6:00: Morning News

House’s ‘broaden-the-base’ bill brings back food tax, estimates $174 million in new revenue

CHARLESTON, W.Va. — The House Finance Committee on Friday afternoon passed two bills that could have big effects on the state’s budget woes.

The biggest was a bill that would eliminate various services that have been exempt from the state’s sales taxes up to now. Those changes would include a return to taxing groceries, at a 3 percent rate.

The tax changes, which would go into effect by Oct. 1, are estimated to raise an additional $174 million in revenue.

That would be enough to plug the $150 million hole left after legislative Republicans announced their budget framework two weeks ago. GOP leaders had indicated that gap would need to be made up by cuts to the big three budget areas of education, higher education and DHHR.

The committee voted 14-11 to pass the bill to the full House.

The other significant bill considered by the committee was refinancing the state’s teacher’s retirement system. The big change to that bill was that it would roll in Governor Jim Justice’s proposed 2 percent pay raise for classroom teachers.

Refinancing the teachers retirement debt fund was estimated to save an extra $70 million that could be applied to the coming year’s state budget. But critics were concerned that the long-term cost of refinancing the retirement debt fund would be $1.5 billion.

The refinancing plan calls for adding an extra $20 million every year to try to pay the debt down faster. Also, if there is a revenue surplus one year, it will also direct a third of that to pay down the teachers retirement debt.

Dave Hardy

Expressing concern over the move was state Revenue Secretary Dave Hardy.

“You’ll get $70 million in the short term but you’ll pay $1.5 billion more over 30 years, so I’d call that fool’s gold,” Hardy said.

Hardy warned that the bond ratings agencies, which already have downgraded West Virginia in the past year, could look on such a move negatively.

“One of our best traits as a state is that we’ve put a plan in place and we’ve stuck with it. This would be viewed as a departure,” Hardy said.

“It would be viewed negatively if we depart from the discipline we have shown.”

Delegate Isaac Sponaugle asked when the teachers retirement system is expected to be fully funded. 2034 is the answer he got.

If this bill were to pass, Sponaugle then asked, when would the system be fully funded? Then, the answer would be 2042.

The original bill to refinance the teachers retirement system debt was introduced early this month by lead sponsor Ron Walters, R-Kanawha.

Members of the House Finance Committee voted 14-11 in favor of the refinancing/teacher payraise bill. It goes to the House floor.

The refinancing measure came right before the tax reform bill during a long afternoon session for the House Finance Committee.

The majority Republican leadership in the House has been talking about “broadening the base” since before the 60-day session began.

The biggest chunk of new revenue, estimated at $78 million, comes from re-establishing a $3 percent sales tax on groceries. The food tax was phased out over a multi-year period in West Virginia, finally ending in 2013. One of the biggest advocates for doing away with it was current House Speaker Tim Armstead.

The second biggest bit of revenue, an estimated $60 million, comes from a tax on telecommunications. Former Gov. Earl Ray Tomblin advocated for that tax in his final State of the State speech and then during his farewell address, but he got little legislative support.

The House originally had two separate tax reform bills but essentially consolidated them into one prior to this  afternoon’s meeting.

The sales tax component of the bill will change the rate from 6 percent to 5 in West Virginia.

The state income tax would become a flat 5.1 percent rate. It adds a $10,000 exemption for those below $50,000.

The Senate has also been working with tax reform measures and introduced its third version of a plan earlier Friday.

The Senate’s Select Committee on Tax Reform subbed out its broad-ranging tax reform proposal on Friday afternoon for a slimmed-down version.

This version broadens the consumer sales tax and raises it from the current 6 percent up to 7 percent. It also reduces the state income tax from five brackets to three.

Senator Robert Karnes, the chairman of the Select Committee on Tax Reform, said there just wasn’t enough support to try to move forward. So a whole new bill was introduced Thursday and passed out of the committee today.

“We carried that one a certain distance, and we listened to constituents, we listened to the business community and we decided there were probably enough changes that needed to be made in that that it was better to start with a fresh take,” Karnes said. “I think we’ve got a much stronger bill as a result.”





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