Report says tax cuts responsible for budget deficit

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When state budget officers put together the state’s six-year budget forecast in 2012, they projected the state would have a general revenue budget of $5.29 billion in the coming budget year.

However, because of tax cuts and a sagging economy, Gov. Earl Ray Tomblin’s proposed 2016-17 budget is $600 million smaller than those projections, an annual analysis by the West Virginia Center for Budget and Policy concludes.

“This is the fourth year in a row of very large budget gaps, which reflects that the state has a real revenue problem, exacerbated by the deep tax cuts put in since 2007,” said Ted Boettner, the center’s executive director and co-author of the report, “Confronting the Fiscal Gap.”

Released Tuesday, the report shows that a combination of tax cuts and a weak economy have conspired to create budget shortfalls of more than $360 million in the current budget year, and a projected $466 million deficit for the coming 2017-18 budget year.

While declining severance tax collections have been blamed for the current budget gaps, the report concludes the state has a structural deficit with cuts in the corporate net tax, and elimination of the business franchise tax and sales tax on food.

In 2006, business taxes provided $348 million, an amount that has dropped to $186 million in 2015, the report notes.

“Not only is it an economic problem, but we’re collecting much less tax revenue than we did in the past,” Boettner said.

“We’ve gone from stagnation to deterioration,” he said of the current state of the state budget.

With the exception of Health and Human Resources — because of the expansion of Medicaid — and the Judicial branch, every facet of state government has experienced severe budget cuts since 2012 to deal with the $600 million a year of lost revenue.

That’s topped by the governor’s office, Department of Administration and Department of Environmental Protection, which have seen budget cuts of 31 percent to 46 percent over the past five years, the report found.

Higher Education has been cut by $120 million over the period, not only shifting the burden to students through higher tuition and fees, but also weakening colleges and universities that serve as economic engines for their communities, Boettner said.

Boettner said Gov. Earl Ray Tomblin’s proposed 2016-17 budget does a masterful job of moving unspent Lottery funds and other surplus revenues to help close the budget deficit, but added, “It’s not going to be enough to deal long-term with the severe structural issues with revenue.”

The report makes several recommendations, including:

n Raising the cigarette tax an additional 55 cents over the 45-cent increase Tomblin has proposed, to $1.55 a pack, raising an additional $61 million a year.

n Eliminating sales tax exemptions on personal services and digital downloads to raise $9.5 million a year.

n Extend the Workers’ Compensation Fund severance tax on natural gas, set to expire later this year, on the theory that more than 80 percent of natural gas is exported out-of-state, and the tax is largely paid by out-of-state corporations.

n Increase the severance tax on natural gas liquids from 5 percent to 10 percent, raising $168 million over five years.

n Increase alcohol taxes. Increasing the beer tax from $5.50 to $11 a barrel would raise $7.1 million a year, while increases in the state’s wholesale markup on wine and liquor would raise another $6.5 million.

n Scale back or eliminate state subsidies for greyhound racing and breeders funds.

The report also reiterates the center’s support for a state earned income credit for low-income working families, which would cost about $47 million a year, but would encourage individuals to enter the workforce, and would be an economic stimulus by putting that money back into local communities.

Reach Phil Kabler at philk@wvgazettemail.com, 304 348-1220, or follow @PhilKabler on Twitter.