Special session on highways reforms starts in slow gear

CHARLESTON, W.Va. — A special legislative session primarily intended to update West Virginia laws to help gear up for a pending wave of highways construction and renovation projects following the Oct. 7 passage of a $1.6 billion road bond referendum got off to a decidedly slow start Monday.

The Senate passed one bill — to permit the Tax Department to share contractors’ confidential taxpayer information with the Division of Highways (Senate Bill 2002) — on a 31-0 vote Monday afternoon, before adjourning until noon Tuesday.

Early on, one bill on the call was generating controversy — Gov. Jim Justice’s proposal to fully exempt military pensions from state income taxes (House Bill 201), with amendments being discussed that would also exempt Social Security retirement payments, and would exempt households with incomes under $50,000 from income taxes.

“It definitely presents a problem,” Senate President Mitch Carmichael, R-Jackson, said of potential amendments.

“We would consider that non-germane, and outside the scope of the call, let alone the fact that it has budget implications,” he said, adding, “I think it’s disingenuous for someone to try to conflate that issue … and ruin the opportunity to give veterans tax cuts.”

Under existing law, the first $22,000 of military pensions are exempt from income taxes, and Deputy Revenue Secretary Mark Muchow has said fully exempting the pensions would benefit about 3,800 of the 10,000 West Virginians who receive military pensions, primarily benefiting retired officers and 20-plus year military veterans.

At an average annual tax savings of $800, Muchow said, the exemption would cost the state about $3.1 million a year in lost tax revenue.

Justice called the special session that began Monday to coincide with previously scheduled legislative interim committee meetings for October, to limit the expense of the session.

Earlier Monday, state officials briefed a legislative interim committee on the special session agenda:

• Streamlining hiring procedures to allow the Division of Highways and Department of Revenue to fill vacancies in preparation for the upswing in road construction and maintenance projects.

Transportation Secretary Tom Smith said Highways has more than 500 vacant positions, running the gamut from engineers, human resources, accountants, auditors and environmental specialists.

“We’ve had a history of what I call chronically understaffing the agency,” he said.

Likewise, Revenue Secretary Dave Hardy said 31 of 129 positions in his department’s auditing, compliance and enforcement divisions are vacant.

“This is one area where you don’t want to be understaffed,” he said, “because it does generate revenue for the state.”

Hardy said the department recently rescinded an order barring auditors from going out of state to conduct audits. He said auditors recently spent one month auditing out-of-state companies, with travel expenses totaling $9,800.

Those audits collected $2.25 million in unpaid taxes, he said.

Hardy said the department needs to be able to fill 18 positions immediately, “to get boots on the ground to get ahead of the highways program.”

• Toughening the West Virginia Jobs Act. The 2001 legislation intended to help ensure that West Virginia workers are employed on taxpayer-funded projects has been largely ineffective, officials said.

“There’s just no teeth for enforcement,” said Alan Prunty, general counsel for the Department of Revenue.

Under the law, 75 percent of workers on taxpayer-funded construction projects must be residents of West Virginia or of bordering counties, although contractors may obtain waivers if they cannot meet that standard.

Currently, fines for violations of the act are $100 a day, which, as Deputy Commerce Secretary Josh Jarrell explained, “isn’t much of a penalty on a multi-million dollar contract.”

• Reducing legal barriers that prevent the Division of Highways and Tax Department from sharing tax information on contractors.

Under existing law, because of confidentiality requirements, the Tax Department can tell Highways only if a contractor has filed a state tax return, not whether the return is accurate or if taxes were paid.

“This is directly related to the $1.6 billion roads program, and all the contracts that will flow there-from,” said Hardy. “This is truly a loophole in the law.”

Last month, union workers picketed a Charleston worksite, contending that payroll records submitted by the Florida-based contractor did not show any deductions for payroll withholding taxes.

Smith said Highways recently had questions about whether a contractor, whom he did not identify, that was bidding for a project had paid withholding taxes on past state contracts.

“Does the fact that no withholdings are shown mean that no taxes were paid?” he said of the question posed to Tax officials, which he said they could not answer because of taxpayer confidentiality requirements.

Under the proposed legislation, Highways and the Tax Department would be able to enter into a Memorandum of Understanding to share confidential tax information.

Hardy said the Tax Department has similar agreements with the commissioner of Labor, the Division of Employment Security, and the Alcohol Beverage Control Administration.

Under the version of the bill advanced by the Senate on Monday, Highways would be required to maintain the same level of confidentiality regarding any taxpayer information provided by the Tax Department.

Additionally, Justice’s special session call includes one other bill, to increase tax credits for rehabilitating historic buildings from the current 10 percent credit to 25 percent. Advocates of the measure contend that the 10 percent credit does not provide enough financial incentive to encourage people to invest in rehabbing historic buildings.