Budget Beat – November 21, 2014

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We Are Thankful for You

As we enter the holiday season we would like to pause to express how thankful we are to you, our supporters. Happiest of all holiday seasons to you and your families!

Save the Date – Budget Breakfast, January 21, 2015

The WVCBP will hold its second annual Budget Breakfast on Wednesday, January 21 at the Four Points Sheraton in downtown Charleston. Please consider a sponsorship to our once-a-year fundraiser. More information to come!

Our Children Our Future Platform Vote Underway

If you’ve attended an Our Children Our Future event this year, you are eligible to vote on the 2015 platform to help choose which ten proposals will be the campaign’s focus during the upcoming legislative session. Online voting is open at www.ocofwv.org or you can go here to download and mail in a ballot by Tuesday, November 25.

Shameless plug: WVCBP policy priorities for the next legislative session include Paid Sick Days and Family Leave, and Voluntary Employee Retirement Accounts (VERA).

Our Children Our Future with Children Silhouette

West Virginia Coal Losing Steam to Natural Gas and Renewables

Over the last several years the amount of coal used to generate electricity in this country has declined. This trend holds true for West Virginia as well where the state is exporting less coal to its neighbors for them to meet their power needs. Both Ohio and North Carolina in particular are relying more on natural gas and renewables, and less on West Virginia coal, than in the past. For more on how natural gas is becoming a more competitive force in the region, read Ted’s blog post, part 4 in a series on why coal is declining in West Virginia.

“Not what we say about our blessings, but how we use them, is the true measure of our thanksgiving.”
- W.T. Purkiser

7 Things You Need to Know About Why Coal is Declining in West Virginia (4 of 7)

In the last post, we looked at how West Virginia – especially southern West Virginia -  is being out-competed by other coal regions because of the decline in coal mining productivity that makes it cheaper to produce coal in places like Illinois and Wyoming. Not only do West Virginia coal producers face stiff competition from other coal basins, they see growing competition from large deposits of shale natural gas out west and in West Virginia and, to a lesser extent, from renewable energy.

#4 West Virginia coal is losing steam to natural gas and renewable energy

Over the last several years the amount of coal used for electricity production at power plants in the United States has dropped considerably, from just about 2 billion megawatt hours in 2008 to about 1.6 billion megawatt hours in 2013. This trend is largely driven by the nation’s recent development of shale natural gas. Electricity generated from natural gas grew from about 639 million megawatts in 2011 to over 1.1 billion megawatts in 2013 – growing from 17 percent to 27 percent of the country’s net electricity generation. Coal, on the other hand, has declined over this period from 51 percent to just 39 percent of total electricity generation. Renewable energy has also grown over this period, from about 8 percent in 2001 to over 14 percent in 2013.

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The shift away from coal and toward natural gas electricity generation is also evident by looking at surrounding states that have relied heavily on West Virginia steam coal for electric power generation. Between 2001 and 2012, West Virginia’s largest domestic customers for steam coal (outside of West Virginia) were North Carolina, Ohio, and Pennsylvania. However, over the last several years West Virginia exported far less coal to North Carolina and Ohio. Meanwhile, Pennsylvania has shifted toward relying more on natural gas for electricity generation.

For example, in 2008, West Virginia shipped approximately 17.7 million tons of coal to North Carolina for electricity production compared to 11.6 million in 2012. Ohio received approximately 13.6 million tons of West Virginia coal in 2008 compared to just 5.1 million tons in 2012. While Pennsylvania imported more steam coal from West Virginia between this period (9.5 million tons in 2008 compared to 11.2 million in 2012), coal used for electricity generation in the state has declined.

