Legislation Session in Final Hours
Tomorrow night at midnight the 2014 Legislative Session will be over. As we go to press, pieces of legislation that we have followed for the last 59 days are changing quickly.
The Senate version of the bill to raise the minimum wage was passed today. It drags out the incremental increases over three years instead of the two years in the House version. The bill will now go back to the House and the differences will need to be ironed out if the bill is to pass this year. Here’s more on how low-income families would benefit from an increase to the minimum wage.
An argument that surfaced this week against raising the minimum wage was that low-income people would start making too much money to be eligible for Medicaid. While the premise is true, what’s also true is that this would not be a bad outcome for those folks. Read more in Brandon’s blog post.
Raising the minimum wage will also make low-income people less reliant on federal benefits like the Supplemental Nutritional Assistance Program (SNAP), otherwise known as food stamps. Increasing the federal minimum wage to the proposed $10.10 an hour would save about $4.6 billion in SNAP benefits. Read more here.
Another way to get more money into the hands of low-income workers is through an expanded Earned Income Tax Credit. President Obama’s proposed budget released this week would do just that by extending the credit to childless workers. This would create jobs while lifting more people out of poverty. Read more in Sean’s blog post.
The West Virginia Future Fund bill was heavily amended by House Finance on Wednesday. It is scheduled to be read on the House floor for the second time today so it still has time to pass in one form or another before the session’s close. To read about the changes the House Finance Committee made to the Future Fund bill, read Ted’s blog post. Here are Three Questions with Ted Boettner and another State Journal article.
Voluntary Employment Retirement Accounts (VERA), despite passing the House of Delegates, will now be studied during the 2014 Legislative Interims.
The Valued Employee Retention Program (Work Sharing) is still awaiting action by the Senate Finance Committee but has been read twice on the Senate floor. For more on the benefits of a Work Sharing program, here’s an article from the Charleston Gazette.
Budget Week Starts Monday
As mentioned last week, legislators will start their work on the state budget next week. It is likely they will dip into the state’s Rainy Day Fund, along with other measures, to close the budget gap. The WVCBP has made numerous recommendations on other ways to deal with the state budget shortfalls and here’s more. Ted also appeared on the Legislature Today on Monday to talk about the budget and the WV Future Fund. Listen here.
Ending Currency Manipulation Would Create Millions of Jobs
Currency manipulation affects the price of the country’s imports and exports, increasing the trade deficit by billions. In fact, according to the Economic Policy Institute, ending currency manipulation could, in turn, improve trade and current accounts in the United States by between $200 billion and $500 billion over the next two to three years. Read more here.
There was an odd argument that came up earlier this week in the Senate Finance committee debating HB4283 to raise the minimum wage in West Virginia – raising workers’ wages would kick West Virginians off of Medicaid. This is odd for a number of reasons: first it suggests support for more dependence on public assistance programs, secondly it implicitly suggests support for lower wages, and thirdly because it came from conservative opponents of the bill.
Yes, it is true that raising the minimum wage to $8.75 in West Virginia would likely end up pushing a lot of West Virginians off of Medicaid, perhaps tens of thousands of those who have just become eligible for the very first time. As I’ve pointed out before, the majority of those West Virginians qualifying for expanded Medicaid are the working poor, many of whom are going to be making at or near minimum wage. A cashier working full-time at the current minimum wage of $7.25 an hour earns $15,080 a year, a little under 130% of the official Federal Poverty Level for an individual, qualifying them for Medicaid under the new expansion guidelines. However, that same cashier making $8.75 an hour would earn $18,200 a year, over 150% FPL, which would push them beyond Medicaid eligibility.
There are a lot of reasons that this is a good thing for West Virginia. Primary among them is that it would bring thousands of people off of Medicaid, which is the most expensive program for the state.
