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Gulf in WV budget talks widens as special session continues

By PHIL KABLER

Charleston Gazette-Mail

CHARLESTON, W.Va. — In a move more likely to intensify than resolve the 20-day-old legislative budget impasse, West Virginia Senate Republicans moved closer Tuesday to restoring their version of a revenue plan that cuts income taxes and severance taxes on coal while imposing an increase in the state sales tax — a plan, it was noted, that the House of Delegates has already rejected three times.

In this file photo, Gov. Jim Justice uses a white board as he delivers his first State of the State address on Wednesday, Feb. 8, 2017, in the House Chamber at the state Capitol.
(Gazette-Mail file photo)

“Every time we’ve sent it over, it’s been adamantly rejected,” said Senate Minority Leader Roman Prezioso, D-Marion. “I don’t think there’s any way the House is going to take 7½ percent or a 7¼ percent sales tax.”

“The 7.25 percent sales tax is obviously a drastic move in the wrong direction,” House Speaker Tim Armstead, R-Kanawha, said before Tuesday afternoon’s House floor session.

“I think it’s disappointing they’re going in the opposition direction,” Armstead said of the Senate proposal, which follows the House’s rejection Friday of an earlier Senate plan to raise the tax to 6.95 percent. “Nothing we’ve seen in the last 48 hours in the Senate is addressing any of the concerns the House has raised.”

“As we get closer to that July date, any [state government] shutdown is going to be because of this governor and the Senate leadership,” Armstead added.

If the 2017-18 budget is not enacted before the fiscal year begins July 1, state government would be forced to shut down all nonessential services.

Tuesday afternoon, the Senate Finance Committee advanced the legislation (House Bill 107) on a party-line 11-6 vote, making one notable change to the version sent over Monday from the Senate Select Committee on Tax Reform.

The full Senate will take up the bill today, the next step toward getting it into a House-Senate conference committee that would try to come up with a compromise.

“They’re obviously looking at a philosophically opposite view of raising revenue,” Senate Finance Chairman Mike Hall, R-Putnam, said of the House, which passed a revenue plan Friday with no sales tax increases and no income tax cuts on a bipartisan 74-17 vote.

At the time, Armstead said the vote margin sent a message to Senate Republicans rebuking their proposal to raise sales taxes and cut income taxes.

One problem with the House’s plan: It’s nearly $150 million short of fully funding Gov. Jim Justice’s proposed $4.35 billion budget bill.

As part of negotiations Tuesday with the Governor’s Office, Senate Finance members added a proposed fourth income tax rate tier to the Senate plan, which, in its latest incarnation, would tax incomes of $200,000 or greater at 6 percent, raising about $17 million a year.

Overall, though, the bill would cut income tax rates by 20 percent over two years, ultimately cutting income tax collection by $425 million a year when fully implemented.

Some of that revenue would be made up with the sales tax hike and elimination of various sales tax exemptions, which, when fully implemented would raise about $354 million a year in new revenue.

Because the sales tax hike would start July 1 and the income tax cuts would go into effect on Jan. 1, 2018, the Senate plan would produce $147 million in new tax revenue for the 2017-18 budget year, but it would create budget shortfalls each year thereafter, growing to a $178 million deficit for 2021-22, according to Deputy Revenue Secretary Mark Muchow.

That’s in addition to revenue shortfalls already projected for those years.

Sen. Robert Plymale, D-Wayne, cited the deficits when he tried unsuccessfully for a second straight day to put the bill back into the form passed by the House on Friday, but with a 6.5 percent sales tax rate that he said would avoid making further cuts to higher education and other state programs.

“We’re going in the wrong direction, with lowering the personal income tax, which makes up between 40 percent and 50 percent of our budget,” Sen. Ron Stollings, D-Boone, said in support of the amendment. “The time to do this would be when we’re not in such a deficit situation.”

Plymale’s amendment was rejected on a voice vote.

Hall said afterward that Justice is banking on economic growth from the passage of his multi-million-dollar road building plan and growth in severance tax collections to help offset future deficits.

Hall said Justice would increase revenue projections for the 2017-18 budget year by about $130 million, once the Legislature passes the road building bills and the revenue plan.

Bills to raise the gas tax and DMV fees and to raise and extend tolls on the West Virginia Turnpike are expected to be on the Senate agenda today.

“He’s of the opinion that growth will be dramatic, and it will overtake the extra $150 million we’ll need for next year,” Hall said, saying he’s hopeful the plan works but is fearful that it won’t.

Muchow told senators that projections are for severance tax collections to increase by $100 million in the coming budget year, driven primarily by resurging oil and natural gas prices, but the Senate bill’s proposed tiered severance tax on coal would cut that increase in half, providing an estimated $50 million tax break for steam coal producers.

Citing a Duke University study, Muchow said an additional $800 million a year of state spending on road construction should produce somewhere between $80 million to $96 million a year in new tax revenue.

Justice’s road plan calls for selling a total of up to $2.3 billion in road bonds.

The Senate Finance Committee vote Tuesday was so critical that Senate President Mitch Carmichael, R-Jackson, temporarily put Sens. Mark Maynard, R-Wayne, and Chandler Swope, R-Mercer, on the committee to take the place of two absent Republican senators, to maintain an 11-6 Republican majority on the panel.

Tuesday marked the ninth day of the special session, at an estimated total cost of $271,000 for per-day pay and expenses for legislators.

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