From 2008 to 2013, Ohio, Pennsylvania, and North Carolina saw substantial drops in the share of coal used for electricity generation. In Ohio, the share of electricity generation from coal has declined from 85.5 percent to 67 percent since 2008, while in Pennsylvania it has declined from 53 to 40 percent, and in North Carolina it has dropped from 61 to 44 percent over this six-year period. Renewable energy has also grown in these states, from about 3 percent to 6 percent in North Carolina, 2.3 percent to 3.4 percent in Pennsylvania, and 0.4 percent to 1.4 percent in Ohio.

major coal fuel type

As shale development expands with new pipelines and with new natural gas utilities added in the region, the share of electricity from natural gas will likely grow over time in these states, putting more downward pressure on the ability of West Virginia to export coal to other states. As we shall see in the next post, natural gas is also becoming more competitive as the federal government implements rules around the problems associated with global climate change.

Budget Beat – November 14, 2014

Change in Leadership Likely to Bring New Policy Priorities

West Virginia’s historic election last week will mean a change in leadership in both the Senate and House, and likely new policy priorities for both. GOP control will mean new perspectives on state tax and budget issues. With more on what we might expect during the 2015 Legislative Session and beyond, here is Ted’s recap of new potential legislative priorities we’ll be watching for.

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Marcellus Boom Has Provided Budget Boost

Business tax cuts have reduced the amount of revenue coming into the state budget, forcing decreased funding to higher education and other important programs. The natural gas boom and the increase in severance taxes it created, however, are filling some of the budget gap caused by these cuts. Sean’s blog post explains how this new-found revenue only masks the impact of tax cuts and whether or not they are really keeping their promise to increase economic development.

Ending Poverty

Want to end poverty? Give low-income people money. This might sound like a simple, perhaps crazy, idea, but it nearly became law in the 1970′s. Here’s how it would work.

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Summit on Race Matters in Appalachia

Over 200 people attended this week’s Summit on Race Matters in Appalachia, a two-day event taking place in Charleston. Here’s a recap in the Charleston Gazette and an op-ed from Reverend Ron English who was a leader in making the event a reality.

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Dr. Gail Christopher with the Kellogg Foundation, keynote speaker at the Summit on Race Matters in Appalachia, 11/11/14. Photo by Beth Spence.

If you were unable to attend but want to be involved in future events, please email Linda to be added to our list.

You can also catch much of the event, filmed by West Virginia Public Broadcasting. Here are clips:

Day one reception

Day two keynote: Dr. Gail Christopher

Day two keynote: Michael Wenger

Day two keynote: Dustin Washington

Thank you to all who attended and made the event a success!

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Can West Virginia Reduce CO2 Emissions?

This week saw international momentum in the push to reduce global CO2 emissions. Is it possible for West Virginia to jump on the band wagon? Improving energy efficiency and expanding use of renewable energy sources are two options the state has available, if the political will to enact them is there. For a full analysis, here is more from West Virginia Public Broadcasting.

What does the election mean for state economic policy in West Virginia?

Last week, to many people’s surprise, West Virginia’s legislature flipped from blue to red with the GOP picking up 18 seats in the House of Delegates and eight seats in the State Senate. It appears that Mercer County State Senator and car dealership owner Bill Cole will become the new Senate President and that current minority leader and lawyer Tim Armstead from Kanawha County will become the new Speaker of the House of Delegates.

The Senate and the House will also have new leadership in both chambers. On the Senate side, it looks like Senator Mike Hall from Putnam County will be the new chair of the finance committee and newly elected State Senator (and former House Minority Leader) Charlie Trump will become chair of the judiciary committee. Jackson County State Senator Mitch Carmichael could become the new majority leader and there have been rumors that newly elected State Senator Tom Takubo could head up the Senate health committee.

So far, it is unclear who will take leadership positions in the House. (If I had to guess, I would say Patrick Lane would be appointed chair of the  judiciary committee and either Eric Nelson or Ron Walters could chair the finance committee. Perhaps Daryl Cowles will be majority leader.)

As the graphs below illustrate, the shift from blue to red has been in the making for some time, especially over the last several years. Nonetheless, the drastic change in party composition was nothing less than a seismic shift that has left some feeling ‘shell-shocked.’ The shift in party composition also means a shift in the state’s political balance of power, with a Democratic governor and a Republican-controlled legislature.

