – raises taxes on most West Virginians to help pay for tax reductions for higher-income West Virginians while leaving some revenue to spare in the first year.

The table below breaks out the tax changes for each income group in West Virginia. It includes the full-implementation of income tax reductions in 2018 and the high-income surcharge. While every income group sees an increase in their taxes from the proposed changes to the sales tax, motor fuel tax/DMV fees, and the new commercial activities tax, the large personal income tax reductions mostly goes to the top income groups. In fact, approximately 59 percent of the more than $364 million in income tax cuts go to the top 20 percent, according to the Institute on Taxation and Economic Policy. This is why higher income West Virginians are estimated to receive an overall reduction in taxes while low and middle-income West Virginians see an increase in taxes.

A closer look at the proposed changes to the income tax illuminate this point further. The proposed tax compromise plan condenses the state’s five income tax brackets into three brackets and reduces the rates. For example, instead of a top marginal tax rate of 6.5 percent on income over $60,000, the tax compromise proposal replaces this rate with a top rate of 5.45 percent on income over $35,000. This change will benefit those who have more income.

As the chart below highlights, the personal income tax in West Virginia is based on the ability to pay. This is largely because personal income tax rates increase as income increases. Sales taxes on the other hand, are regressive, taking a larger share of income from low- and middle-income West Virginians. And because those at the bottom and middle spend more of their income on necessities than the wealthy, shifting from the income tax to a greater reliance on sales taxes is a shift in “who pays” from those with more income to those with less income.  Phasing out West Virginia’s income tax would also make the state’s upside down state and local tax system even more regressive over time.

As discussed in a recent report, shifting from the income tax to the sales tax is a poor strategy for economic growth. Academic research and real-world evidence from other states show that there is little evidence that such a shift will significantly boost economic growth, attract more people, or grow small businesses. However, there is compelling evidence that the income tax is a more reliable source of income than the sales tax over the long-term and that the states with more regressive tax structures increase income inequality.

As the Governor and legislature work out a compromise on the budget, including tax changes, they should keep in mind that setting West Virginia on a path of further cuts and just one year of revenue gain is not going to help build a stronger West Virginia where communities can thrive. While it is great to invest additional resources in our state’s crumbing roads and bridges, those gains could be washed away be shortchanging our state’s other needs – including our public colleges, schools, public safety, and health-care services.

Just any tax plan is not a good tax plan. It must be grounded in realistic assumptions and be sustainable over time.  A sound plan cannot rely on false claims about trickle-down economic growth or a sudden surge in coal mining or natural gas extraction. It must provide a reliable source of revenue that can pay our state’s debts and sustain public investments.

As developments of the tax and budget compromise unfold, we will continue to analyze and review them as they are released to the public.

 

Comparing Severance Tax Proposals

Yesterday, the West Virginia Center on Budget and Policy posted an analysis of the “compromise tax plan,” that is thought to be the foundation for budget negotiations between the Senate and the governor. Overall, the plan would reduce state revenue by $114.8 million. While most of the revenue loss comes from reductions in income tax rates, changes to the severance tax also result in large revenue losses.

The compromise tax plan would replace the state’s five percent severance tax on natural gas and coal production, with a varied rate tied to the price of coal or natural gas. The proposal in the compromise plan is similar to proposals made by the governor during the legislative session, with one major difference. While the governor’s proposals were largely revenue neutral, the compromise tax plan would result in a major loss of severance tax revenue.

First, let’s look at what the changes mean for natural gas. The governor’s proposed changes to the natural gas severance tax have been looked at in this post analyzing SB 415. The governor’s proposal would have natural gas severance tax rates ranging from five percent for when the price of natural gas is at or below $3.00/MCF up to 10 percent when the price is at or above $9.00/MCF. While the bill potentially doubles the severance tax on natural gas, it is unlikely to have much of an impact, as the Tax Department notes in its fiscal note of the bill, natural gas prices are projected to stay below $3.00 in the foreseeable future.

While the severance tax rate for natural gas under the governor’s proposal starts at five percent and goes up, the rate under the compromise plan starts at five percent and goes down. Under the compromise plan, the severance tax rate for natural gas would only reach five percent if the price of natural gas was above $9.00/MCF, and the rates go all the way down to 2.5 percent when the price is at or below $3.00/MCF. As the Tax Department’s analysis of the governor’s proposal showed, natural gas prices are expected to stay below $3.00/MCF for the next several years, meaning that the severance tax rate on natural gas would be cut in half. This would reduce severance tax revenue from natural gas in FY 2018 from $110.9 million to $55.4 million, a loss of $55.4 million.