In the past we may have argued that pushing people off of Medicaid would be dangerous because it would likely leave them uninsured, but this is no longer the case. Today, all of these people will be guaranteed access to affordable health coverage through the insurance marketplace at Healthcare.gov. And I truly mean affordable. For example, the cashier who now earns around $18,000 a year would not have to spend more than 4.3 percent of his income on health insurance. This means that he could find a silver level Highmark Blue Cross Blue Shield plan on the state exchange for $65 per month. Plus, he’d qualify for substantial assistance in out-of-pocket costs like co-pays and deductibles.
There’s also the not-so-small matter that bringing more healthy people on to the exchange in West Virginia would improve its community rating, which could help lower premiums across the board for insurance plans offered in the exchange.
Essentially, raising the minimum wage would get more low-income workers off the government programs and reduce costs to the state in a time of serious budget challenges, all the while helping to push health insurance premiums down statewide.
Yesterday, the House Judiciary and Finance Committees both amended and passed out Senate Bill 461 and Senate Joint Resolution 14 that creates the West Virginia Future Fund. The amendments made several modifications to how much revenue will flow into the fund over time, how the principal of the fund is protected, and how the state will use the interest income. For an overview of the Senate version of the bill and resolution see here.
The most significant change the House made to the bill was how severance tax revenue would be deposited into the Future Fund. While the Senate version of the bill allocated 25 percent of all oil and natural gas severance taxes collected over $175 million to be deposited into the fund, the House version instead dedicates three percent of annual severance taxes collected on coal, oil, natural gas, limestone, and sandstone that would otherwise be deposited into the General Revenue Fund. Currently, about 86 percent of total severance tax revenues are deposited into to the General Revenue Fund while nine percent are distributed to local governments and five percent goes into the Infrastructure fund (and a very small fraction goes to administration).
The House version also included several conditions that have to be met in order for deposits to be made into the Future Fund in any given year, including:
1. The balance of the Revenue Shortfall Reserve Fund has to be least 13 percent of the General Revenue Fund budget.
2. The Governor’s General Revenue Fund estimate cannot rely on using money from the Rainy Day Fund.
3. No mid-year budget cuts, hiring freezes, or allocations from Rainy Day Fund to fill budget gaps.
So how will these changes impact the balance of the Future Fund?
While it is uncertain if these conditions will be met over the next several fiscal years, there definitely will not be a deposit into the Future Fund in FY 2015 under the House version of the bill. This is because the governor has already recommended using $84 million from the Rainy Day Fund in FY 2015 budget.
The stipulation that the Revenue Shortfall Reserve Fund has to have a balance of at least 13 percent of the General Revenue fund could be problematic several reasons. First, because the language in the House amendment does not refer to both Revenue Shortfall Reserve Funds (A & B), it could be very difficult to meet this target. Today, the Revenue Shortfall Reserve Fund (Part A) has a balance of $558.9 million, 13.09% of the Governor’s proposed FY 2015 General Revenue Budget of $4,271 billion. Meanwhile, Revenue Shortfall Reserve Fund – Part B has a balance of $363.5 million. Altogether, the total a balance in the Rainy Day Funds is $922 million or 22 percent of the General Revenue Fund.
If the legislature uses $84 million of the Revenue Shortfall Reserve Fund (Part A) for the FY 2015 budget, the Revenue Shortfall Reserve Fund will only be 11.1 percent of the state’s general revenue fund budget. This means it will have to be replenished over the next year to exceed 13 percent by raising taxes or finding money from somewhere else. Of course, the legislature could increase taxes this year so they do not have to use the Rainy Day Funds but that may be highly unlikely in the election year.
It is also important to mention that the the governor’s budget forecast shows a budget gap of $126 million in FY 2016 and $44 million in FY 2017. So this would mean more spending cuts or tax increases if the Rainy Day Fund is not used
If we conclude that all of the above conditions will be met over the next several years – a big leap of faith, I might add – the future balance of the Future Fund will likely be much lower that it would have been without these changes. Based on severance tax projections from the West Virginia Department of Revenue, the fund will have a balance of about $72 million in FY 2019 compared to $127 million in the Senate version of the Future Fund. This is because the benchmark included in the House version – three percent of total severance tax revenues – is much lower than the benchmark in the Senate version of 25% of natural gas and oil severance tax collection of about $175 million. And because the House version benchmark begins with severance tax revenue deposited into the General Revenue Fund – and not the total amount of severance tax revenue included in the Senate version – it also depresses the amount of revenue flowing into the Future Fund.
