Latest Budget Bill Makes More Cuts, Revenue Still Needed from Legislature

During this week’s special session, the Governor introduced HB 115, the latest version of the budget bill. Way back in February, the governor introduced his original budget plan, which called for $450 million in new revenue. During the regular session, the legislature failed to agree on any revenue measures, and at the end of the session passed a budget that was balanced with a $90 million withdrawal from the Rainy Day Fund and major cuts to higher education and Medicaid. That budget was vetoed by the governor. Since then, the Governor, Senate, and House have entered into a stand-off over personal income tax cuts and sales tax increases, with little attention to the actual budget.

Now with HB 115, we can see what the governor’s plan is once there is some revenue agreement with the legislature. Total General Revenue spending in HB 115 totals $4.35 billion, which is $155.7 million below the governor’s original proposal. The latest revenue projections show available General Revenue funds for FY 2018 to be $4.09 billion, which means that the legislature would need to raise about $260 million in new revenue for this budget proposal to be balanced. Current revenue proposals fall far short of that mark, and create bigger budget problems in the future.

Here are a list of major changes in HB 115 from the Governor’s original proposal:

  • The Save our State Fund in the Department of Commerce is reduced from $105.5 million to $15 million. Other cuts to the Department of Commerce total $629,448.
  • In the Department of Education, $1 million is cut from 21st Century Assessment and Professional Development. The “smoothing” of payments to the Teacher’s Retirement System’s unfunded liability is also included, saving $44.7 million.
  • Funding for the Education Broadcasting Authority is restored, but still cut by $85,813 from FY 2017 level. Other cuts in the Department of Education and the Arts total $493,403 below the governor’s original proposal.
  • In DHHR, funding for the Center for End of Life, Office of Healthy Lifestyles, Osteoporosis and Arthritis Prevention, and the Tobacco Education Program are eliminated, while General Revenue Funding for Medicaid is cut by $9.9 million below the governor’s original proposal.
  • The Department of Military Affairs and Public Safety is cut by $5.1 million below the governor’s original proposal, including $3.8 million cut from the Division of Corrections.
  • Community and Technical Colleges are cut by $1.3 million below the governor’s proposal.
  • Funding for HEPC and 4 year colleges and universities is cut by  $5.4 million below the governor’s original proposal, while $1.6 million in funding is restored for WVNET. Overall funding for Higher Education would be $13.8 million below FY 2017 funding levels.
  • Cuts in other areas of the budget, including DEP, Department of Revenue, and Executive Branch agencies, total $1.4 million.

Few changes were made to the Lottery Funds from the Governor’s original proposal. HB 115 restores Lottery funding for Division of Culture and History, including funding for fairs and festivals, at a cost of $4.1 million. That cost is offset by a $4.1 cut in lottery funding for the Bureau of Senior Services. The lottery cut to Senior Services is itself replaced by a $4.1 million increase in General Revenue funding.

There was only one change from the governor’s proposal in the Excess Lottery Fund. Excess Lottery funding for Medicaid was increased by $5.4 million above the governor’s proposal, offsetting some of the General Revenue cuts.

 

Senate Tax Plan Punches More Holes Into Budget (Updated)

Yesterday, the Senate Finance Committee passed an amended tax bill (HB 107) aimed at addressing the state’s budget shortfall, which was pegged at $497 million (or about 12 percent of the base budget) at the beginning of the year. Unlike the version of the bill passed by House, the Senate version creates net revenue losses beyond the FY 2018 budget.

The Senate bill includes raising the Sales Tax to 7.25 percent from 6 percent, expanding the sales tax base (telecommunications, digital goods, contracting services up to $40k, electronic data processing, health and fitness club memberships, primary opinion research, and ending direct use exemption for communications companies), an increase in the Historical Structure Rehabilitation Tax Credit to 25 percent from 10 percent, ending General Revenue transfer to Road Fund from sales taxes on highway construction, exempting all military retirement income from income tax, eliminating Social Security from income taxes over two years for those with less than $70,000, a new coal severance tax sliding scale based on price, a temporary three year increase in the Corporate Net Income Tax rate to 7 percent from 6.5 percent, and  new Personal Income Tax brackets that will reduce income tax collections by 15 percent in 2018 and 20 percent in 2019. The bill also includes a gradual phaseout of Personal Income Tax rates of 0.1 percent per year based on growth in the General Revenue Fund and inflation. The phase down is estimated to begin by FY 2021.

According to the Department of Revenue, the net impact of the legislation is a one-year increase in revenue in FY 2018 because the sales tax rate hike begins on July 1, 2017 while the personal income tax reduction does not begin until January 1, 2018 (Fiscal Year = July 1 to June 30th). After FY 2018, the Senate bill is projected to lower revenue by $56.1 million in FY2019, $121.5 million in FY2020, $137.4 million in FY21021, and $177.6 million in FY2022 when the Personal Income Tax rates begin to drop.

As shown above, the Senate tax plan not only fails to provide enough revenue for next year’s budget, but it also creates large future revenue holes that will likely result in more deep cuts to higher education, schools, and health and human services. This is especially important since next year is an election year when legislators often shy away from raising taxes.

Similar to previous tax plans from the Senate, this plan increase taxes on most West Virginians while lowering them for higher-income residents. According to the Institute on Taxation and Economic Policy, the Senate tax plan increases taxes on 60 percent of West Virginia households while lowering taxes on the top 40 percent of households. This is because lower income West Virginians pay more in sales taxes than income taxes, while the opposite is true for higher income people. Overall, the top 1 percent in West Virginia would receive an estimated tax cut of $2,245 on average while those making $26,000 would see a tax increase of $88 dollars on average.

