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House Changes Sales Tax, Cuts Higher Ed in 2018 Budget

Members in the House of Delegates have approved their budget bill for fiscal year 2018 – bringing $140 million additional dollars in revenue and making $75 million in cuts to government agencies. The House’s budget is largely based on revenue brought in under a Senate bill that was drastically changed by the chamber’s finance committee.

That bill, Senate Bill 484, originally would have just captured some $12 million a year that goes into the state Road Fund, but while it still contains the provision, it’s been transformed into what House leadership is calling a tax reform measure. The House’s version looks to broaden the base of taxable goods and services in two phases, July and then October of this year. Under the plan, things like cell phones or personal services would become subject to the sales tax, bringing in some $140 million in additional revenue in the 2018 budget.

Del. Daryl Cowles, R-Morgan, House Majority Leader.

The bill would also require that by July 2018, the state’s current 6 percent sales tax would be reduced to 5.5 percent, then to 5.25 percent in July 2019. Over time, if the fiscal climate is favorable in the state, the tax rate could go down to as low as 4.75 percent. That reduction of the overall rate will also lead to deficits in the state budget, that is if spending doesn’t increase in the state.

Majority Leader Daryl Cowles of Morgan County adamantly supports the measure, saying West Virginia’s border counties will see a boom in revenue.

“It’s tax relief for the people of West Virginia,” Cowles said, “It does capture revenue in the short-term, it is very quickly, within two short years, revenue neutral as the rate is lowered for everyone on every purchase, point of sale that’s taxed. And then, for another two years, the rate drops all the way down to 4.75. Imagine that. Imagine the growth our border counties could see if we have a competitive advantage at a tax rate of 4.75 considerably lower than all of our surrounding neighbors.”

But Minority Finance Chair Delegate Brent Boggs, of Braxton County, says he’s concerned this revenue idea lacks fairness.

“It seems like with this, when we’re talking about broadening the base, we’re really not broadening much, because it’s all the things that we’re not picking up, and we seem to be disproportionately hitting the people that are at the low income and middle income level, and possibly that takes in a lot of our seniors,” Boggs said.

After nearly two hours of debate, Senate Bill 484 passed 52 to 48.

Del. Brent Boggs, D-Braxton, House Minority Finance Chair.

House Budget

In an evening floor session Wednesday, delegates also took up the chamber’s budget bill, House Bill 2018, which relies on $75 million in cuts to state agencies to balance the budget. The House’s budget no longer includes the 2 percent pay raise to classroom teachers first proposed by Gov. Jim Justice. It reduces funding for West Virginia four-year higher education institutions by 6 percent and the state’s community and technical colleges by 5 percent.

The budget also grants the Higher Education Policy Commission the authority to decide how the state’s higher education dollars will be divided between institutions.

It was this part of the budget that had some delegates in the House concerned. Several Democrats argued the provision is unconstitutional, including Delegate Rodney Miller, a Democrat from Boone County, who says the House had even considered getting rid of the organization at one point.

“It’s interesting that we are giving them the pot of money to let them be the arbitrator, the disseminator of this funding; letting them be the ultimate choice when at the same time,” Miller said, “during this legislative session, we had, if I’m not mistaken, we had some legislation proposed to actually either get rid of or completely alter, significantly change the CTCs and HEPCs in our state. Now we’re going to give them all this power and authority and money. It’s very confusing with the consistency of what we have going on in this body.”

Democrat Mike Caputo, of Marion County, says allowing the HEPC to control higher education spending will result in a lack of accountability.

“These folks, they’re appointed for a certain term. They don’t have to account to the people; they don’t put their name on the ballot. We put our name on the ballot. And that bothers me,” Caputo explained. “I don’t know who come up with this crazy idea to throw all the money in one pot and just let some people toss it out how they feel without any accountability. Mr. Chairman, with all due respect, that to me is just absolutely irresponsible.”

Republican Delegate Mark Zatezalo, of Hancock County, spoke in support of the budget bill, and suggested the HEPC work more closely with the state’s colleges and universities than the Legislature does.

