CHARLESTON, W.Va. — If the Republican majority in the House of Delegates hopes to maintain the budget proposal it rolled out this weekend, its leaders will need to be expert players of Jenga, the classic block-stacking, tower-crashing game.
Pull a piece out and their budget becomes very different.
House Finance Chairman Eric Nelson acknowledged as much during and after a preview of the preferred plan by Republicans on his committee. Nelson, in essence, said this version of the budget doesn’t let perfect be the enemy of good.
“There are members on both sides of the aisle that will not like this final budget,” said Nelson, R-Kanawha. “Times are tough. Everybody has to take a little bit.”
The overriding issue of this legislative session has been how state leaders will fill an estimated half-billion-dollar budget gap for the coming fiscal year.
Gov. Jim Justice, during his State of the State and thereafter, proposed a budget built on $450 million in revenue enhancements, mostly tax increases. His budget proposal amounted to $4.5 billion.
The Republican majority, two weeks ago, presented its own budget framework cast as spending no more than the $4.055 billion revenue estimate. The framework left $150 million undefined, and GOP leaders said that would be filled in by cuts — likely to education, higher education or healthcare.
The $4.27 billion budget outline presented by Nelson and the House Finance staff on Saturday afternoon shoots down the middle.
It leaves elements for everyone to love — and elements to dislike.
“You have members – some that desire greater cuts. You have members that desire more the approach of the governor,” Nelson said.
“So I think what you have here is a very balanced approach that took all the feedback from the agencies, constituents and members. Anything that’s on the table requires the majority vote of the members in both bodies and then the signature of the governor. So he was asked about a veto. Look at things in this — it includes some specific programs the governor is very interested in.”
The budget presented in House Finance largely spares the budgets for education, higher education and the Department of Health and Human Resources.
Justice last week said he was so worried about cuts to DHHR — and the potential effects to families — that he ordered a state-of-emergency lantern at the Capitol to be lit, signifying his belief in the likelihood of a public health emergency.
Nelson said avoiding those kinds of cuts is a reason to support the House Finance version of the budget.
“You all have heard about various levels of cuts, I think that’s an option,” Nelson said Saturday. “So if someone wants to make sure all the Promise Scholarships are funded and that our universities are funded, well then that’s a reason to look at the option that has been put on the table.
“Likewise, the programs in DHHR, the IDD waiver, these are important programs to many people. If some of that fails then we have to look at some of those programs.”
The legislative budget plan currently on the table does include some cuts totaling about $45 million.
- It eliminates the central functions of the Department of Education and the Arts, spinning off many of its functions to other existing agencies and saving an anticipated $5.2 million.
- The embattled Regional Education Service Agencies, a cut also proposed by the governor, are eliminated for savings estimated at $3.5 million.
- Under DHHR, this budget cuts tobacco education for savings of about $3 million.
- There are cuts of the non-devastating variety to various arms of the executive branch. Most of those agency cuts total in the thousands of dollars, rather than the millions. The Division of Military Affairs and Public Safety takes a $5.9 million cut, a continuation of a 2 percent cut under then-Gov. Earl Ray Tomblin.
Some additional spending proposed by Justice is spared.
The governor’s proposed average 2-percent payraise for classroom teachers is in this budget, adding about $20 million.
This budget funds Justice’s “Save Our State” fund for infrastructure and economic development at $15 million — $90.5 million less than what the governor first requested and $20 million less than his revised proposal.
The House Finance budget also spares some programs initially zeroed-out in Justice’s first budget proposal.
The Educational Broadcasting Authority (public broadcasting) is moved under the Department of Education and is funded at $4.6 million, about a million dollars down. The Division of Culture and History, which includes the Fairs and Festivals that were zeroed out in Justice’s budget, moves to Commerce and takes a 20 percent cut here.
The real debate over budget introduced in House Finance is likely to take place over its revenue elements.