Over the next couple of weeks, the Senate and House will take their tax plans to a conference committee to work on amenable plan that can pass both chambers so they can finally pass a budget from the upcoming year. The plan will have to include additional revenue if it aims to avoid more draconian cuts, especially in the outer years. One item that needs to be taken off of the bargaining table is the deep cuts to the personal income tax that largely benefit wealthier West Virginians. Only when this happens, can we ensure that we are not going down the Kansas road of a fiscal inferno with deep cuts to important programs, more credit downgrades, and weaker economic growth.

A good place for negotiations to start would be to adopt a simple tax plan, like the one we have endorsed or Delegate Pushkin has introduced that asks everyone to pay their fair share to avoid a government shutdown and cuts to essential services for families, children, and seniors.

 

A Simple Plan to Break the Budget Impasse

The tax and budget tug of war at the capitol between the Senate GOP and Governor on one side and the House on the other is crying out for a simple solution that demands an approach that protects our families, seniors, and children. Yesterday, the WVCBP and our coalition partners came with a tax plan that ensures programs like Medicaid are not cut and future budget deficits are not baked in with an upside down tax plan that mostly benefits the wealthy.

While the plan is far from ideal, it is a simple, balanced, and better plan than what has been proposed so far and ensures that we avoid a government shutdown on July 1st while maintaining services and programs.

Here it is:

 

The table below breaks down the plan in more detail. The biggest tax changes in the plan are the increase in the sales tax and the broadening of the sales tax base. These changes would increase state revenue by $216 million. And unlike the previous “compromise tax plans,” this proposal does not squander the revenue increase on income tax cuts that largely favor the wealthy. Instead, the proposal adds a 1 percent income tax surcharge on high incomes, raising an additional $68 million. And while the compromise tax plan’s income tax cuts cost over $300 million, with most of the tax savings going to the wealthy, this plan instead would enact an Earned Income Tax Credit, at the cost of only $18 million, with all the savings going to low income working families, and helping offset some of the regressive parts of the plan. And since massive income tax cuts are not part of the plan, the plan does not lower revenue collections in future years, actually helping solve the state’s budget problems, rather than making them worse. Altogether, the plan increases revenue by about $270 million in FY 2018.

Tax reform needs to address the state’s budget problems head on, rather than being used as a vehicle to lower taxes for the wealthiest in the state while setting the state up for further problems down the road. This plan would help ensure the fiscal stability of the state, without asking low- and middle-income families to pay for tax cuts for the wealthy or damaging our state’s ability to invest in the building blocks of our economy and thriving communities.

Latest Compromise Tax Plan Still a Bad Deal for West Virginia

Last week, the governor called the legislature back into special session to continue work on the state budget. The actual budget bill, however, was not part of the call, instead the intention was for the legislature to vote on a compromise tax plan that would influence how the budget was finalized. The version of the plan ( SB 1004) unveiled during the special session was very similar to the plan introduced on the last night of the session, which would have made the state’s budget crisis worse, while shifting the state’s tax load onto working families while giving wealthy families a tax break.

The tax plan passed the Senate by a vote of 32-1, but was killed by the House, prompting a 10-day recess for the legislature. The bill, while currently dead, is still heavily favored by the Senate and the Governor and likely still will be the basis for the budget deal.

The tax plan introduced during the special session and passed by the Senate would make major changes to the state’s tax system. The plan includes changes to the severance tax, major income tax reductions, a sales tax increase with base broadening, a temporary tax bracket for high-incomes, a temporary increase in the corporate net income tax, and increases in motor fuel taxes and Division of Motor Vehicle fees dedicated to the state’s roads. Altogether, these changes would decrease General Revenue Fund collections by $52.2 million in the first year of full implementation, and lower General Revenue collections even further once the temporary corporate net income and high-income tax bracket expire. The tax plan would also increases State Road Fund Revenues by $118 million.

The table below breaks down the tax changes in SB 1004. The centerpieces of the plan are raising revenue with an increase to the sales tax and temporary taxes on businesses and high-income earner, which are almost entirely offset by major cuts to the income tax. The tax plan lowers revenue collections in future years even further since both the increased corporate net income and high-income tax expire by FY 2020, and the personal income tax is phased out over the coming decades.

Because the sales tax increase has an earlier effective date than the income tax cut, the tax plan would increase General Revenue Fund revenues by $135.3 million in FY 2018, but would reduce revenue by $59.2 million in FY 2019 once the income tax cut is in effect for the full fiscal year. And once the temporary corporate net income and high-income tax bracket expire, the plan would result in a net revenue loss of $92.2 million.

 

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. These revenues would go to the State Road Fund, and would not contribute to closing the state’s $500 million budget gap for FY 2018.

Like previous versions of the compromise tax plan, this plan would not only worsen our state’s budget problems, it would do so by increasing 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 $123 or 1.1 percent of their income, while those making on average $778,000 (top 1 percent) would see an average tax cut of $2,626. Once again, the latest compromise tax plan is a plan that raises taxes on most West Virginians to give large tax breaks to those that need them the least.

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 6.5% rate on incomes over $300k. 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 increased corporate net income tax, the large personal income tax reductions mostly goes to the top income groups. In fact, approximately 60 percent of the more than $300 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.

The two temporary provisions of the tax plan, the increased rate for the corporate net income tax and the 6.5% income tax on incomes over $300,000, expire after 2020. Taking out these two parts of the plan largely benefit the top 1% of West Virginians, and do little for the other 99%. Once these two provisions expire, the overall tax cut for the top 1% of West Virginians will increase from $2,626 to $4,134.

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 taxes on the wealthy, while planning for further tax cuts for the wealthy in the future, 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.