Other House Changes
The House’s amendment also clarified that “tax relief” was an appropriate use of the money that could be spent from the Future Fund so it matched the language in the Senate Joint Resolution 14. The House Judiciary Committee also stipulated that “infrastructure” would include “post-mining land use.” All fine.
The only other significant change made by the House was to the constitutional amendment proposed on SJR 14. Instead of making the fund permanent – meaning that the only way to spend the principal of the fund was by a vote of the people – the House included an amendment that the legislature could spend the principal of the fund if two-thirds of each house of the legislature agrees. The problem with this amendment is that it hurts the integrity of the Future Fund by giving the legislature, instead of the people, the option to spend all of the money in the fund. This language also conflicts with the language in the bill that says the principal of the Future Fund “shall remain inviolate” and not be appropriated.
If the House amendments are not changed, it could significantly lower than amount of funds that are eventually deposited in the Future Fund and it could curb public support for making the fund constitutional. The one bright spot in the House amendments to the Future Fund is that it includes other nonrenewable resources like coal.
To strengthen the Future Fund, the Legislature should consider several options. First, it should clarify that deposits to the Future Fund are predicted on the balance of both Revenue Reserve Shortfall Funds. Secondly, it should consider increasing the amount of revenue that would be deposited into the Future Fund. This could include increasing the percent of severance tax collections dedicated to the fund or increasing the share on just natural gas and oil collections. And finally, the Future Fund should remain permanent, rather than allowing the legislature to spend the principal of the fund.
The FY 2015 federal budget proposed by President Obama, along with three proposals in Congress, strengthens the Earned Income Tax Credit (EITC) for childless workers. This, along with improvements to the Child Tax Credit (CTC) would reduce poverty among low-wage workers and their families, reduce income inequality, strengthen work incentives, and give a boost to West Virginia’s economy.
The EITC offsets federal payroll and income taxes for low- and moderate-income workers, while the CTC also helps low-income working families by offsetting part of the cost of raising a child. In 2011, 161,595 households in West Virginia received the EITC, putting $336 million in the state’s economy.
In addition to raising incomes, the EITC also has been found to encourage work. During the 1990s, employment among single mothers increased by 460,000 due to improvements to the EITC, more than what is attributed to either welfare reform or the strong economy.
Research has also found that lifting low-income families’ income when a child is young not only can improve their immediate well-being, but with better health, more education, more hours worked, and higher earnings in adulthood.
Currently, low-income working childless adults and non- custodial parents (“childless workers”) receive little or nothing from the EITC. Childless workers under age 25 are ineligible for the credit and the average credit for eligible workers between ages 25 and 64 is only about $270, or less than one-tenth the average $2,900 credit for filers with children. In addition, the childless workers’ EITC begins phasing out when earnings exceed $8,000, or just 55 percent of full-time, minimum-wage earnings. This makes childless workers the sole group that the federal tax system taxes deeper into poverty.
The president’s proposal would lower the eligibility age for a childless worker to 21 and increase the maximum credit to about $1,000. This would increase the credit for a childless adult with wages at the poverty line from just $171 to $841 in 2015. For a childless adult working full time at the minimum wage, the credit would jump from just $22 to $542 in 2015. This would benefit 83,000 childless workers in West Virginia.
The EITC has a proven track record of boosting employment among parents. And research has shown that the EITC also has important positive long-term impacts on children. It would also gives our economy a boost, as eligible workers get to keep more of what they earn and, in turn, spend those dollars here in West Virginia.
The president’s proposal builds on this record of success by expanding credit for childless adults and non-custodial parents so that these credits can do more to increase employment and reduce poverty among these low-wage workers.