Similar differences exist between the governor’s proposed coal severance tax tiers and those in the compromise bill. SB 478 is the governor’s proposal for coal severance taxes. The proposal would have coal severance tax rates ranging from 3.5 percent for metallurgical coal when the price of met coal is at or below $50/ton, up to 10 percent for when the price of met coal is above $200/ton. For steam coal, the rates would range from 3.5 percent  when the price of steam coal is at or below $30/ton, up to 10 percent for when the price of steam coal is above $100/ton.

According to the fiscal note for SB 478, the tiered rates would not likely have a major impact on revenue. The current prices for steam and met coal would keep the severance tax rate at five percent, with a chance of a small rate increase for met coal. That is not the case under the tiered rates in the compromise tax bill. Under the compromise tax plan, steam coal priced at between $40 and $50 per ton would be taxed at a rate of 2.5 percent, half the current rate of five percent. This would reduce severance tax revenue from coal in FY 2018 from $153.4 million to $76.7 million, a loss of $76.7 million.

As the fiscal note for SB 478 notes, metallurgical coal in West Virginia qualifies for the thin seam reduced rate. According to figures from the Tax Department, approximately 18 percent of coal’s production value in the state is mined from seams 37 to 45 inches thin, and 13 percent in mines from seams less than 37 inches thick. Under the compromise tax plan, thin seam coal less than 37 inches thick, priced between $75 and $85 per ton would be taxed at a rate of 1.75 percent, 0.75 percent higher than the current rate of 1.0 percent. Thin seam coal between 37 and 45 inches thick, priced between $75 and $85 per ton would be taxed at a rate of 2.25 percent, 0.25 percent more than the current rate of 2.0 percent.  This would increase revenue in FY 2018 from $15.0 million to $19.4 million, an increase of $4.4 million.

Overall, while the governor’s proposal for severance tax reform was revenue neutral, with the possibility, while remote, of increased revenue in the future, the proposal in the compromise tax plan results is in effect a major severance tax cut. Severance tax revenue would decline by about $131 million in FY 2018.

Cutting the severance tax is almost never a good idea, and does little to benefit the state. The severance tax is highly exportable, meaning that it is paid for by out-of-state consumers. A model of the incidence of Texas’s severance tax found that 62 percent of the state’s severance tax is exported, with Texas residents only paying for 38 percent of the tax. According to the EIA, West Virginia produces more than 5.5 times as much energy as its residents consume, meaning that the vast majority of the state’s severance tax is exported out of state. So in turn, the vast majority of savings from cutting the severance tax are also exported out of the state.

The severance tax has also shown to have little impact on jobs or mineral production. In fact, with its five percent severance tax rate, last year, West Virginia set an all-time high for natural gas production, even in the face of collapsing prices. Severance taxes mean even less for the rest of the state’s economy. The Tax Foundation does not include the severance tax in the State Business Tax Climate Index.

With its current budget problems, the last thing West Virginia should be doing is lowering its severance tax on natural gas extraction given our state’s looming budget crisis. Instead the state should be ensuring that we are adequately taxing our non-renewable minerals to help diversify and grow our economy.

Compromise Tax Bill Falls Onto Working Families, Makes Budget Crisis Worse

On the last night of the 2017 Legislative Session, the Senate and the Governor appeared to have worked on a tax plan compromise bill that would make sweeping changes to the state’s tax system that would exacerbate our state’s budget crisis and shift the tax load onto working families to make room for tax breaks for the wealthy. This included severance and income tax reductions, a sales tax increase with base broadening, a temporary Commercial Activities Tax (CAT) on gross receipts and a high-income surcharge tax, and increases in motor fuel taxes and Division of Motor Vehicle fees dedicated to the state’s roads.  Altogether, these changes would lower General Revenue Fund collections by an estimated $115 million and increase State Road Fund revenues by nearly $118 million in the first year of full implementation.

The table below provides an overview of the tax changes included in the compromise tax plan that were offered as an amendment to Senate Bill 484. While the plan raises revenues by increasing the sales tax and enacting a temporary tax on businesses (CAT) and high-income earners, the deep cuts to the personal income and the severance tax lead to a sharp decline in revenues for the upcoming fiscal year of 2018. The tax plan lowers revenue collections in future years even further since both the CAT and high-income tax expire by FY 2020, and the personal income tax is phased out over the coming decades.