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senate wv party

Before we get to the policy proposals we are likely to see in 2015, it’s important to look at the state’s procedural rules that could have a dramatic impact on policy outcomes. While the budget bill (or supplementary appropriations bills) requires two-thirds of each house to override a governor’s veto in West Virginia, it only takes a simple majority to override the governor’s veto of other bills (West Virginia is only one of only six states that only requires a majority). Upon passage of a bill, the governor only has five days to veto it during the session (15 after the session ends). This means there could be a lot of bills passed early in the session if the legislature wants to ensure that they become law.

With that being said, what kind of economic policies should we expect during the 2015 Legislative Session? How will the new leadership impact the state budget next year and beyond? While it is impossible to know what the future holds – as Yogi Berra once said it is hard to make predictions, especially about the future – we can look at the policy priorities of the current leadership  prior to Tuesday’s election. (You can also look to Russ Sobel’s Unleashing Capitalism, which the GOP called its “party platform” for policy change in West Virginia in 2007.) 

Let’s start with a few:

Right-to-Work: This has been a policy priority for the Charleston Daily Mail and several GOP members of the House introduced right-to-work legislation in 2013, including Ron Walters and John McCuskey. It was also included in  the WV GOP party platform in 2012. Tim Armstead also serves on the National Right-to-Work Committee and has been very vocal in his support of the policy. As we’ve stressed, this law would give workers less freedom, depress their wages, erode pensions, and have no real impact on job growth.

Prevailing Wage: In 2014, Senator Cole was the lead sponsor (along with five other GOP senators) of a bill to repeal the state’s prevailing wage provisions for state construction projects. This bill was also introduced in the House by GOP members. Similar to Right-to-Work laws, eliminating prevailing wages for construction workers lead to lower wages, health and pension coverage. They also lead to a less-trained workforce and higher injury rates.

Repeal of Business Personal Property Tax: While eliminating the business personal property tax has enjoyed bi-partisan support in the legislature, it has been a difficult thing to do because it would leave the state with close to $500 million in lost revenue at the local level (not to mention the millions in additional money that would be needed for state aid to schools) and it would likely result in a giant tax shift to home owners if any of the revenue is replaced.

Another stumbling block is that it would require amending our state constitution. This would require two-thirds of the elected members in both houses in order for it to be placed on the ballot. Another avenue that could be taken by the GOP would be to make all business personal property subject to be taxed on its salvage value, which would lower the appraised value from 100% to just 5%. This is precisely what the legislature did a couple of years ago in efforts to attract an ethane cracker facility. Also, keep in mind that governors across the country are putting in large tax cuts without replacing the revenue. For more info, see our 2011 report on why eliminating the business property tax is fiscally irresponsible and a boon to mostly out-of-state mining companies. 

End of Medicaid Expansion: While the Senator Hall has said that the WV State Senate may not eliminate Medicaid expansion to over 150,000 low-income West Virginians, he believes the House could move to eliminate it in 2015. It is also unclear whether Governor Tomblin would veto a bill eliminating Medicaid expansion if  does not include an appropriation.

More Budget Cuts?: Currently, the state has a deficit of $37.5 million in FY 2015. In January 2014, the governor projected a deficit of $126.3 million for the FY 2016 budget. In his veto letter in March 2014, he stated he would use the Rainy Day Fund to plug the FY 2016 budget hole which might grow even bigger with time. Last year, most of the GOP leadership argued against taking money from the rainy day fund and did not push for any tax increases to balance the budget. So, don’t be surprised if the new leadership pushes for more cuts in the FY 2016 budget along with other tax cuts that could lead to more future budget cuts. Another important thing to keep in mind is that the Governor’s veto authority over the budget only extends to reducing line-items not increasing them. For example, if the the legislature decides to make across the board budget cuts instead of tapping the rainy day fund next year, there is little that the Governor can do except veto the entire budget bill and call the legislature back into the session- which would be highly unlikely.

Budget Transparency: One of the more progressive measures that GOP leadership has taken is looking at ways to increase transparency in the budget process. This is something that we’ve worked on for some time and that might have a much better chance to be realized because of the change in the political balance of power.