Legislation Still Alive Post- Crossover Day
Wednesday was Crossover Day, the day that legislation has to have passed one chamber to stay alive.
Here’s what we are watching:
The West Virginia Future Fund bill passed the Senate unanimously last week and is awaiting action by the House of Delegates. Want to know more about what this bill would do for West Virginia? Read Ted’s Future Fund 101 blog post for all the answers.
Legislation to raise the state’s minimum wage passed the House and is under consideration by the Senate. The proposed increase to $8.75 an hour would not only be the first increase to the state’s minimum wage since 2009 but would also largely be paid by big employers, not small businesses. Read more about which employers are the ones paying low wages in Sean’s blog post.
The likelihood of an increase to the tobacco tax seems slim again this year. This long-overdue measure would not just raise much-needed revenue and bring the state’s tobacco tax closer to the national average, it would also discourage young people to start smoking and decrease the smoking rate overall. Read more about this win-win in Brandon’s blog post.
Next Up: Budget Week
After the session wraps next Saturday, legislators turn their attention to the FY 2015 proposed budget. Again this year, Governor Tomblin has balanced his budget by cutting important programs like higher education and early childhood development. This week the WVCBP released its annual Budget Brief which contains many alternate ways to close this year’s budget gap like raising the tobacco tax, expanding the sales taxes to other goods and services (you don’t pay tax when you get your hair cut but you do if you get your lawn cut), eliminating the personal income tax exemption for high wager earners (like the IRS does) and more.
West Virginians Newly Covered Under Obamacare = Population of Charleston + Huntington
Thanks to the Affordable Care Act, about 100,000 people who didn’t have it before now have health care. Some West Virginia counties are doing better than others. Find out more about how the enrollment process is going across the state in Brandon’s blog post.
Dedicate State’s First National Monument to Water
We all have a new awareness and appreciation of our water after last month’s chemical spill. West Virginia is lucky to be the birthplace of many rivers, and a movement to make them the state’s first national monument is underway. Check out this video to learn more about the environmental and economic opportunities of this idea.
What Are Our Priorities?
Here’s an interesting blog post that cites the WVCBP’s analysis of recent and not-so-recent tax cuts. In FY 2015 alone, the state is offering up tax cuts, mostly to businesses and corporations, that would be more than enough to provide free in-state tuition at all the state’s two- and four-year institutions.
Do you follow @WVCBP on Twitter? We need just seven more followers to get to 700. Follow us!
West Virginia’s proposal to increase the state’s minimum wage to $8.75 continues to work its way through the legislative process. We’ve looked before at the workers who would benefit from the increase, and we’ve also looked at how much it would cost the affected businesses. But now, let’s take a closer look at businesses where are these low-paying jobs found.
In West Virginia, a little over 10 percent of all jobs pay less than $8.75 per hour. However, these jobs are concentrated in a small number of industries. Nearly 90% of the low-wage jobs ($8.75 per hour or lower) are found in four industries: retail trade, education and health services, food services, and administrative services.
What’s more, the low-wage jobs are for the most part, concentrated in industries where low-wage workers make up a substantial share of the industry’s workforce. For example, over 43% of the jobs in the food services industry pay below $8.75 per hour.
And while most low-wage jobs in West Virginia are concentrated in a few industries, those workers are largely employed by big businesses, rather than small businesses. Nearly three-fourths (73%) of all workers earning less than $8.75 per hour are employed by firms with at least 100 employees.
And the businesses that are employing these low-wage workers aren’t teetering on the edge of collapse. Most are in a fairly strong position. For instance, of the four industries where almost all of West Virginia’s low-wage workers are found, each one has had stronger employment growth over the past year than the state as a whole.
This report shows that, nationwide, of the top 50 largest low-wage employers, 92%were profitable in 2012, 75 % are earning higher revenue than before the recession, 63% are earning higher profits than before the recession, and 63% have grown larger profit margins since before the recession. But all of this growth has not resulted in higher wages for the industries’ lowest-paid workers.