The changes to the State Road Fund include an 8-cent increase in the motor fuel tax and increases in various DMV fees. This totals approximately $118 million in additional revenue for FY 2018 or about $60 million less than the Governor proposed in his FY 2018 budget.

On top of the $115 million in lost revenues that punch a bigger hole in the state budget, the proposed tax changes would on average increase taxes on 80 percent of West Virginia households making below $84,000, while lowering them on the 20 percent of West Virginians that make more than $84,000. Those making on average $11,000 would see their annual taxes rise by $121 or 1.1 percent of their income, while those making on average $778,000 (top 1 percent) would see an average tax cut of $3,713. This means that the compromise tax plan – excluding severance tax changes – raises taxes on most West Virginians to give large tax breaks to those that need them the least.

As noted in previous tax proposals, these changes will not only exacerbate income inequality and make it harder for low- and middle-income families to make ends meet, but they will lead to large future budget shortfalls that will damage our state’s ability to invest in the building blocks of our state’s economy.

Cutting income and severance taxes – while phasing out the income tax – is not going to pave a strong future for the state. Instead of moving in this direction, lawmakers need to work together to ensure tax reform is addressing the state’s looming budget crisis together not making it worse.

 

How Many Jobs Could the AHCA Cost West Virginia?

A recent report from the Economic Policy Institute looks at how many jobs could be lost in each state under the Republican health bill – the American Health Care Act. The AHCA – which would repeal the Affordable Care Act (ACA) – is like a zombie – it just does not seem to quite die.

Yet every attempt to bring it forward for a vote in the House has failed as many moderate Republicans remain nervous about the impact the legislation will have back home. And for good reason. Nonetheless, an effort by leadership and President Trump to regroup and hold a vote in the house over the next month in underway.

The Republican repeal will strip away the Medicaid expansion in West Virginia, reduce and cap federal Medicaid funding, and roll back the marketplace premium and cost-sharing subsidies for private insurance. Not only would many more West Virginians go back to being uninsured, the Republican repeal bill will strike a devastating blow to West Virginia’s struggling economy.

What would the Republican repeal bill mean for health insurance coverage in West Virginia?

– More than 800,000 West Virginians would be at risk of losing their health insurance coverage or face exorbitant premiums for a plan that does not cover pre-existing conditions.

– West Virginia would face a $4 billion cut in federal funding for the Medicaid program over 10 years (2019 to 2028), effectively shifting those costs to the state.

Federal cuts of this magnitude will force West Virginia to cut children, seniors, people who need long-term care, people with disabilities, and struggling low-income workers from the Medicaid program, as well as cut critical health services, and cut payments to hospitals, doctors, and other providers.

What would the bill mean for jobs in West Virginia? Nearly 23,000 jobs would be at risk in West Virginia by 2022. West Virginia would be in the top five states with the largest reduction in job growth as a share of the total employed population – a 1.45 percent average annual job less.

– 7,436 jobs in District 1 (Representative McKinley)
– 6,778 jobs in District 2 (Representative Mooney)
– 8, 701 jobs in District 3 (Representative Jenkins)

The Affordable Care Act resulted in billions of federal dollars flowing into West Virginia. With the ACA Medicaid expansion in 2014, the new federal dollars constitute the single most important economic stimulus package for this state in recent memory, creating jobs, boosting our economy, and supporting our rural hospitals and health-care providers. The health-care sector is one of the few sectors in West Virginia that has seen job growth in the last five years.

These health and economic security gains of West Virginia families would be at risk if Washington revives an ACA repeal effort. No state has more to lose than West Virginia if this zombie bill arises again.

 

House Tax Plan Comes Up Short

Today,  the House approved a tax plan (SB 484) that broadens the sales tax base and lowers the rate to balance the House’s budget (HB 2018). Altogether, the tax plan is expected to increase tax revenue in its first two years, while lowering tax revenue by year three. This is because of revenue triggers in the bill that lower the sales tax rate each year based on the prior year’s revenue. If enacted, this legislation will mean more budget cuts or revenue increases next year because of the backed-in reductions of the sales tax. The bill also means that low- and middle-income West Virginians will pay more in taxes as a share of their income than higher income residents.

The House tax plan will drop the sales tax rate from 6.0 percent to 5.5 percent beginning next year on July 1, 2018, and then to 5.0 percent on July 1, 2019. Thereafter, the sales tax rate will continue to drop based on a revenue formula, but not drop below 4.75 percent.