Other fiscal policies that might come up in the 2015 Legislative Session could be school vouchers, a Tax Payer’s Bill of Rights (TABOR), and more corporate tax cuts, While these are all just a sample of what might come to pass, there is also a good chance that the new leadership will work to find common ground and that our budget process might be more open and more subject to public scrutiny.Let’s hope for the best!

How the Marcellus Boom Masked West Virginia’s Tax Cut Problems

Earlier this week, the state’s monthly revenue report was released, which keeps track of the various taxes that make up the state’s General Revenue Fund. For October, the General Revenue Fund was up $5 million over the estimate, a pretty good month. This was largely due to severance taxes, which came in at $38.1 million or almost $10 million over the October estimate. Less impressive was the corporate net income/business franchise tax revenue, which came in at $8.4 million, $134,000 below estimates. For FY 2015, the state is expecting to collect $201.5 million in corporate net income/business franchise tax revenue, which (excluding the bad year of 2012) would be the lowest amount since 2004.

It’s no surprise that the state’s business tax revenue has been lackluster, with the series of business tax cuts enacted since 2006. The tax cuts have dramatically reduced revenue, to the tune of $205 million in FY 2015. While these tax cuts have caused their fair share of budget problems in recent years, West Virginia hasn’t had the major budget problems of tax cutting state’s like Kansas and North Carolina, which are facing massive budget shortfalls.

After several rounds of budget cuts, West Virginia is still facing a $126 million shortfall in FY 2016, a gap of about 2.6% of the base budget. But West Virginia’s tax cut induced problems could have been much worse, if it weren’t for the Marcellus boom and the resulting rise in severance tax revenue.

Right around the time West Virginia started its business tax cuts, natural gas production in the state took off, in a rather fortunate coincidence. Natural gas production in West Virginia increased from 231 billion cubic feet in 2007 to 718 billion cubic feet in 2013, an increase of 211%. As a result, even as the coal industry struggled, severance tax revenue took off. Between 1999 and 2004, severance tax revenue grew at an average annual rate of 4.4%. Between 2004 and 2014, that growth rate grew to an average of 10.2% per year, as severance tax revenue grew to nearly $500 million. Moving forward, the State Budget Office projects that revenue growth will return to its pre-boom rate of about 4% per year, as coal’s decline catches up with gas’s gains.

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The growth in severance tax has neatly coincided with the shrinking of the state’s business tax revenue. For the past 15 years, revenue from the severance tax and the corporate net income/business franchise tax have combined to make up about 15% of the state’s general revenue, a share that has been fairly stable. But each tax’s contribution to that share has changed dramatically. In FY 2005, the split was pretty close to half, with the CNI/BFT making up 8.5% of general revenue, and the severance tax accounting for 7.5%. While while the severance tax grew, business tax cuts took their toll, and by FY 2015, the CNI/BFT’s share was down to 4.7%, while the severance tax’s share was up to 11.1%. The decline in business tax revenue was almost completely masked by the increase in severance tax revenue.

share of gr

Without the extraordinary growth in severance tax revenue making up for the lost business tax revenue, the state’s budget pictures would have looked very different. Since 2008, West Virginia general revenue fund has averaged a balance of $32 million, albeit with shortfalls since FY 2012 that have necessitated budget cuts the past three years. So, up until FY 2012, the severance tax has done a pretty good job of covering up the losses from the business tax cuts, and West Virginia has avoided major budget pain.

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Just how much of a difference did the Marcellus boom make? Let’s assume that instead of its extraordinary 10% per year growth from 2004 to 2014, that the severance tax maintained its pre-boom average growth rate of 4.4%. This scenario shows what the effect of the business tax cuts would have had on the state budget, has there not been a natural gas boom to bail us out.