Simply put, the evidence is just not there to support the claim that employers can’t afford to pay a higher minimum wage. Not only is the actual cost of the increase less than what some would lead you to believe, but the vast majority of low-wage workers in West Virginia are employed by large corporations. Theses businesses that employ low wage-workers are in strong financial positions, with record-setting profits, and whose executives and shareholders are keeping an ever growing share of the pie and can readily afford to pay a higher minimum wage.
The West Virginia Senate has unanimously passed SB 461 that creates the West Virginia Future Fund and an accompanying resolution (SJR 14) to make the natural gas and oil severance tax fund constitutionally protected (inviolate). As most readers know, the WVCBP has championed the idea for several years and we are excited the state is moving forward in ensuring that it will always benefit from its rich nonrenewable resources.
What I would like to do below is answer some common questions about the West Virginia Future Fund and explain how it could potentially work and how the balance of the fund will grow over time. At the end, I will also put forth several ideas for future consideration that would make the fund stronger and provide more bang for the buck.
What is the West Virginia Future Fund?
It’s a permanent mineral trust fund that is funded by 25 percent of natural gas and oil severance tax revenue over $175 million. For example, if the state collected $200 million in natural gas and oil severance revenue next year, approximately $6.25 million (25% of $25 million) would be deposited into the fund.
What is the purpose of the fund?
The purpose of the fund is to take revenue from a nonrenewable natural resource that is depleted over time and replace it with a renewable source of permanent wealth for the state. Otherwise, severance tax revenue will decline along with the nonrenewable natural resource itself. The fund would also ensure that future generations benefit from the state’s rich natural resources.
What makes the fund permanent?
It’s permanent in that the principal or corpus of the fund is inviolate and can never be spent. Only the interest income from the fund can be used. The only way to make the fund permanent is to constitutionally protect it, otherwise legislators could raid the fund each year.
How will it be used?
The revenues deposited in the fund will be invested and grow larger over time. After fiscal year 2020, it could begin to pay out dividends or interest income to fund to a range of activities, including education, workforce development, economic development and diversification, infrastructure improvements, and tax relief.
Who will manage the West Virginia Future Fund?
The revenues deposited in the fund will be managed much like a state pension fund or an endowment at a foundation or university. The account will be in the WV Treasurer’s Office and will be invested by the West Virginia Investment Management Board.
How is the Future Fund different from the Rainy Day Fund?
The Rainy Day Fund is usually only used by the governor in a time of emergency (he has to repay the fund within 90 days) or by the legislature whenever there is a a severe decline in revenue or a crisis that needs immediate funds. The Future Fund is better thought of as a sunny day fund that will grow each year and be used each year to make investments in the state. One similarity is that both funds help with the state’s bond rating or credit score by building assets.
How many state’s have future funds?
While many states have land mineral funds where they collect royalties from mineral extraction (e.g. Permanent University Fund in Texas), several states dedicate a portion of their severance tax revenue into a permanent trust fund that is used every year. These states include Alaska, Wyoming, North Dakota, New Mexico, and Montana. For a more detailed look at these states, see this handout.
How big will the Future Fund be in the coming decades?
As Yogi Berra once said, it is tough to make predictions, especially about the future. That being said, we can say with some certainty that we are only in the beginning stages of the shale revolution and that natural gas and oil severance taxes will continue to grow for some time. According to the West Virginia Department of Revenue, natural gas and oil taxes will grow from $83 million in FY 2013 to $270 million by FY 2019. Based on these figures, and a 7.5 percent annual investment rate of return, the Future Fund would have a balance of about $127 million by the end of FY 2019. I would also stress that these figures are most likely very conservative.
How can we make the West Virginia Future Fund stronger?