Several services and goods that are currently exempt in the sales tax base would now become taxable. These include telecommunications, personal services (barbering, massaging, manicuring, hair setting, hair washing and dying, shoe-shining, and non-medical personal care services, contracting services (on first $40k), electronic data processing, and opinion research. The bill also lifts the direct use exemption for all sales, services machinery, supplies and materials directly used or consumed in transportation (except coal) and communications. Almost all states have broad direct use exemptions because of concerns about tax pyramiding and business-to-business taxation.

Though SB 484 faces an uncertain future, it is clear it is not enough revenue to stop large budget cuts in the House and Senate budget bills and it creates future budget gaps that could lead to even bigger budget cuts to important programs and services in the future. While SB 484 increases revenue by $138 million for FY 2018, revenue drops to $55 million in FY 2019, followed by a decrease of -$15 million by FY 2020. This creates a budget hole of $83 million in FY 2019 and $153 million by FY 2020 if the House passes it’s budget bill than already cuts millions from important program and services.

 

 

 

House Budget Proposal Cuts Health Programs, Higher Education

The House of Delegates version of the FY 2018 budget bill has been introduced. The House budget spends $258 million less in General Revenue than the Governor’s proposed budget, balancing the budget largely through spending cuts.

Unlike the Senate proposal, the House budget relies on new revenue from SB 484, which expands the sales tax base to include to telecommunications, personal services, and “direct-use” taxes on purchases by communications and transportation businesses. This would raise $137 million in new revenue for FY 2018. However, provisions in the bill reducing the sales tax rate in later years would eventually result in decreased sales tax revenue.

As does the Senate bill, the House budget bill eliminates funding for the governor’s proposed Save Our State fund, and also “smooths” payments for the Teacher’s Retirement System.

While the Senate bill cuts K-12 education while authorizing local school districts to raise taxes to offset the loss, the House bill takes a different approach. The House bill cuts public education funding by eliminating RESAs and testing for 9th and 10th grade students. The House bill also cancels a planned raise for teachers and service personnel.

Under the House proposal the Office of the Secretary of Education and the Arts would be eliminated, and various Education and Arts programs moved to other areas of the budget.

General Revenue funding for Medicaid is cut by $42 million, which is partially offset by increased lottery appropriations. Other DHHR programs are cut by a total of $4.2 million, including eliminating funding for Tobacco Education, Cardiac Project, Center for End of Life, Osteoporosis and Arthritis Prevention, the Women’s Commission, and Healthy Lifestyles.

DMAPs is cut by $6 million, with most of the cuts coming from the Division of Corrections.

The House bill also zeros out funding for all public colleges in the state, and instead appropriates all the funding to the Higher Education Policy Commission and the Council for Community and Technical colleges. In total, the amount appropriated is effectively a $19.7 million cut from the governor’s proposal, but the House leaves it to the HEPC and CCTC to determine which colleges will be cut and by how much.

Senate Budget Bill Cuts Higher Ed by Another $41 Million

The state Senate’s version of the FY 2018 budget bill has been released, giving a glimpse into how the legislature plans to close the state’s budget gap. The Senate’s bill spends $402.6 million less from the General Revenue Fund than Governor Justice’s proposed budget, meaning that once again, the budget is being balanced largely through spending cuts.

The biggest single change from the governor’s proposal is the elimination of funding for Governor Justice’s Save Our State Fund, which saves the budget $105.5 million dollars.

Another major change from the governor’s proposal can be found in the budget for the Department of Education. The Senate’s budget cuts appropriations for the Department of Education by $141 million, with two major changes. First the school aid formula is adjusted to increase the local share of k-12 education, lessening the state’s share by $98.7 million. The Senate bill also keeps the governor’s proposal to “smooth” payments to the Teacher’s Retirement Unfunded Liability, saving $44.7 million.

In addition, there appears to be cuts to Medicaid in the Senate budget. General revenue appropriations for Medicaid are cut by $64.7 million, but are partially offset by increases in Excess Lottery and Trust Fund appropriations. Cuts to other areas of DHHR total $28.9 million below the governor’s proposal.

Finally, after years of cuts totaling $55 million, higher education goes under the knife again, with cuts totaling $41.6 million below the governor’s proposal, including $10 million in cuts to community and technical colleges and $31 million in cuts to public 4-year colleges and universities. The $41.6 million in cuts to higher education come on top of Governor Justice’s proposed cuts to higher ed, bringing the total cut from FY 2017 to FY 2018 to $51.6 million. Funding for Higher Education from the General Revenue Fund would be $115 million below FY 2013 levels for FY 2018 under the Senate’s budget bill.