West Virginia’s Budget Crisis Explained
WVU Mountainlair – Tuesday, September 6, 2016 @ 2 p.m.
presented by
Ted Boettner, Executive Director
West Virginia Center on Budget and Policy
www.wvpolicy.org @WVCBP
[email protected] @WVPolicywonk
FY 2017 WV Budget is $12.7 Billion
State Road Fund
$1.3 Billion
($530 Million is Federal)
10%
Other Funds
(Special Revenue)
$2.0 Billion
16%
Federal Funds
(+ Block Grants)
$4.8 Billion
38%
Source: West Virginia State Budget Office
General Revenue Fund
$4.2 Billion
33%
Lottery + Excess Lottery
Funds
$420 Million
3%
Over two-thirds of “base budget” supports education and health and
human services – FY 2017 Base Budget = $4.5 Billion
Public Education
$2.0 Billion
45%
Senior Services
$63 Million
1%
Judicial, Legislative &
Executive
$193 Million
4%
Administration & Other
$292 Million
6%
Source: West Virginia State Budget Office
Health & Human
Resources
$1.1 Billion
25%
Public Safety
$359 Million
8%
Commerce
$67 Million
2%
Higher Education
$427 Million
9%
Income & sales taxes comprise over two-thirds of “base budget”
appropriated revenues – FY 2017 Base Budget Revenue = $4.5 Billion
Personal Income Tax
$1.9 Billion
42%
Severance Tax
$263 Million
6%
Insurance Tax
$119 Million
3%
Corporate Income Tax
$137 Million
3%
0%
Other Revenue
$66 Million
1%
Source: West Virginia State Budget Office
Sales & Use Tax
$1.3 Billion
28%
B&O Tax
$116 Million
3%
Tobacco & Alcohol Taxes
$223 Million
5%
Lottery Revenues
$420 Million
9%
Who Pays?
West Virginia state and local taxes as a share of non-elderly family income, 2015
10.0%
Sales & Excise Taxes
Property Taxes
Income Taxes
Total with Federal Offset
9.0%
8.0%
7.0%
6.0%
5.0%
8.7%
4.0%
9.0%
8.6%
8.6%
8.2%
3.0%
6.6%
6.5%
2.0%
1.0%
0.0%
Less
than
$16,000
(Lowest
20%)
$16K$29K
(Second
20%)
Source: Institute on Taxation and Economic Policy, Who Pays? 2015
$29K$48K
(Middle
20%)
$48K$77K
(Fourth
20%)
$77K$144K
(Next
15%)
$144K$306K
(Next
4%)
More
than
$306K
(TOP 1%)
The West Virginia Budget Crisis Explained (the short version)
Persistent budget gaps since 2014 (base budget)
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018*
-$75
-$216
-$332
Expressed in Millions
Source: West Virginia State Budget Office. *There are no official estimates of the FY 2018 budget gap
-$300 to
$400?
-$558
WV budget crisis leads to lower bond rating
General Revenue Fund spending down across the board
Medicaid, Foster Care, and Supreme Court only growing departments
Boards & Commissions
Higher Education
Senior Services
Vetern's Assistance
Transporation
Revenue
Health & Human Services
Public Safety
Enviromental Protection
Education and the Arts
Public Education
Commerce
Administration
Executive
Judicial
Legislative
Source: West Virginia State Budget Office
-$4.1
-$55.3
*$12.1
FY 2012 Actual and FY 2017 Enrolled GRF Budget
(in Millions)
-$0.3
-$2.1
-$26.3
$247.8
-$3.6
-$5.8
-$3.7
-$29.8
-$18.7
+ $52 million in Social Services (Foster Care)
+ $196 million in Medicaid
-$67.5
-$23.7
$15.0
-$15.8
* Senior Services was not funded with GRF revenue in FY 2012
West Virginia Higher Education funding has declined sharply
since 2008
$506.9
$588.3
-$131 million
$456.4
Expressed in
Millions
FY 2008
(nominal)
Source: WV State Budget Office, CPI 2016)
FY 2008
(inflation adjusted)
FY 2017
Tuition and Fees at West Virginia University
$9,000
$8,000
$7,000
$6,000
212% INCREASE
$5,000
$4,000
$3,000
$2,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: West Virginia Higher Education Policy Commission, Annual Reports
Cuts to West Virginia’s Higher Education System Can
Jeopardize Our Economic Future
Source: Center on Budget and Policy Priorities (all figures adjusted for inflation)
The Roots of West Virginia’s Budget Crisis (the short version)
