Anatomy of a budget breakdown

By RUSTY MARKS

The State Journal

CHARLESTON, W.Va. — It wasn’t as if he hadn’t tried to warn them.

For weeks, House Speaker Tim Armstead, R-Kanawha, had been telling anyone who would listen that the Republican majority in the House of Delegates would not go along with any state revenue or budget plan that included tax increases for the citizens of West Virginia.

“Our families are struggling to make ends meet, and this is absolutely the wrong time to burden them with hundreds of millions of dollars in additional taxes” Armstead said.

West Virginia House of Delegates Speaker Tim Armstead, R-Kanawha, and other House Republicans swiftly said no to Gov. Jim Justice’s revenue bill Thursday in a special session May 4.
(Photo by Rusty Marks)

Apparently, neither Democratic Gov. Jim Justice nor Senate President Mitch Carmichael, R-Jackson, was listening. On Thursday, May 4, Justice called the Legislature into special session to consider revenue and tax reform measures aimed at passing a state budget. That revenue plan included raising the state sales tax from 6 to 7 percent, raising gasoline taxes and fees for services at the Division of Motor Vehicles and raising taxes on corporations and the very wealthy.

When the special session began at 11 a.m. May 4, the revenue bill was not ready. But by mid-afternoon, a copy of the legislation had been filed. When the House of Delegates reconvened shortly after 5 p.m. following an afternoon break, delegates took up the bill, read it a first time, then took an unexpected move — they quickly rejected the proposal on its first reading by a vote of 59-36.

Three bills introduced in the Senate earlier in the day were still in play, however. Those measures would provide for a 2 percent teacher pay raise, raise gasoline taxes and DMV fees and allow for increasing tolls on the West Virginia Turnpike. But the House move to reject Justice’s tax reform and revenue bill effectively scuttled any attempt to reach a budget agreement on the first day of the special session. The House and Senate were set to reconvene Friday, but Armstead and others said there was little point in trying to continue business until another budget deal can be reached.

“For now, I think it’s best we take a break and get everyone in a room and try to work out our differences,” Armstead said on May 4. “I encourage Gov. Justice to listen to the message the House sent tonight and work with our leadership team and our colleagues in the Senate to find a path forward that will truly work for the people of West Virginia.”

Justice’s plan

Justice vetoed the budget the Legislature passed in the waning hours of the regular legislative session. That bill would have made cuts to higher education and the state Department of Health and Human Resources and would have required taking about $90 million from the state rainy-day fund, a move that would have brought the balance in the fund below recommended levels and likely would have resulted in a lowering of the state’s bond ratings.The revenue proposals Justice presented for the special session call did not differ significantly in principle from the plan the governor presented before the regular session began in February. Justice’s plan included a 1 percent increase in the sales tax, temporary tax increases on the most wealthy West Virginians, a tiered severance tax system for the coal and natural gas industries that would allow company owners to pay less tax when times are bad but pay more when times are good, increasing corporate taxes and raising tolls, DMV fees and gasoline taxes to fund a massive road construction program Justice has said would create 48,000 jobs.But in a compromise negotiated between members of Justice’s administration and Republican leadership in the Senate, the proposal killed by the House of Delegates May 4 also included a statewide tax reform plan similar to one that had been studied in the Senate.That proposal would have allowed for lower personal income tax rates for state residents, with the possibility of eliminating personal income taxes completely. Carmichael said phasing out the personal income tax – even with the hike in the sales tax – would mean an aggregate $100 million tax cut for the citizens of the Mountain State.“It’s a win-win,” Carmichael said.

Revenue projections prepared by the state Department of Revenue showed phasing out the income tax would end up costing the state more than $100 million a year in revenue following the first couple of years. Carmichael, however, is convinced doing away with personal income taxes would spur economic growth, give West Virginians an incentive to go back to work and more than make up for any short-term loss in revenue.

Opposition builds

Armstead and other House Republicans were against the governor’s revenue and budget plans even before the special session was announced.On the final day of the regular session, Justice called a news conference to announce he had worked out a compromise deal with leaders in the Senate, two hours before the end of the session, to pass a budget bill containing most of the governor’s original proposals. A budget amendment sponsored by Senate Majority Leader Ryan Fern, R-Ohio, contained most of Justice’s revenue proposals except the tiered severance tax.The Ferns amendment was not the budget bill ultimately passed by the Legislature and vetoed by the governor, but served as the basis for the revenue and budget proposals planned for the special session.House of Delegates spokesman Jared Hunt said the budget negotiations between Justice and the Senate were made without the participation or knowledge of members of the House. Armstead criticized the governor several times for leaving House Republicans out of budget talks.Armstead also issued a series of statements warning Justice and the Senate that House Republicans would not go along with any tax increase. He was joined by other members of the House of Delegates.