“We are allocating resources to two groups who have the most interface with higher education, and I’m wondering if they might have more insight into how things are spent at the higher education level than we do,” Zatezalo noted. “I certainly, you know, I can see money go in and out of here, and I can see money allocated for schools; frankly I’m not in the weeds enough for each school to understand exactly what they need and exactly who needs the money.”

House Finance Chair Eric Nelson argued this was a tough budget year all around, but when it came to giving the HEPC the authority, it makes the most sense.

“I mentioned we had a bunch of agencies come before us to give budget presentations. The presentation for Higher Ed and CTC was made by HEPC and the CTC chancellors,” Nelson said. “It was not the individual colleges. You know what, we had very tough choices, and we’ve been in some unchartered territory. It’s been a balancing act. This balance is structurally sound; difficult decisions had to be made. Without a doubt, this has been an all-inclusive and a very transparent process.”

The House’s budget bill passed on a vote of 58 to 42.

House Reveals 2018 Budget Plan

Delegates in the House Finance committee met Saturday afternoon to hear yet another budget proposal from Republican leadership. Earlier this month, House and Senate leaders released their budget framework, but not a budget bill.

Saturday’s presentation is not the final budget bill for the House either, but an overview of where the Finance Committee will recommend cutting government and increasing spending.

While Delegates did not see a budget bill Saturday, they were given a presentation with a general overview of the House’s budget plan. That plan is based on the governor’s general revenue estimate, which predicts the state will bring in just over $4 billion next fiscal year.

The House’s budget plan released Saturday spends $4.2 billion. It makes $45 million in cuts to government programs, fully funds Medicaid, and provides teachers with a 2 percent pay raise by refinancing the Teacher’s Retirement Debt. That refinancing frees up about $70 million in general revenue dollars each year for spending, but would cost the state an additional billion dollars to pay off the debt in the long term.

The House 2018 budget also relies on some tax increases to find a balance – largely found in House Bill 2933. The bill has been called a tax reform measure by Republican leaders. It would instate a sales tax on cell phones, daycare services, and some personal and professional services by October 1 of this year. It would also reinstate a 3 percent grocery tax by that time.

On Jan. 1 of next year, even more services would get roped into the tax under the bill, like gym memberships and music instruction. Then in July 2018, the sales tax would be lowered from the current 6 percent to 5 percent. In 2018, the bill brings in an additional $172 million from the newly taxable services and food tax, $29 million in 2019 when the rate lowers to 5 percent, and just $11 million extra in 2020 when fully implemented.

The bill will be on second reading in the House Monday, but over the weekend, several Democrats and members of the Republican Liberty Caucus attempted to kill the bill in a procedural move that ultimately failed. The attempt left some question about whether or not leadership can rely on the new tax revenue brought in by the bill.

“There are members on both sides of the aisle that will not like this final budget,” said House Finance Chair Del. Eric Nelson, R-Kanawha, “but when times are tough, everybody has to take a little bit.”

Nelson says Saturday’s procedural move was quote, “politics,” and he hopes his fellow members jump on board and support the plan leadership is putting forward.

“What we have in front of us right now are various tools,” Nelson noted, “cause we had; it’s required to have all these bills out of committee, and so all our tools are on the table right now, and so should that go down, well then that will slow up the budget process, because all of a sudden, what is built into that as it relates to expenditures across agency lines; there could be some serious negative effects to that.”

House Finance Vice-Chair Del. Eric Householder, R-Berkeley (left) speaking with House Finance Chair Del. Eric Nelson, R-Kanawha (right) in committee.

Minority House Finance Chair Del. Brent Boggs, D-Braxton, says he’s very concerned about the Sales and Use Tax bill, because he thinks it will end up hurting low and middle income people.

Not only does it increase the number of items and services that are subject to the sales tax, it would also implement a 5.1 percent across the board personal income tax, resulting for a tax hike for people who make less than $84,000 per year and a tax break for those above that income level, according to some estimates.

“They have put the burden in some cases on the people who may be the least able to pay and giving a substantial break for those that certainly have the ability to pay, and in addition to that, the base broadening bill takes in so many different areas of concern to many people. I think we need to flesh that out a little bit further and find out how that’s going to impact the bottom line of low income and middle class folks.”