Major tax reductions since 2007 have depressed revenue
Other Business
Tax Reductions
Personal
Income Tax
Cuts
-$17
-$27
Corporate
Income Tax
Reduction
Phase Out Repeal Grocery
Franchise Tax
Tax
Total
-$69
-$150
-$162
Expressed in Millions
-$425
Source: West Virginia Department of Revenue
Severance taxes declining, especially natural gas
WV collected around $170 million less in FY 2016 compared to FY 2015
$600
$500
$243 million drop
$400
Other Minerals
$300
Natural Gas
Coal
$200
$100
$0
FY 2009
FY 2010
Source: West Virginia Department of Revenue
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
West Virginia has not recovered from the Great Recession
Nonfarm employment is about 20,000 below 2012 peak (seasonally adjusted)
790
780
770
760
750
740
730
720
710
700
690
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Bureau of Labor Statistics, June 2016 (in thousands)
-20,000 jobs
Peak
-8,000 jobs
Great
Recession
Solving the Budget Crisis…
Closing the $300 to $400 million budget gap with cuts…
$350
Expressed in
Millions
$48
$51
$44
PROMISE
Concord,
Higher
Scholarship Bluefild, West Education
Liberty,
Grant
Osteopathic, Program &
Glenville &
HEAPS
Fairmont
State
Source: WV State Budget Office
$31
$52
$63
$13
Education & Public Health Commerce
Arts Dept
Depts
Dept
$10
Bureau of
Senior
Services
$14
$25
Veterns' WV School for
WVU
Assistance Deaf & Blind Parkersburg,
Dept
Bridgevalley,
& Pierpont
Community
Colleges
TOTAL
Revenue options for closing the $300 to $400 million budget gap…
Expand Sales Tax Base (digital downloads, personal services)
$16
Raise Natural Gas Severance to 6%
$19
Reinstate Estate Tax
$20
Excess Acreage Tax
$21
Legalize Marijuana (25%)
$45
Low-Wage Employer Fee
$45
Raise PIT top rate to 7.4% on $150k
$45
Raise Soda Tax x 5
Tax HMOs + HMDIs @3%
Expressed in
Millions
$50
$54
Raise tobacco taxes ($1.55 per pack)
$60
Telecom Sales Tax (6%)
$60
Reinstate Grocery Tax
Raise Sales Tax by 1%
Reinstate BFT & CNIT 2006 rates
Source: West Virginia Center on Budget and Policy and WV State Tax Department
$170
$196
$219
Despite slow economy, revenue is relatively weak
General Revenue Fund as a share of West Virginia's economy
Share of personal income
Share of gross domestic product (GDP)
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016*
Source: WV State Budget Office and Bureau of Economic Analysis *Uses annualized state GDP and personal income for last available quarter
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EXTRA – Why Don’t Tax Cuts Work?
$9,000
$0
Alabama
Tennessee
Idaho
South Carolina
Georgia
Florida
Arizona
Mississippi
Missouri
Oklahoma
Kentucky
South Dakota
Utah
North Carolina
Arkansas
New Mexico
Michigan
Indiana
Louisiana
Montana
Texas
Nevada
West Virginia
Oregon
New Hampshire
Virginia
Ohio
Colorado
Washington
Kansas
Iowa
United States
Delaware
Pennsylvania
Nebraska
Wisconsin
Maine
Rhode Island
California
Illinois
Vermont
Maryland
Minnesota
Hawaii
Massachusetts
Wyoming
New Jersey
Connecticut
New York
North Dakota
Alaska
DC
Is West Virginia a “high tax” state?
$10,000
state & local taxes per capita, 2013
$8,000
$7,000
$6,000
$5,000
$4,599
$4,000
$3,898
$3,000
$2,000
$1,000
Source: U.S. Census Bureau, State and Local Finances
12.0%
0.0%
Alaska
Delaware
Tennessee
New Hampshire
Florida
South Dakota
Alabama
Oklahoma
Nevada
Montana
Texas
Virginia
Missouri
West Virginia
Washington
Kentucky
Idaho
Wyoming
Louisiana
South Carolina
Pennsylvania
Oregon
North Dakota
Georgia
North Carolina
Colorado
Mississippi
New Mexico
Indiana
Utah
Michigan
Arkansas
Arizona
United States
Maryland
Iowa
Nebraska
Ohio
Massachusetts
Kansas
Illinois
Minnesota
Vermont
California
Rhode Island
Wisconsin
New Jersey
Connecticut
Maine
Hawaii
DC
New York
Is West Virginia a “high tax” state?
