West Virginia State Senate President Jeff Kessler leads a delegation to North Dakota today to see firsthand how that state’s Legacy Fund works.
North Dakota voters approved the fund in 2010, and starting the following year, 30 percent of the state’s oil and gas tax revenues were diverted into a savings account.
The oil boom generated over $1 billion for the fund in just 20 months.
The law prevents North Dakota from spending any of the money before 2017, and then only interest is transferred to the general fund. It would take a two-thirds majority of both the House and Senate to spend the principal.
Kessler wants West Virginia to create a savings plan like North Dakota by setting aside a portion of the growth in tax revenue generated by the Marcellus Shale gas drilling.
“Why not use some of the resources that we have that are in plentiful supply, that are in great demand, to create wealth and opportunities for future generations and, even in the short term, to give tax relief for the citizens of our state,” Kessler said on Metronews Talkline Tuesday.
Saving money is generally a good thing, especially because of the miracle of compounding interest. The interest generated is a new source of revenue that exists only because the state had the discipline to save the money.
However, government savings can also be viewed as representing excessive tax collections. If the government is collecting more money than is currently needed to pay for services, then that money should be returned to the taxpayers.
The challenges to Kessler’s proposal will be less philosophical. The state has many needs. Teachers and public employees are overdue for pay raises. Roads and bridges are crumbling. State-funded health care costs are growing.
Additionally, the weakening of the coal industry has cut into coal severance tax collections. The state collected $410 million in severance taxes last fiscal year, well short of the projected $462 million. Most of the decline can be attributed to a 15 percent drop in coal production.
That means state officials may be more inclined to use every penny from the natural gas severance tax collections as production grows to offset coal’s decline.
House Minority Leader Tim Armstead has his own idea about natural gas severance taxes. The Kanawha County Republican wants to eliminate the state’s anti-business personal property tax on inventory, machinery and equipment and use a portion of shale gas tax receipts to make up for the loss.
Kessler and company will likely return home from The Peace Garden state charged up about the benefits of socking away some gas severance tax collection money for the future. Upon entering the State Capitol, however, the Senate President will encounter a phalanx of people with other ideas.