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Justice’s plan to fill budget gap goes lighter on cuts, suggests a new business tax

CHARLESTON, W.Va. — Gov. Jim Justice’s administration is proposing a budget that fills an estimated $500 million gap for next fiscal year with only an estimated $26 million in cuts and an estimated $450 million in increased revenue, including the establishment of a commercial activities tax.

“There is a crisis here, and he intends to present a plan to fix the crisis,” said Revenue Secretary Dave Hardy.

Hardy added, “The budget is very, very lean. It was lean when we started.”

The administration would resolve a $123 million gap in the current fiscal budget by dipping into the Rainy Day Fund one more time.

MORE Read Justice’s alternate budget cut list

Jim Justice

Justice’s administration says that still allows $21 million to provide average 2 percent pay raises for classroom teachers beyond their annual step raises. And the administration says it could funnel $105 million into a “Save Our State Fund” for economic development and infrastructure investment.

Justice also wants to raise more than a billion dollars for infrastructure improvements by establishing or expanding revenue streams that would then be leveraged as bonds.

State legislative leaders have said they believe closing the half-billion dollar revenue gap for the coming fiscal year could be accomplished mainly by cuts, and they urged Justice to go that route.

“Do I think we can do more than $30 million cuts? Absolutely,” House Speaker Tim Armstead (R-Kanawha) told MetroNews after Wednesday’s State of the State Address. “We talked in the neighborhood of $200 million in the special session last year.”

The governor’s administration said it examined the potential effects of that kind of cutting up to $450 million — including trimming state funding for West Virginia and Marshall universities by 45.6 percent, eliminating state funding for other state colleges and eliminating the Promise Scholarship — and found that path untenable.

“It would not be the West Virginia you would want to see,” Hardy said.

Instead, the administration presented what it called the “Save Our State” budget.

The biggest chunk to fill the budget gap would be a proposed commercial activities tax. The proposed tax of two-tenths of a percent on gross revenues would be estimated to raise $214.3 million. Ohio is among the states with such a tax, establishing it more than a decade ago to tax the privilege of doing business in the state.

The proposed Justice budget would also:

  • raise the sales tax by a half-percent, raising an estimated $92.7 million. Legislative leaders have said they would prefer not to raise the sales tax, even by a percentage.
  • eliminate tax exemptions for professional services and advertising, raising an estimated $87.6 million. The Legislature is also considering actions like this one, although the advertising component already has opposition from the broadcasting and press associations.
  • raise the beer barrel tax from $5.50 to $8 and raise the wholesale liquor mark up from 28 percent to 32 percent. Those moves are estimated to raise a total of $5.6 million to be dedicated to tourism, one of the areas where Justice believes West Virginia has untapped economic potential.
  • end general revenue subsidies to the state Road Fund, which can be an estimated $11.7 million.
  • repeal the film tax credit, which the administration said would have a minimal impact next year but would save about $3 million in the future.
  • one time only, hold off on paying into the workers compensation debt fund, saving an estimated $38 million.

Justice administration also proposed cuts that it characterized as difficult:

  • eliminating $3.7 million of general revenue funding to the eight regional education service agencies, although that would not necessarily do away with them entirely because they also receive other sources of funding.
  • cutting funding to West Virginia University ($5.9 million) and Marshall University ($2.8 million) by 4.4 percent apiece.
  • cutting the West Virginia Network by $1.7 million, the College Readiness Program by $155,000, the Division of Labor by $2.7 million, purchases for the state fleet by $369,000, the Educational Broadcasting Authority by $4.6 million, the Division of Culture and History by $4.3 million and the West Virginia Film Office by $341,000.

Armstead said it was very “unlikely” the House would base the next state budget on tax increases that Justice has proposed. The Justice Tuesday night was not the Justice who was on the campaign trail, Armstead said.

“This was a complete turnaround from that approach that the governor presented and we are disappointed in that,” he said.

Senate President Mitch Carmichael (R-Jackson) said he doesn’t disagree with everything Justice said Tuesday night but he was disappointed in the budget cut/tax increase proposals.

“That’s a tired, worn out, old method of doing things in West Virginia. Rather than fundamentally overhauling government he just reaches for tax increases,” Carmichael said.

Carmichael predicted the legislature will now be out in front on the budget cuts.

“We will lead on this issue. As it’s come to us now, rather than the governor showing leadership on this issue, we will lead on this issue,” Carmichael said.

The governor wants to do some creative thinking on highways funding, potentially raising license plate renewal fees from $30 to $50, increasing Turnpike tolls from $2 to $3 (although the toll is cheaper with an EZ pass) and seeking legal permission to expand what roads can be tolled, and raising the base tax on gasoline by 10 cents a gallon.

The administration then wants to leverage those revenue streams into bonds amounting to at least $1.4 billion, although there are a lot of ifs.

The Legislature would have to approve the increased DMV fees and tolls, voters would have to approve the general obligation bond expected to be an outcome of the DMV fees, and the federal government would have to approve of changes to the tolling arrangement.

The Legislature would also have to increase the cap for Garvee bonds that are leveraged against anticipated federal highways funding.

Representatives of the administration will present their proposals Thursday to the House and Senate finance committees.

On Wednesday afternoon, House Finance Chairman Eric Nelson, R-Kanawha, said told committee members he was eagerly anticipating the governor’s budget proposal.

“That is to be our pride and joy and the main document we work,” Nelson told the committee.

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