14.0%
taxes (sales, income, property) as percentage of state personal income, 2013
10.0%
8.0%
8.0%
7.0%
6.0%
4.0%
2.0%
Source: U.S. Census Bureau, State and Local Finances
0.0%
Alaska
North Dakota
Vermont
Wyoming
New Mexico
Maine
Mississippi
Hawaii
West Virginia
New York
Florida
Montana
Nevada
Rhode Island
Arizona
New Jersey
Illinois
Texas
Washington
Colorado
South Carolina
UNITED STATES
Iowa
Kansas
Kentucky
Oklahoma
Idaho
Minnesota
Pennsylvania
Tennessee
Alabama
South Dakota
California
Wisconsin
New Hampshire
Delaware
Nebraska
Arkansas
Ohio
Massachusetts
Louisiana
Maryland
Virginia
Georgia
Indiana
Utah
Missouri
Connecticut
North Carolina
Oregon
Michigan
Extraction states tend to have higher business tax rates
14.0%
business taxes (sales, income, property, excise) as percentage of private-sector GDP, 2013
12.0%
10.0%
8.0%
6.0%
6.0%
4.0%
2.0%
Source: Council on State Taxation
Extraction taxes and business taxes are highly exportable
Percent of Texas taxes paid by non-Texans
66.4%
61.6%
33.2%
Natural Gas Tax
Oil Production Tax
Franchise Tax
21.3%
20.9%
School Property Tax
Sales Tax
1.9%
Cigarette Tax
Source: Tax Exemptions & Tax Incidence, March 2015, Texas Comptroller
Percent of Minnesota taxes paid by non-Minnesotans
90%
Mining Production Tax
83%
Industrial Property Tax
48%
41%
37%
Commercial Property Tax
Corporate Franchise Tax
Motor Fuels Taxes
Source:2015 Minnesota Tax Incidence Study. March 9, 2015 Minnesota Tax Research Division
WV ranks 21st best in Tax Foundation Business Climate Index
Exportability explains
(in part) how natural
resource states have
higher business tax
rates but can have
“competitive
business tax
systems.”
Better “business tax competitiveness” doesn’t always correspond with
better employment growth
Business Tax Climate Rank (Tax Foundation)
790
780
34th
37th
36th
Total Employment (thousands)
37th
40
35
770
30
760
24th
750
23rd
23rd
23rd
21st
21st
25
20
740
15
730
720
10
710
5
700
0
2006
2007
2008
Source: Tax Foundation and Bureau of Labor Statistics (LAUS)
2009
2010
2011
2012
2013
2014
2015
Most academic research shows state tax levels have little or no impact on
economic growth
Number of peer-reviewed articles in academic journals and books since 2000
20 Studies
11 Studies
6 Studies
No significant link between state/local
tax levels and economic growth
Mixed or inconsistent results on link
between state/local tax levels and
economic growth
Source: West Virginia Center on Budget Policy and Center on Budget and Policy Priorities
Significant link between state/local tax
levels and economic growth
Biggest tax-cutting states not seeing strong job growth
Total nonfarm job growth since the tax cuts took effect
State
8.0%
U.S.
6.3%
5.5%
4.0%
2.9%
Maine
5.5%
4.1%
4.9%
4.5%
2.5%
Kansas
Ohio
Note: Effective dates for tax cuts are Jan. 2012 for Maine, Jan. 2013 for Kansas, June 2013 for Ohio and Wisconsin (retroactive to Jan. 2013),
and Jan. 2014 for North Carolina
Source: Center on Budget and Policy Priorities analysis of Bureau of Labor Statistics data, April 2016
Wisconsin
N. Carolina
California and Minnesota tax increases didn’t harm economy
Growth in gross domestic product (GDP) since tax measures passed
7.7%
6.2%
California
United States
6.4%
Minnesota
Source: Center on Budget and Policy Priorities analysis of Bureau of Economic Analysis, April 2016 (figures reflect inflation-adjusted quarterly GDP data)
5.7%
United States
Why don’t business tax cuts work?
Business taxes as a share of the cost of doing business
Other
Business
Costs
96.8%
WV State
and Local
Taxes
3.2%
Source: WVCBP analysis of Council on State Taxation and Internal Revenue Service data
+The cost of labor, electricity, property,
equipment, raw materials and
transportation are very often more
substantial costs for businesses than taxes
and can have a greater impact on profit
margins - especially in different states.
+Many factors other than taxes can
influence state economic growth and
business investment, including climate,
workforce, regulations, energy prices,
economic recessions, federal and
monetary policy, quality of life and
amenities, consumer demand, public
infrastructure and transportation, available
sites, proximity to markets and suppliers,
access to raw materials, and much more.