“Pieces of that start to fall away if what’s on the table starts to fall away,” Nelson said. “Any one of these. Reamortization of the retirement fund. It provides for a teacher payraise. If it’s not there, I cannot say the teacher pay raise can be afforded. Probably the SOS, not to be afforded.”
One of its pieces is a bill to refinance the state Teachers Retirement System debt. Doing so provides 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.
An even bigger piece is a tax reform proposal that would provide an estimated $158.5 million in new revenue for the coming fiscal year. This is the piece that does the heavy lifting to make up the gap left in the original GOP proposal.
But there are elements of it to debate.
MORE: Read the fiscal note for the House tax reform proposal.
It brings back the state food tax at a 3 percent rate. It also taxes a broadened array of personal and professional services.
Those who support this budget say it eliminates “carve outs” that had been built into state law over the years. Others, like those in the Legislature’s “Liberty Caucus,” say this amounts to additional taxation.
This piece is also likely to get push-back by, among others, lawyers whose customers would be subject to newly-activated taxes on legal services.
There’s also the ever-present concern by those who represent border counties that their residents could cross into other states for their lawyers or accountants — or even their hairdressers.
The GOP leadership in the House counters that a significant element of the proposal is to drop the overall state sales tax from 6 percent to 5.
And then there’s the other mechanism in the tax reform.
This one establishes a 5.1 percent flat tax on income.
The Republican majority says lowering the overall sales tax to 5 percent and establishing the 5.1 percent flat tax will make West Virginia more competitive and attractive to businesses.
As a bonus, it balances the budget.
“What you’re missing is it’s not a tax increase,” House Majority Leader Daryl Cowles, R-Morgan. “It’s the concept of fairer, flatter, broader and a lower rate. What you didn’t hear it’s a lower rate. It drops to 5 percent for everybody. It is a tax reform measure that accomplishes those things.
“If you don’t want to raise taxes, if you don’t want to cut education or higher education, this is your opportunity. It can broaden the base, lower the rate, provide tax relief for the low income and capture money in short term to put budget together.”
Majority leader Cowles says the bill eliminates carve-outs pic.twitter.com/Rblw9ameBX
— Brad McElhinny (@BradMcElhinny) March 25, 2017
Democrats say the poor and middle class will be nailed with a tax increase and the rich will get a break. The bill adds a $10,000 exemption for those below $50,000.
“You’re calling this fair. It’s a great piece of legislation. It’s ridiculous. It’s silly,” Delegate Isaac Sponaugle, D-Pendleton, said during floor debate Saturday. “It’s sad that the working people in the state of West Virginia again are getting punched in the face.
“There are better ways to come up with the revenue if that’s what you guys want to do. This is the biggest wealth transfer – hijacking – that’s been attempted in West Virginia in decades.”
Sponaugle is animated. I wish he wasn’t back in the corner. pic.twitter.com/QIXJXlsS2P
— Brad McElhinny (@BradMcElhinny) March 25, 2017
The tax reform bill is up for second reading, amendment stage, Monday morning in the House of Delegates.
Drama erupted Saturday morning when the bill was up for first reading, which is normally a matter of reading the bill number and then having the House Speaker acknowledge that it is accepted.
But when “H. B. 2933 Relating to the consumers sales and service taxes and use taxes” was announced, the routine was pierced.
“Mister Speaker!” cried Delegate Pat McGeehan, a Republican from Hancock County and a member of the Liberty Caucus..
McGeehan asked for a vote to kill the tax reform bill on first reading, leading to debate that lasted about an hour.
Members of the Liberty Caucus rose to decry tax increases of any kind, Democrats rose to say the tax plan unfairly hits the poor and middle class, and members of the Republican majority stood to defend the concept of broadening the base and bringing down the overall rates.
When it came to a vote, McGeehan’s attempt to kill the bill failed narrowly — 44 in favor of his motion and 50 against it with six members absent.
Asked later Saturday what happened, Finance Chairman Nelson responded with one word.
“Politics.”
Asked to expand on his meaning, Nelson declined.
“I care not to.”