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In this scenario, West Virginia goes from having an average general revenue balance of $32 million from FY 2008 to FY 2015, to an average annual gap of -$135 million. Instead of fiscal troubles creeping up on the state in FY 2012, they would have started right off the bat, as soon as the tax cuts took effect. And these gaps still include the budget cuts that West Virginia did have to make, so in reality they would have been even larger. For example, while in this scenario, FY 2011 has a positive balance, it includes $115 million in budget cuts that were replaced by stimulus funds that year. Without the extra growth in severance revenue, West Virginia would have been short over $1 billion since FY 2008. This means not only would there have been no deposits in the rainy day fund that during that time (which may have stopped further business tax cuts), but even larger spending cuts then we have seen since Fy 2012 would have been needed.

 Not only did the natural gas boom help cover up some major budget problems that West Virginia’s business tax cuts could have caused, it also covered up some the lack of economic growth that the tax cuts were supposed to create. After the tax cuts were enacted, then-Governor Manchin highlighted them in his FY 2009 budget message, pointing out that the Cato Institute called them, “probably the most pro-growth tax reforms of any state.” And while our “business tax climate” increased from 34th in 2007 to 21st in 2015, the business tax cuts haven’t done much to promote growth.

West Virginia’s private-sector job growth since the end of the recession has been middle of the pack, relative to our neighboring states, coming in at 5.4%, behind Kentucky and Ohio (both of which, by the way, have worse “business tax climates”).

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But, just like with West Virginia’s revenue, take away the natural gas boom, and West Virginia’s job growth looks less impressive. When looking at non-mining private-sector job growth, West Virginia comes in last place among our border states, with growth falling from 5.4% to 4.8%.

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The same thing happens to our GDP growth. While tax-cut enthusiasts like to tout West Virginia’s 5.1% GDP growth last year as evidence that our tax cuts are working, without the growth in the natural gas industry, our GDP growth would have been negative. And even with the 3rd-highest GDP growth last year, West Virginia ranked dead last in job growth, losing almost 7,000 jobs.

West Virginia was told we badly needed tax reform to spur economic development, and that with it we would be, “in a better position to compete regionally with Pennsylvania and Virginia.” We got our tax reform, and unless tax cuts put natural gas underground, we have little to show for it. Instead of competing regionally, we’re lagging behind all of our neighbors, instead of growing the rainy day fund, we’re depleting it, and instead of  making the investments that do matter for economic growth, we’re worrying about where to cut next.

7 Things You Need to Know About Why Coal is Declining in West Virginia (3 of 7)

In the last post, I looked at the rapid decline in coal mining productivity in West Virginia. This post will show how the decline in productivity has played out over the last few years and how it is has resulted in West Virginia losing coal market share with other coal producing regions. 

#3 West Virginia coal is losing national coal market share

While coal’s share of electric power generation has declined nationally, West Virginia’s share of steam coal that is being used for electric power generation has also declined. In 2008, West Virginia shipped 97.7 million tons of coal to the electric power sector compared to just 51.8 million in 2013. Between 2008 and 2013, West Virginia’s share of U.S. coal being shipped to the electric power sector dropped from 9.6 percent to 6.6 percent. In contrast, Wyoming’s share of coal being used for electric power in the U.S. rose from 44.3 percent to 47.4 percent over this period and Illinois’s share grew from 2.3 percent to 4.4 percent. West Virginia’s shrinking share is even more dramatic when you look at the southern part of the state. In 2008, southern West Virginia accounted for 6.3 percent of the nation’s coal used for electric power generation. By 2013, southern West Virginia’s share had dropped to just 2.5 percent. This means that West Virginia is being out competed by other states for providing steam coal that is used for electric power generations in the United States.

 domestic coal by state

What about international coal markets?

