By Phil Kabler
The Charleston Gazette-Mail
CHARLESTON, W.Va. — With the regular session now two-tenths over and with no budget plan in sight, it’s probably time to dust off the budget impasse countdown clock.
When the session started Feb. 8, Gov. Jim Justice offered two options to close the budget crisis: Apocalyptic cuts of $450 million requiring closure of large portions of government operations and termination of nearly 3,000 employees, or about $400 million of tax increases and $26.6 million of “responsible” budget cuts.
As noted, many of those cuts were comparatively small-budget items seemingly handpicked to generate maximum outrage from constituents (Public Broadcasting, fairs and festivals, “Mountain Stage,” regional theater and symphony orchestras, state Film Office, etc.).
However, as we begin to learn more about the governor’s yet-to-be introduced $105 million Save Our State Fund legislation, we are gleaning that passage of that bill would provide alternate funding for those programs — presumably a means of pressuring legislators to cave on Justice’s tax hikes.
Per Samantha Smith, communications director for the Department of Commerce, “While the Save our State Fund is not intended to fill all funding gaps created by the governor’s proposed budget cuts, it will provide the flexibility to support programs and events that are economic drivers for the state of West Virginia.”
Meanwhile, legislative leadership seemed astonished that Justice had not endorsed massive spending cuts in his budget bill, apparently oblivious to repeated statements by Justice during the gubernatorial campaign that the state could not cut its way out of the budget crisis.
Having rejected the Justice budget plan, the rational presumption would be that legislative leadership — having supposedly spent all summer studying ways to cut spending and consolidate government — would have an alternate budget plan ready. Remarkably, there is no Plan B.
Last week, House Finance Chairman Eric Nelson, R-Kanawha, said he set up subcommittees to look at spending by the various agencies, with the directive to come up with budget recommendations in about two weeks.
That will put the House about one-third of the way through the session before it even begins considering other budget options.
Things are even worse in the Senate, where the Finance Committee is being bypassed on such bills as the proposed income tax repeal and a bill that would give the Legislature authority to override existing state law on appropriations.
Apparently, that’s because Chairman Mike Hall, R-Putnam, is seen by leadership as being too moderate and willing to compromise on taxation and funding issues.
So, at the moment, you have a majority in the Legislature adamant about no new taxes even if that means turning state government into scorched earth, and a governor who is equally adamant that its his way or the highway, and who is eager to use the bully pulpit of his office to build public support, and who does not seem to cower at the thought of a fight with the Legislature.
(I gather that some of the exchanges in Republican caucuses last week were quite vigorous.)
Meanwhile, the shutdown of state government is 101 days away.
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Frankly, math is not my forte. Otherwise, I’d be designing rocket ships instead of huddling over this laptop trying to finish a column.
However, I have some qualms about Chairman Nelson’s proposal to raise some quick cash for the state budget by refinancing the state’s pension fund debt.
Under a 40-year plan to pay for the sins of the past — i.e., Arch A. Moore Jr. in the 1970s and ’80s declaring there was no need to “park” money in pension funds — the state has to come up with about $544 million a year to pay down what is now down to about a $4.4 billion unfunded liability in state pension funds, mainly in the Teachers Retirement System.
Currently, we’ve got about 17 more years of payments under the 40-year plan, and Nelson wants to refinance those 17 years in a new 30-year plan, which he says would free up somewhere between $70 million and $90 million a year through lower annual payments.
Let’s split the difference and call it $80 million, which over 17 years amounts to $1.36 billion of savings.
Not bad, you say, if you happen to be a math-deficient person like myself.
However, the downside is the 13 additional years of pension payments, which we’ll round down to $460 million a year. That works out to $5.98 billion of additional cost — or more than four times the proposed savings.
Which sounds like the actuarial version of a payday loan program, unless you assume that with inflation, $460 million in 2047 will barely be enough to buy a used (driverless) Toyota Corolla, or that most of us will be worm food by then and won’t give a darn about the state budget.
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While we’ve got the math cortex geared up, let’s run a few numbers on the Senate’s proposal to replace the state personal income tax with an 8 percent consumption tax on a wide variety of goods and services, including groceries, currently untaxed, and motor vehicles, currently taxed at 5 percent (SB335).
A family with the state-median household income of $42,019 would save about $1,478 on income taxes, but would pay about $800 more a year for groceries alone, and would pay an extra $1,020 on the purchase of an average-priced new car.
Of course, if that family’s household income is $75,000, SB335 starts to look a little better, with $3,462 in saved income taxes, and if they get up to $200,000, it really starts to look good at $11,587 in savings.
It’s also important to note that, according to the executive budget report, payroll accounts for about 70 percent of income taxes. That leaves some $500 million a year from income taxes paid on royalties and business profits, a significant portion of which is paid by out-of-state individuals and businesses.
(In monthly budget briefings, the downturn in royalty payments because of plunging natural gas prices and lower coal production has been cited as a key reason why income tax collections have fallen below estimates in recent months.)
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Finally, we barely made it a week into the regular session before a legislator compared taxation to theft during a floor speech.
Wouldn’t it be refreshing if every legislator who likens taxes to stealing would refuse to accept his or her legislative salary and daily expense payments, since that amounts to accepting ill-gotten money. Likewise, each should be willing to forgo office space in the Capitol, along with assigned legislative parking, since “stolen” money is likewise used to provide those amenities.
And as the Center on Budget & Policy’s Sean O’Leary tweeted, it is a crime under state law to knowingly receive stolen goods or funds. As for the “taxation is robbery” legislators, we don’t want to lock them up, but it would be nice if they would acknowledge their hypocrisy.
Reach Phil Kabler at [email protected], 304 348-1220, or follow @PhilKabler on Twitter.
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