With House and Senate leadership refusing to budge on their versions of bills to raise tax revenue to close shortfalls in the 2017-18 budget, a frustrated, angry and exhausted Legislature figuratively threw up its hands Friday evening, passing a bare-bones $4.225 billion budget bill (Senate Bill 1013).
That’s some $125 million less than the version of the budget sought by Gov. Jim Justice and passed by the Senate Thursday night, based on revenue from what was the latest variation of a Senate plan to raise sales taxes and lower income taxes — a plan the House of Delegates again refused to accept.
The Senate, meanwhile, declined to pass a House proposal that would have raised about $57 million for the 2017-18 budget by “broadening the base” through elimination of some current sales tax exemptions.
With no new revenue to plug shortfalls, the budget makes a number of spending cuts, including cutting budgets for state colleges and universities from 4.6 percent to 6.6 percent for a total of $16 million.
“This is an immoral budget. It’s being balanced on the backs of young people,” Delegate Larry Rowe, D-Kanawha, said of the higher education budget cuts.
“Is this a happy moment? No, but this is a constitutional obligation we have to fulfill,” Senate Finance Chairman Mike Hall, R-Putnam, said, citing the deadline to have the new budget in place by July 1.
He said the budget does not resolve systemic structural deficiencies, saying at some point, “We’re going to have to address the funding needs of our ongoing budget with some proposal.”
The budget eliminates most of the proposals sought by Justice, including pay raises for teachers, funding for a Save Our State economic development program and increased tourism promotion funding.
“I guess the pathway to prosperity has been pretty much shot down,” commented Sen. Richard Ojeda, D-Logan.
Justice on Tuesday said he would be inclined to veto proposed versions of the $4.255 billion budget bill, and Senate President Mitch Carmichael, R-Jackson, said he had not spoken with the governor Friday as to whether he would follow through.
“We’re not going to stop working on what we believe is a stimulative tax policy,” Carmichael said of the revenue plan advocated by Senate Republicans and by Justice.
“I predict we’ll be back here in January facing dire circumstances,” Sen. Mike Romano, D-Harrison, said of the bare-bones budget. “I’m afraid it might be insurmountable.”
Sen. Craig Blair, R-Berkeley, said he would not apologize for the budget adopted Friday.
“We saved the taxpayers at least $200 million,” he said, referring to Justice’s original $4.45 billion budget proposal. “The only thing I’m ashamed of is [that] it has taken this long to get here.”
Delegate Mike Pushkin, D-Kanawha, said the budget bill is the result of the “complete and utter dysfunction” of the Legislature.
“We were unable to pass a revenue bill that was needed,” he said.
Passage of the budget bill, on the 20th day of a special session, effectively broke a 44-day budget impasse, and barring a gubernatorial veto, avoids a state government shutdown on July 1.
It passed the Senate 19-8 and the House 64-25.
Efforts to come up with a revenue compromise collapsed earlier Friday, when the House of Delegates replaced the Senate’s latest variation of its plan to raise sales taxes and cut income taxes with a plan that, technically, was approved by a House-Senate conference committee on Tuesday.
That plan, which passed the House on a 67-22 vote Friday, included no tax increases, per se, but “broadens the base” by eliminating some sales tax exemptions in existing law, the largest being for telecommunications services, such as cellphone plans.
The House action Friday, on the 20th day of the special session, kept it and the Senate at loggerheads on their revenue plans, with Senate leadership insisting on income tax cuts as part of the revenue plan, an option the House has rejected multiple times.
“There’s not the will to move forward with it,” House Speaker Tim Armstead, R-Kanawha, said of including income tax reductions in the revenue bill (SB 1017).
“We’ve said, through many votes this session, that the personal income tax reforms are not something we think should take place this year,” he added.
“I don’t know what the Senate will ultimately do with that,” Armstead said Friday afternoon of the House counteroffer.
The House plan adopted Friday was based on the tentative agreement of a House-Senate conference committee, an agreement that died Tuesday when the three Senate Republicans on the 10-member panel refused the committee report, a point raised Friday on the House floor.
Delegate Shawn Fluharty, D-Ohio, noted that legislative rules require that, if a conference committee reaches an agreement, the conference report “shall” be signed by committee members, displaying a poster-sized replica of the report’s signature page, with the spaces for the signatures of Sens. Blair; Ryan Ferns, R-Ohio; and Ed Gaunch, R-Kanawha, left blank.
“We’re missing three signatures for Senate Republicans,” Fluharty said, adding that the conference report overall, “represents a joint, bipartisan effort of the House and Senate.”
Delegate Isaac Sponaugle, D-Pendleton, called the proposal a responsible budget plan and said the House should not be bullied by the Senate to accept the income tax cuts.
“If they want to shut the state down, go for it,” he said.
The House proposal would raise about $86 million for the 2017-18 budget, but perks in the bill, including income tax exemptions for Social Security retirement and military pensions, an increased personal income tax deductible from $2,000 to $2,500 and expanded credits for historic-building rehabilitation, would cut the net revenue gain to about $67 million.
The House vote earlier Friday came less than 15 hours after the Senate, in a surprise twist, voted for the latest version of a proposal backed by Senate leadership and Gov. Justice to raise the state sales tax to 6.5 percent, eliminate some tax exemptions similar to the House proposal, and set up a tiered severance tax system, intended to give tax breaks to mines producing low-priced steam coal.
It would have slowed a phase-out of income taxes to 5 percent annual reductions, with cuts after the first year occurring only if overall revenue growth from sales and income taxes exceeds five-year rolling averages.
That plan would have raised about $125 million for the 2017-18 budget, revenue that would drop off and become deficits as the income tax cuts expand in future years.
n In a key development, the House passed Justice’s proposal for funding road-building through increases in the state gas tax, Division of Motor Vehicles fees and the privilege tax on motor vehicle sales by a surprisingly large 59-32 margin.
“This is probably our most significant and quickest way to economic growth that we’ve done for years,” said House Finance Chairman Eric Nelson, R-Kanawha.
The legislation, as amended Friday, should raise about $110 million a year for road construction. Those funds ultimately would be used to finance part of the $2.8 billion in road bonds Justice wants to issue.
“Three words: Jobs, jobs, jobs,” Delegate Barbara Fleischauer, D-Monongalia, said in urging support for the measure (SB 1006). “That is one of the main things our constituents want ... and the other thing is to fix the damn roads.”
n House and Senate conferees had continued to meet on legislation (House Bill 106) to allow the governor to furlough — rather than lay off — state employees, in the event of a shutdown on July 1, allowing employees to retain PEIA health insurance coverage and accrued benefits that otherwise would be lost in a shutdown.