West Virginia is doing much better here. Between 2008 and 2012, the state has increased the number of tons of coal it is exporting from 26.4 million to 47.5 million. As the table below highlights, this growth is driven primarily by the increase in southern West Virginia foreign exports, which has nearly doubled over this period. While West Virginia has seen growth in its coal exports, so have other states, most notably Illinois, Alabama, and Montana. As a share of total U.S. coal exports, West Virginia has seen a slight reduction between 2008 and 2012 of two percentage points. It is also important to recognize that most of West Virginia’s exports are dependent on the internal market for metallurgical coal which is highly volatile and is heavily dependent on growth rates of countries like India and China. 

 foreign coal by state 

Looking at the big picture, the share of U.S. coal being produced in West Virginia has shrunk considerably over the last 14 years. In 2002, nearly 15 percent of the coal produced in the U.S. came from West Virginia. Today, only 11.5 percent. As the graph below shows, this is driven by the relative decline in southern West Virginia coal production. The share of U.S. coal produced from northern West Virginia has risen over the last decade and a half, from 3.1 percent in 2002 to 4.3 percent in 2013.

coal market share

What this all makes clear is that the decline of coal production in southern West Virginia is happening as other coal basins and states have increased their market shares. There is a national ‘war on coal’ when other regions are out competing West Virginia and our production losses are being replaced by other states.

In the next post, I will look at one of the other central reasons why coal is declining in West Virginia -  the growth of natural gas. 

Budget Beat – October 31, 2014

Happy Halloween!

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Defunding CHIP Would Hurt West Virginia’s Working Families

Health care benefits for thousands of West Virginia children could be cut if Congress fails to reauthorize the Children’s Health Insurance Program (CHIP). Families could have to pay up to ten times more on average for health coverage. To learn more, and find out what you can do to save CHIP, read Erin’s blog post.

Lower Productivity at the Heart of Coal Decline

In part two of his blog series, Ted breaks down how a decrease in productivity is hurting the coal industry in southern West Virginia. This downturn is largely attributable to a depleted resource; much of what is left in the region is harder to mine. Here’s a look at where the state ranks nationally in terms of production: 

Timing Running Out to Register for Summit on Race Matters in Appalachia

Registration for the Summit on Race Matters in Appalachia will close on November 5. Please take a minute today to register and reserve your spot!

Register now!

Here’s more on the Summit in this week’s Charleston Gazette and its editorial page. See you at the Summit!

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First SCORE Meeting Held

The week in Beckley, members of the West Virginia Senate SCORE Task Force met at the Raleigh County Commission on Aging, for their first listening tour.

If you weren’t able to make it, here’s a video of the event.

SCORE (Southern Coalfields Organizing and Revitalizing the Economy) is an initiative focusing on helping revitalize Southern West Virginia.

Lucy Boettner checks out the refreshments at the first SCORE meeting 10.29.14 in Beckley, W Va. Photo by Lynette Maselli.

This Election Day: Support Your Community Library

Libraries are the heart of a community, providing free services for every family. Kanawha County voters have an opportunity to pass a library levy on Election Day. The levy would mean a tax bump of just pennies a day for county property owners. Here’s more in this week’s Daily Mail.

Last Chance to Register! What is a Safe Water System?

A panel discussion & community conversation on our water
Thursday, November 6th, 7-9pm (doors open at 6:45)

University of Charleston, Erma Byrd Gallery (in Riggleman Hall)

Event is free. Register here

Speakers include: Dr. Rahul Gupta (Kanawha-Charleston Health Department), Fred Stottlemyer (former director of Putnam PSD), and other safe water experts.

Despite legislation and promises from our politicians, our drinking water system is still at risk. The Public Service Commission’s investigation of WV American Water has been pushed back until next year, and the legislation we have won is at risk. Hear experts explain what a safe water system might look like, and discuss among our community how we can achieve that goal.

Sponsored by: Advocates for a Safe Water System, WV Center on Budget & Policy, WV Council of Churches, National Association of Social Workers, and WV Healthy Kids & Families Coalition.

Editorial Against Boy Scout Amendment

While WVCBP staff is split on the Boy Scout Amendment, one paper in southern West Virginia is not. The Fayette Tribune came out this week against the amendment which would create a special tax status for just the Boy Scouts of America, allowing the organization to rent out its facility in Raleigh County to for-profit groups while maintaining a tax-free nonprofit status. Opposition seems to largely fall around amending the Constitution for just one group, not treating all nonprofits alike.