To be clear, the first order of business should be to pass SB 461 and SJR 14 and then work over the next few years to make sure the fund builds enough wealth to begin investing in crucial areas that will help our state grow. To strengthen the fund, it would need to include a larger share of gas and oil severance tax revenue and it would need to include revenue from coal production. One option for accomplishing this would be to maintain the Workers’ Compensation Debt tax on coal (56 cents per ton) and natural gas (7.7 cents per MCF) that will expire in 2016. This could add at least $100 million per year to the fund. Another route would be to look at raising the severance tax by one percent, like we proposed in this report, or by levying a tax on midstream natural gas products like ethane.
A share of the dividends or interest income payments from the fund could also go back to the communities of origin. One fantastic model for this would be creating a regional board similar to the Iron Range Resources and Rehabilitation Board in northeast Minnesota that invests in companies, non-profits, and workforce development in the area to help create economic opportunity.
Lastly, the state could take steps to ensure that the Future Fund is as transparent and accountable as possible. This would need to include building a website that would give citizens details on how the money is be investing and used each year. One model for this would by the Alaska Permanent Fund Corporation.
Most importantly, however, we must create the West Virginia Future Fund this year and start building a better future.
Once again it looks like another year will go by without an increase in the state tobacco tax. This year it is quite surprising though as West Virginia is facing a severe budget crisis and raising tobacco taxes would essentially fix it all in one fell swoop. Nevertheless, our legislators seem intent on using our emergency savings fund rather than risk their political futures by raising taxes during an election year. Sigh.
What people may be surprised to hear is just how much our taxpayer dollars are subsidizing cigarette prices. Knowing this, perhaps even more people would support raising tobacco taxes, an item that already polls pretty well in West Virginia.
While we are not directly using tax dollars to lower cigarette prices, the simple fact is that smoking causes hundreds of millions of dollars in excess health care costs every year in West Virginia, and a significant portion of those costs are paid for by taxpayer-funded health insurance programs like Medicaid and Medicare and through direct hospital assistance payments.
Tobacco use causes $690 million in direct health expenditures every single year in West Virginia, $229 million of which is spent by the state Medicaid program, according to estimates from the Campaign for Tobacco-Free Kids. Every pack of cigarettes sold in West Virginia, therefore, results in an additional $8.93 of health care costs. Yet, West Virginia only brought in $107 million in tobacco tax revenue in 2013. This means that West Virginia is spending over $120 million more on tobacco-related health care costs, in Medicaid alone, than the state receives in tobacco taxes! (Figure 1) Coincidentally, that is pretty close to the amount of increased revenue that the state Budget Office projected would result by passing House Bill 4191 ($134.8 million to be exact). Meanwhile, the Senate version (SB534) would dedicate the entirety of the increase to the Medicaid Trust Fund for the next two years, which happens to be about $35 million more than is needed to close the Medicaid budget gap for FY15 without tapping the Rainy Day funds for $84 million as the governor has proposed.
Figure 1: Annual Medicaid costs from tobacco-related health care exceeds total tobacco tax revenue
To put it another way, a $5 pack of cigarettes actually costs nearly $14 at the end of the day, a hefty chunk paid with your state tax dollars. How many fewer smokers would there be, and therefore millions of dollars less that West Virginia would spend on preventable health care, if cigarettes cost $14 a pack?
So the next time someone in front of you at your local convenience store asks for a pack of Marlboro Reds, be sure to tell them, “You’re welcome.”
What about declining revenue?
Tobacco taxes are designed to decline over time, but they still generate surprisingly stable revenue. First, since the whole point of raising tobacco taxes is to reduce the number of people who use it, it is expected that tobacco sales will drop as more people quit and fewer youth start. Secondly, cigarette taxes are calculated on a per-pack basis meaning that the yield per pack will stay the same even as inflation drives overall prices of consumer goods up. The lesson is that states should not depend on tobacco taxes to fund programs over the long-term since revenues will not keep pace with growth, however, they can be successful policy tools to reduce smoking-related costs in the future while providing a stable source of additional revenue in the short-term (Figure 2). Case in point, the increased revenue created by passing either HB4191 or SB534 would be sufficient to bridge the Medicaid budget gap for at least the next three fiscal years, giving the state more time to recover economically or find alternative solutions rather than tapping our emergency savings fund.