Boggs also says he was disappointed members in his committee didn’t see a full budget bill on Saturday, but instead an expansion on a framework.

Minority House Finance Chair Del. Brent Boggs, D-Braxton.

“When you get a generic overview of the budget, it doesn’t tell you the small details,” Boggs said, “and for a lot of programs, for a lot of agencies, for a lot of boards and commissions, and people that depend on a lot of services, those details mean the difference between us meeting their needs and not being able too.”

The House’s budget plan also eliminates the Department of Education & the Arts — reorganizing its agencies under other departments.

The Educational Broadcasting Authority, which is West Virginia Public Broadcasting, would be moved to the Department of Education as an independent agency and receive a $1 million cut, nearly a quarter of its state funding.

House leadership hopes to present a budget bill to the committee early this week.

House Finance Looks at 2 Tax Reform Measures

Members of the House Finance Committee are expected to get their first look at the chamber’s budget for the 2018 fiscal year in a meeting this Saturday. In order to balance it, lawmakers will have to close an estimated $497 million hole.

To close the gap, Republican legislative leaders are largely looking to cut state spending, specifically in public education, higher education, and Medicaid, but on Friday, House Finance Committee members considered some new revenue increasing measures, or tax increases.

The House Finance Committee considered a committee substitute for House Bill 2816.

The bill would eliminate the West Virginia film tax credit – an annual $5 million cap awarded by the West Virginia Film Office to attract movie producers to the state. That elimination is one Democrat Jason Barrett, of Berkeley County, opposes.

Barrett says Berkeley and Jefferson Counties have hosted several Discovery Channel and National Geographic film shoots in recent years.

“This film tax credit brings people to the state of West Virginia; people who have never been here before, and probably wouldn’t come,” Barrett explained, “This brings them into our state; it allows them to see the beauty of West Virginia, not only in the Eastern Panhandle but the entire state.”

But the bill does a lot more more than just eliminate the tax credit. It also ends a transfer of some $12 million from the general revenue fund to the state’s road fund. That money comes from purchases of automobile parts and other items. Capturing the transfer and keeping it in general revenue will help balance the state’s budget.

The committee bill also includes provisions to increase the beer barrel tax, which is estimated to create an additional $3 million for the state.

The revenue aspect of the bill has changed quite a bit, though, since it was first introduced to the chamber on behalf of Gov. Jim Justice. It originally included an increase to the state’s sales tax and a new tax on businesses resulting in $400 million in new revenue. In total, the committee’s changes create only $15 million in increased revenue.

Minority House Finance Chair Delegate Brent Boggs spoke in opposition to the bill.

Del. Brent Boggs, D-Braxton, Minority House Finance Chair.

“I appreciate what little revenue it raises, but that’s the problem, it raises little revenue at a time that we need substantially more,” Boggs said, “and while no bill is perfect, and I’m sure no bill ever will be; this one falls way short of what I believe many of our needs are going to be, and it’s only a fraction of what was included in the governor’s original bill.”

Vice-Chair Delegate Eric Householder of Berkeley County spoke in favor of the bill.

“Under the original concept, if we were voting on the original concept, keep in mind, we would have a higher state sales tax, we would have $400 million in new taxes; more strain on an already existing economy that we’re seeing with our businesses that are having financial problems,” Householder said, “and I think for the most part, ladies and gentleman, this is a great compromise; it’s a better bill, and for those reasons, I support it.”

The bill passed on a roll call vote of 15 to 9, and will now be considered by the full House.

Del. Eric Householder, R-Berkeley, House Finance Vice-Chair.

There was another tax-related bill that moved in the House Friday. That bill is 2933, which expands the base of the current sales tax and lowers the overall rate to generate additional tax revenues.

Republican Delegate Riley Moore, of Jefferson County, is the lead sponsor. His bill would reduce the sales tax to 5.5 percent from the current 6 percent by January 1, 2018. It also ends current exemptions in the state sales tax on things like cell phones, personal and professional services, contracting services, mobile homes, and daycare services.