Just How Arbitrary is the Tax Foundation’s State Business Tax Climate Index?

The 2015 edition of the Tax Foundation’s State Business Tax Climate Index came out earlier this week. West Virginia ranked 21st this year, showing improvement improvement over the past several years. And while some in the state put a lot of stock in our rank, we should know by now that the index is nothing more than a transparent justification for lower taxes and smaller government, with no real policy value.

I’ve gone over the problems with these types of rankings before, but since they keep getting attention, it’s worth going over them again. With the Tax Foundation’s Index, the main problem is that it’s completely arbitrary and has virtually  no relationship to what businesses actually pay in one state versus another. States’ that lack a corporate or personal income tax are rated better than state’s with progressive marginal income taxes, even if those states’ overall business tax burden is lower. The index weighs property taxes the least even though they are the largest tax for most businesses. So for the Tax Foundation’s top 10 states (those with the most competitive tax systems on their measure), only Utah and Indiana are among the 10 states with the lowest taxes on business according to the Council on State Taxation, which actually measures the amount of taxes paid by businesses.

The index doesn’t measure tax levels, instead it measures “tax competitiveness” but there is no evidence that what they define as competitive makes a difference to businesses. But when stating the importance of a state’s competitiveness, they argue that, “a state with lower tax costs will be more attractive to business investment,” even though their index doesn’t actually measure tax costs. Instead, the index adds together different features of the tax code that may or may not influence businesses, and arbitrarily weights them. 

The index also completely fails to predict growth. I’ve done a number of blog post on the index from various years showing that there is no correlation between a state’s rank and it employment growth, gdp growth, wages and any number of economic indicators. And improving a state’s rank doesn’t lead to growth. I recently went back to the 2010 rankings, South Dakota ranked #1, but only 30th in job growth since 2010, while California ranked 48th in the index and 3rd in job growth.

Just how how bad is the index at predicting growth? I compared the correlation between last year’s ranking and job growth with another completely arbitrary ranking – the state’s ranking in alphabetical order. And guess what? A state’s ranking in alphabetical order had a stronger correlation with job growth than its rank in the Tax Foundation’s index.

stbtc vs alphabet

West Virginia has substantially improved our score in recent years by cutting the CNI and phasing out the BFT, but we have nothing to show for it. Business tax revenue is at record lows and we have had to tap the rainy day fund to balance the budget. Most if not all of our economic growth has been in the natural gas industry, which can’t be attributed to tax climate.

But the biggest problem with the whole idea of a tax climate ranking is that it perpetuates the belief that state and local business taxes are the driving force behind economic development, when the actual research shows taxes are a small share of business costs, and have little effect on investment decisions. It also neglects to evaluate the impact taxes have on public investments. West Virginia has one of the lowest percentage of college graduates in the country, which doesn’t make for a good business climate. But by pursuing business tax cuts, we have had to cut state funding for higher education, pushing up tuition costs and making college even more unaffordable.

Rankings like these are ideological, and encourage a single-minded pursuit of business tax cuts as key economic development policy, and undermine the public structures that can lead to real economic growth and prosperity.

Congress Should Treat America’s Kids to Good Health Care and Refund CHIP

Want a real scare this Halloween? Imagine having to pay up to ten times more on average for your children’s health care. This is the increased cost estimate if Congress does not reauthorize funding for the Children’s Health Insurance Program (CHIP), according to a study commissioned by the Robert Wood Johnson Foundation.

The CHIP program provides an affordable health care option for families and tailors benefits to the needs of kids. Defunding CHIP would require parents to enroll their children in Medicaid or purchase insurance on the marketplace for them. Private insurance plans do not offer the strong health benefits that CHIP offers to insure children are growing strong. 

Also, the CHIP program caps out-of-pocket costs at a much lower dollar amount than the marketplace coverage currently offered. Out-of-pocket costs are health care costs not reimbursed by insurance providers. The table below compares the out-of-pocket caps for West Virginian children enrolled in CHIP and the current caps for a qualified health plan (QHP) offered through the marketplace. 