Members of the Libertarian-leaning Liberty Caucus came out publicly against the governor’s revenue and budget proposals.

“For years we have fought efforts to raise taxes and grow government, and the plan the governor and Senate are trying to push would do just that,” said Delegate Pat McGeehan, R-Hancock. “While we like the idea of lowering the income tax, the idea of offsetting it with even higher sales and business taxes will only hurt our economy — particularly in border areas.”

Republican delegates from many of the state’s border counties also opposed raising the sales tax, fearing it would hurt business.

“Politicians in Charleston do not understand how easy it is for people in the panhandles to cross the border to shop,” said Delegate Jill Upson, R-Jefferson. “Pushing our sales tax significantly higher than our neighboring states will put our retailers at a disadvantage and drive more business out of our state.”

Delegates from southern coal-producing counties also opposed the plan because of Justice’s severance tax proposals.

“Just as President Donald Trump begins to fulfill his promise to ‘put the miners back to work,’ our governor wants to shove through a tax plan that’s going to put some coal mines and coal miners out of business,” said Delegate Zack Maynard, R-Lincoln. “The industry and our region are just now starting to see the light at the end of the tunnel, and I’m going to fight any proposal that could halt that recovery and cost us coal jobs.”

Some outside observers also thought Justice’s revenue and budget plans were a bad idea. Sean O’Leary, a policy analyst for the left-of-center West Virginia Center on Budget & Policy, said the changes in income tax brackets under the revenue proposal would end up being a tax increase for 80 percent of state residents, while creating a tax cut for those in the upper 20 percent of wage-earners.

O’Leary also said eliminating personal income taxes would not lead to economic growth or put people back to work.

He said states that don’t have an income tax make up for the lack of revenue in other areas, such as higher property taxes or sales taxes.

“The idea that somehow West Virginia is going to be different from all these other states that have tried this and failed is not borne out by evidence,” O’Leary said.

House opposition to Justice’s revenue and budget proposals ended in a scathing criticism of his handling of the special session.

“The governor knew the votes were not there to pass his tax increases and that calling this special session today was premature,” Armstead said May 4. “Now we’re here in Charleston wasting $35,000 a day and don’t even have the key bill we need to consider.”

“If there’s one thing we know taxpayers hate, it’s seeing the Legislature sitting around wasting time in special session,” agreed Majority Leader Daryl Cowles, R-Morgan. “This governor campaigned on limiting the time we could spend in special session, and now we’re here in Charleston sitting on our hands because he hasn’t even submitted the key bill we’re supposed to consider.”

Strategic miscalculation?

While it is not unusual for the governor to call a special legislative session to finish work on the budget, former state Revenue Secretary Bob Kiss — also a former speaker of the House of Delegates — said the governor typically has a basic agreement in place with the House and Senate before calling lawmakers into session. House Minority Leader Tim Miley, D-Harrison, who also spent time as House speaker, said last year was the first time in his memory the Legislature went into special session to work on the budget without an agreement already in place.Last year was also the first time in more than 80 years that West Virginia had a Democratic governor and a Republican-controlled Legislature. But given the massive budget deficits and financial problems the state faces, Kiss isn’t sure the trouble reaching a budget agreement can be pinned solely on political differences.Up until 2006, some of the minutia of funding state agencies was taken care of in the state Budget Digest, worked out after the Legislature passed the budget. To some extent, that arrangement allowed lawmakers to make general appropriations for state agencies, but leave divvying up the money to the Budget Digest.But, as complicated as the Mountain State’s financial situation is today, neither Miley nor Kiss thinks the continued existence of the Budget Digest would have made passing a budget any easier.A number of observers in the state Capitol believe Justice may have miscalculated his strategy for passing a budget. While they support the governor’s proposals, some Democrats have quietly said Justice may have picked the wrong method to get his messages across.

Some Democrats wondered if Justice, used to getting his way, may have thought he could cut a budget deal with the Senate and either shame or bully the House of Delegates into going along with the plan.

Justice spokesman Grant Herring did not respond to a request for comment.

Justice’s management style apparently did not win him much support with House Republicans for this round.

“This is what happens when you don’t listen to people or consider all sides in a negotiation,” said House Finance Committee Chairman Eric Nelson, R-Kanawha. “We’ve wanted to talk about these items over the last couple of weeks, but the governor shut the door in our faces. Now he’s called us back into session, and we learn there are still issues to work out. This is a colossal waste of time and taxpayer money.”

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