Also, it’s worth noting that four of our five neighbors currently have higher tobacco taxes than we do, while Pennsylvania and Maryland still would even after a full dollar increase in our state’s cigarette tax.
Figure 2: State tobacco revenue remains stable even after tax increases
With just over a month left in the open enrollment period for the Affordable Care Act, the share of West Virginians without health insurance has already dropped significantly. As of this week, nearly 100,000 West Virginians have enrolled in health coverage through the ACA. The overwhelming majority of these sign-ups have come through Medicaid expansion, which was always expected to be the case. While we can’t say with certainty that none of these folks previously had insurance, it’s a very safe bet that most of them did not. That means that of the approximately 268,000 West Virginians who did not have health insurance last year, about 34 percent of them are covered today thanks to Medicaid.
The map above shows the share of those enrolled in Medicaid who are estimated to be income eligible and were previously uninsured by county. Some counties like Clay and Webster have already enrolled over 90 percent of this population, while other counties still have have only enrolled about one-third. For example, the five counties that have signed-up the smallest proportions of their Medicaid eligible populations are all in North Central West Virginia – Monongalia, Doddridge, Harrison, Ritchie, and Marion (Table 1 below).
In addition to Medicaid expansion, there are almost 8,000 people who have enrolled in private health insurance plans through Healthcare.gov, as of February 1st. Again, we don’t know (yet) how many of them were previously insured but the chances of this group having insurance before are much greater since they have significantly higher average incomes than the new Medicaid enrollees. Even so, 84 percent of them qualified for tax subsidies to help lower the monthly premium.
While official estimates won’t be available for some time, thanks to the Affordable Care Act (and Governor Tomblin’s decision to expand Medicaid), the number of uninsured West Virginians under 65 may have already dropped from over 18 percent to 12 percent.
Table 1: Percent of Previously Uninsured, Newly Eligible Residents Enrolled in Medicaid, By County
An article in Sunday’s in Wheeling’s Intelligencer/News Register highlighted the growing cost of the state’s business property tax incentives. The Marcellus Gas and Manufacturing Development Act of 2011 created a special tax preference for manufacturing facilities involved with natural gas liquids products (the famous “cracker bill” was an expansion of this legislation).
The tax incentive gives a property tax break to businesses that make a capital addition of at least $10 million to a manufacturing facility with an original cost of $20 million, if the facility processes natural gas. The incentive allows the capital addition to be appraised at its salvage value (5%) for 10 years for property tax purposes, rather than at the normal 100% of market value. This dramatically lowers the property tax bill of a qualifying business.
According to the fiscal note on the bill, the tax incentive “will have little or no direct effect on Property Tax revenue” and that any potential forgone revenue is ”estimated to be less than $500,000.”
While the fiscal note projected minimal forgone revenue, Marshall County is missing out on millions already, with its booming natural gas industry. According to the Marshall County Assessor, $916 million worth of construction will qualify for the incentive in 2014. Normally, $549.6 million (60% of appraised value) would be taxable. Instead, the assessed value will only be $27.5 million, due to the salvage value treatment.
So, instead of paying $12.1 million in property taxes, the affected companies will only pay about $603,000. That means Marshall County will lose out on over $2 million in property tax revenue, while Marshall County Schools will miss out $4 million from their regular levy, and $4.7 million from their excess levy. And the forgone school revenue means the state is paying an extra $3.3 million through the school aid formula.
The development of the Marcellus Shale hasn’t been without its costs, and those costs can’t be addressed if those benefiting from the resource don’t help pay them. And what was once thought to be a minor tax break is now costing just one county millions of dollars in lost revenue. And this tax incentive is going to companies worth billions of dollars, who are coming to West Virginia because we have a resource that they want, not because of a tax break. A $12 million tax break isn’t going to be the deciding factor for businesses that have already made billions in investments in the state, and want to be located where the natural gas is located. However, it can be the difference in whether or not we balance the budget, or keep our libraries open, or hire new teachers.