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Source: Wakely Consulting Group, “Comparison of Benefits and Cost Sharing in Children’s Health Insurance Programs to Qualified Health Plans” (July 2014). 

Annual costs estimates include the average cost to families for out-of-pocket costs, deductible, copays, and/or coinsurance.  These estimates illustrate the drastic cost increases West Virginian families could face.

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Source: Wakely Consulting Group, “Comparison of Benefits and Cost Sharing in Children’s Health Insurance Programs to Qualified Health Plans” (July 2014). 

As you can see, the cost difference between CHIP and marketplace coverage is substantial. For many families, marketplace insurance would be unaffordable and as many as 25,000 West Virginian kids could be put be at risk of becoming uninsured. A spooky thought indeed! 

FamiliesUSA has created an easy way to send a letter to the editor of your local newspaper to address your concerns about the funding of the CHIP program. Click on the photo below to see draft letters and talking points. 

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I encourage everyone to “haunt” your local newspapers and lawmakers by writing to them in support of continued CHIP funding!

7 Things You Need to Know About Why Coal is Declining in West Virginia (2 of 7)

In the last post, I showed that the decline in coal production was heavily concentrated in the southern part of the state. While there are many factors at play, none is probably more important than this one.

#2 lower productivity is at heart of coal decline in W.Va.

If you want to understand why West Virginia and Central Appalachia coal production is struggling, the first place to look is productivity or the amount of coal being produced per hour of work. Productivity is the sine qua non of coal mining. It plays a large role in determining the price of coal, the costs of mining coal, and the profits being made from coal. It also helps explain why some mines are shutting down at the same time others want to open that are less than 100 miles apart.

As the table below highlights, West Virginia – especially southern West Virginia – ranks in the bottom of coal mine productivity. Wyoming can produce 13 times as much coal per hour of work than West Virginia, while Illinois is twice as productive. While Wyoming and Illinois coal has less heat content or BTUs than coal from West Virginia, it still comes out way ahead with Wyoming producing 244,000 BTUs per miner hour compared to just 26,000 in southern West Virginia.   

coal prod hist
Between 2000 and 2012, coal mining productivity has declined by over 50 percent in West Virginia, from about 5 tons per hour to 2.4 tons. As the table makes clear, this is largely being driven by the decline in productivity in southern West Virginia. Meanwhile, productivity in Wyoming – the country’s largest coal producer – has only declined by 27.6 percent and productivity in Illinois – the country’s 5th largest coal producer – has improved by 10.2 percent.  

In most industries, productivity rises each year as technology improves.But with coal mining, the gains since the mid-1980s have not been uniform. Since 1985, productivity has barely budged in Central Appalachia, with eastern Kentucky seeing a decline of almost 7 percent and southern West Virginia with an increase of only 13 percent. Meanwhile, productivity has grown by 122 percent in Illinois, 93 percent in Wyoming and about 50 percent in western Kentucky and northern West Virginia.

The drop in coal mining productivity, despite technological improvements, in West Virginia and the Appalachian region reflects the depletion of the area’s coal reserves. As coal seams get thinner, they becomes more expensive to mine. As Downstream Strategies highlighted in its excellent 2012 report, the central reason for the sharp declines in productivity  in Central Appalachia has been the “the exhaustion of the thickest, most accessible coal seams.” Other factors impacting productivity include demand for coal, mining costs, workforce demographics, mine permitting, and regulatory oversight.

The drop in productivity from the depletion of the area’s coal reserves can also help partly explain the growth in the value of the state’s reduced severance tax rate for thin-seam coal production.

thin seam

According to experts, there also do not seem to be any technological improvements that will increase productivity in the future. The latest projections from the U.S. Energy Information Association also confirm this finding showing that productivity will continue to decline in West Virginia.

coal prod proj

As I will show in the next post, the rapid decline in coal mining productivity in West Virginia has resulted in the state losing coal market share and could make it even harder to compete with other energy sources and coal basins as regulations move forward.