Legislators from both sides of the aisle said Friday they are not sweating over a current $33 million shortfall in West Virginia’s tax collection.
“I’m not stressed by that number at all,” Senate Finance Chairman Craig Blair, R-Berkeley, said during a panel discussion on the budget and tax reform, part of the West Virginia Press Association’s annual Legislative Lookahead at the state Culture Center.
Blair told attendees he expects slumping energy prices — which have largely contributed to the downturn in state tax collection midway through the 2019-20 budget year — to rebound in the second half of the year.
“Our budget is so predicated on the roller coaster of severance taxes,” he said of taxes on coal, oil and natural gas, which can fluctuate wildly as export markets and domestic pricing expand and contract.
Delegate Mick Bates, D-Raleigh, agreed, noting, “In the context of the budget, $30 million is not a lot of money.”
Overall, the state’s general revenue budget totals about $4.7 billion.
Bates said that, while he anticipates the Legislature will be able to approve a 2020-21 budget plan without major disagreements, the big fiscal fight of the 2020 regular session will be over a leadership proposal to roll back the state personal property tax on business equipment, machinery and inventory.
Blair said the proposed $100 million-a-year reduction of corporate taxes is the “final big lift” to make West Virginia business-friendly, following a series of initiatives to cut taxes, eliminate regulations and enact tort reform.
“It would be the last stumbling block on the checklist,” he said, adding, “If we get there, we’re going to see economic prosperity.”
However, Sen. Corey Palumbo, D-Kanawha, questioned whether rolling back the inventory tax would be a game-changer, noting that the Tax Foundation recently cited West Virginia as having the 19th-lowest tax burden on business in the United States — lower than any of its neighboring states.
“I wonder — even though that’s a negative tax — how much impact there will be if we tick that down to 17th or 16th?” Palumbo asked.
Legislators on Friday also debated how to avoid crippling county school boards and county commissions that rely on that $100 million a year in funding from property taxes for basic operations.
“If you eliminate a tax, two things happen: Either someone doesn’t get the services they have now, or you shift the tax burden elsewhere,” Bates said.
Blair, who said he believes “natural growth” in the state economy will make up for the lost $100 million, said whatever proposal is advanced in the Legislature will include provisions to make up all lost funding to the counties.
“This is not going anywhere unless we do keep the counties whole,” he said.
Rollback of the inventory tax would require an amendment to the state constitution, which would take a two-thirds approval vote in both houses, as well as approval by a majority of voters in a statewide referendum.
Meanwhile, Blair hedged when asked if legislation passed in 2019 rolling back the severance tax on steam coal and providing tax credits for new investments in mining operations had benefited the economy, saying, “We need to be able to keep our energy industry solvent and strong in West Virginia.”
He then segued into a discussion in support of creation of an intermediate appeals court in the state.
“I think these tax cuts we provided to coal were a little bit misguided,” Palumbo said in his answer to the question, saying the Legislature’s approach to energy is too narrowly focused.
“We continue to focus almost entirely on coal, to the exclusion of renewable options,” he said, noting repeated attempts in the Legislature to repeal tax credits for wind energy installations. “Companies around the country look at that and say, ‘This is not a place we want to come to.’ ”
Blair, meanwhile, said the flat state revenue outlook likely rules out a third straight year of pay raises for public school and other state employees.
“We need to take a breather for just a little bit,” he said.