West Virginia Budget Presents Daunting Task for Legislators

Fixing $500 million deficit won’t be easy

Photo by Dalton Walker, W.Va. Press Association A panel discusses West Virginia’s budget in a session at the 2017 Associated Press Legislative Lookahead Friday in Charleston. Panelists include, from left, Ted Boettner, executive director of the West Virginia Center of Budget and Policy; Brian Lego, an economic forecaster from the West Virginia University Bureau of Business and Economic Research; state Sen. Mike Hall, R-Putnam, Senate Finance Committee chairman; and Delegate Eric Nelson, R-Kanawha, House Finance Committee chairman.

CHARLESTON — If West Virginia attempts to eliminate an estimated $500 million deficit with spending cuts alone, some areas of the state could become completely uninhabitable, a budget expert warned Friday.

That’s the dire message Ted Boettner, executive director of the West Virginia Center on Budget & Policy, delivered to dozens of journalists from throughout the state.

“Schools and libraries will have to close, roads and bridges will continue to deteriorate and towns will be abandoned. Water systems will crumble and health clinics and social service agencies will close,” he said.

Instead, the state needs to expand its sales tax base by including professional services at a lower rate, Boettner said. He also suggested lawmakers bring back the estate tax that brought in revenue of $15 million to $25 million per year before it was eliminated.

Boettner was among four state budget experts Friday to discuss budget deficit solutions during The Associated Press’ annual Legislative Lookahead in Charleston.

Soon, the Legislature will continue working on ways to find an estimated $390 million to $600 million in cuts to cover the state’s $500 million budget deficit.

Other experts on the panel Friday were Brian Lego, research assistant professor and economic forecaster for the West Virginia University Bureau of Business and Economic Research; Delegate Eric Nelson, R-Kanawha, who is chairman of the House of Delegates Finance Committee; and state Sen. Mike Hall, R-Putnam, who is chairman of the Senate Finance Committee.

While experts say it’s likely Gov. Jim Justice will include a combination of cuts and revenue reforms when he discusses his proposed budget next week, when it comes to specifics about how the state will proceed, they’ll have to wait with everyone else to hear details when Justice gives his State of the State Address.

“Now we face the budget crisis,” Hall said, after recalling some of the state’s budget successes during the past 30 years. It’s the next challenge for the Legislature that’s spent years fixing the state’s pension system, and pumping $900 million into the Workers’ Compensation Fund, he said.

“Obviously we’ll have to address the revenue situation (with the new administration) as to how they are going to approach the problem,” Hall said.

Panel experts listed numerous possibilities for new or resurrected taxes, revenue and tax reforms.

Hall reviewed some suggestions that have been discussed among legislators, including expanding the state’s sales tax base by imposing the tax on new construction, as well as on legal and accounting services.

It’s an option, he says, that could bring in about $300 million. Currently, those services are not taxed.

The amount of additional sales tax revenue could increase to nearly $2 billion if other categories of sales tax exemptions are lifted, as well, including those for churches, nonprofits and educational institutions, Hall said.

However, such moves are problematic, Hall said. For example, taxing currently exempt institutions means taxing institutions to which the state gives money. Therefore, in his opinion, taxing them for the state’s profit doesn’t make sense.

Other taxes that could be discussed further are a food tax increase and taxes on mobile home sales, newspaper advertising and some medical services, although each carries its own potential problems, Hall said.

Nelson said West Virginia is already one of only two states that has a soda tax, and he said additional tobacco tax increases will spur consumers to drive across state borders to buy those products. Border residents make up a large segment of voters, as well, he said.

In addition, such taxes likely impact lower-income residents more harshly, Hall said.

Panelists agreed that falling prices in the state’s energy sector, including coal and natural gas products, are the major culprits contributing to the deficit.

“It’s a multi-level problem the energy sector is facing,” Lego said.

Also at fault are the state’s heavy reliance on income from coal and natural gas severance taxes, and the state’s failure to diversify its revenue base.

“The state’s private sector shed about 22,000 jobs since 2012. … Many of those are focused in these two industries,” Lego said, adding that many of the jobs lost are high-wage positions.

Lego said there are benefits to broadening the sales tax base.

“Sales taxes do tend to be a little smoother than income tax” as far as revenue stream, he said. And, it is more reliable since the state has a low share of workforce participation, due in part to the state’s aging population, according to Lego.

“This is a way of raising the base of potential revenue that the state could draw from,” he said.

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