According to the bill’s fiscal note, the bill would bring in $105.6 million during fiscal year 2018, largely from the telecommunications and service taxes.

Moore says his bill would require businesses and residents who aren’t currently paying taxes to start paying, which he says will make the state’s tax system fairer and more competitive, especially in border counties.

“I think this is the best way to try to be able to do that, to be able to grow our economy,” Moore noted, “and also, especially for me, I’m from Jefferson County, our sales tax is quite a bit higher than our neighboring counties in Virginia, in particular. We have a lot of our folks go shopping over there, and we’re trying to keep some of that tax money here in the state.”

Moore says he think his bill will set a good foundation for West Virginia’s economy moving forward.

Lawmakers Begin Digesting Executive Budget Proposal

Gov. Jim Justice has asked lawmakers to do a politically unpopular thing this state Legislative session — raise taxes. But legislative leaders say they are still on the hunt for cuts to state government. Both the House and Senate Finance committees held meetings Thursday and heard from the Governor’s budget team, who attempted to convince lawmakers to see things the governor’s way.

On Wednesday night, Gov. Jim Justice presented lawmakers with his plan to balance the 2018 budget. The latest estimates from state revenue officials show there’s a nearly $500 million budget gap in the upcoming fiscal year, and in short, Justice wants to close it by increasing taxes and making some minor cuts. His proposal would create $450 million in new taxes and cut government spending almost $27 million.

But during his State of the State Address, the Governor’s Office also released what they are calling an alternative budget — a list of government agencies that would have to be cut if lawmakers choose not to raise any taxes this session. Justice’s alternative budget would close colleges and universities, the Department of Veterans’ Assistance, and end most senior services, among many other things. That alternative plan concerned the Minority Chairman of House Finance Delegate Brent Boggs, D-Braxton.

“When we’re faced with this kind of a deficit, we can’t possibly cut state government to the point that we lose so many vital services for so many segments of our population,” Boggs explained, “so I think that he said that he’s open to other cuts, but I think to think that we can possibly cut $450 million out and not really make West Virginia a very difficult place to live and to work, I think he’s right on point.”

On only the second day of the legislative session, there’s quite a way to go before lawmakers put a final spending plan in place, but Boggs said he’s optimistic about Justice’s proposal.

“He’s giving us how it is,” Boggs noted, “I don’t think; it’s something that’s sometimes, the medicine’s kind of bitter to take, but I think the takeaway, we need to make sure we do right by the citizens of this state.”

Thursday morning, representatives of the state budget and the governor’s offices presented the governor’s plan in more detail — details House Finance Chairman Eric Nelson, R-Kanawha, said were not included in Justice’s State of the State Address.

So he said he and his colleagues are just scratching the surface of the proposal.

“I look at some of the positives that were out there, you know tourism in areas of the state; infrastructure, but you know, the devil’s in the details, and gosh our back’s are against the wall,” Nelson said, “and so we’ve got to work all the way around; find areas of compromise, and many of his secretaries have only been in their position two weeks, so let’s work through this.”

Thursday afternoon, across the rotunda — members of the Senate Finance Committee were given that same detailed presentation by the director of the State Budget Office, Mark McKown. He was asked about that alternative budget made up solely of cuts to government, first by Sen. Corey Palumbo, D-Kanawha.

“Was the point of this exercise to come up with the cuts that [would be the least harmful] or the most shocking?” Palumbo asked.

McKown said the Governor’s Office wanted to avoid cuts to public education and most Medicaid coverage while also keeping the state’s prisons and jails open, but otherwise, McKown said there isn’t much left in the budget to cut.

Senate Finance Chairman Mike Hall added his own thoughts.

“Obviously, to a lot of minds it would be unacceptable to do several of the things on here,” Hall said, “The question is, are there other things not on here that total up to a substantial amount of money and my belief is, having looked at the budget, there are not other things unless you go to the school aid formula or the Medicaid line.”

Hall said his Finance Committee will split into subgroups to dig through smaller sections of the budget to find additional places to cut. That work will begin after the committee hears from all of the state agencies during their budget presentations this month.