CHARLESTON, W.Va. — The problem isn’t yet that state government doesn’t have a budget.
The complication might be if state government winds up with three budgets, plus a whole new recommended approach to taxation to consider.
Now a third of the way through the 60-day legislative session, that appears to be what’s taking shape.
Legislative leaders say they’re working hard to come out with budget recommendations early, breaking finance committees into subcommittees to speed up the effort.
Tradition is to finalize a budget the week following the 60-day regular session. But West Virginia’s half-billion estimated shortfall for the coming fiscal year — plus the fact that it took the Legislature an extended special session to come up with a budget last year — makes these extraordinary times.
Justice, during his State of the State address, proposed a budget with $450 million in “revenue enhancements,” based largely on new or increased taxes. His plan would not only fill the upcoming fiscal budget gap but would also provide average 2 percent pay raises for classroom teachers and set aside $105 million in additional spending for infrastructure and economic development.
That’s not the budget model favored by the Legislature, where the Republican majority would like to start with greater cuts.
The House of Delegates is working on its own version of the budget and says it will likely have a framework in the next week or so.
The state Senate, meanwhile, has two simultaneous approaches.
One is a traditional — although accelerated — version of the budget. The other is an exploration of upending West Virginia’s tax structure, boiling down to replacing the income tax with a broadened and possibly increased consumer sales tax.
When those two or three or four approaches collide could be the moment West Virginia’s state budget blossoms through compromise, or when it clogs.
Senate President Mitch Carmichael acknowledged the two approaches in his own house during an interview on Friday but said the budget will come together.
“We’re going down two tracks with our approach toward budgeting this year,” said Carmichael, R-Jackson. “We’re planning on putting forth a spending document that budgets the expenditures of West Virginia based on current revenue and have that plan in a structural framework, locked, loaded, ready to go.
“Then we’re also going down the path of fundamentally overhauling the manner in which we tax the citizens of West Virginia, such that we can instill a new system that provides growth, jobs and opportunity that’s working in other states. So we’re going down those two paths and we will deliver a new budget to West Virginia and a new tax revenue policy, hopefully, on the tax side that is just a monumental achievement in this 83rd Legislature.”
The tax overhaul is obviously the more radical approach. Senate Bill 335, which was introduced Feb. 16 and backed by Carmichael, started the ball rolling.
It was assigned to the Select Committee on Tax Reform but it hasn’t yet been taken up for official discussion. At a meeting on Friday, chairman Robert Karnes, R-Upshur, said a committee substitute version of the bill wasn’t yet ready.
That opened a whole can of worms when another committee member, Senator Robert Plymale, D-Wayne, asked that the bill not be considered at all until a fiscal note, explaining its financial effects, is also ready to be studied.
“I’m making a request for a fiscal note so when we ask questions we can have information in front of us, so we can intelligently ask questions,” Plymale said.
Senator Karnes then asked Plymale if he wouldn’t like to start discussions, even without the fiscal note.
“You don’t want to look at it even in the absence of a fiscal note?” asked Karnes.
“I think my question is pretty clear,” Plymale responded. “Before we meet I’d like to have a fiscal note.”
Another committee member, Republican Craig Blair, then said the committee doesn’t have control over when it would receive a fiscal note, which would be prepared by the state Department of Revenue in the executive branch.
“We don’t control when we get a fiscal note,” Blair said. “That can slow down the process of what we do here in this committee.”
Plymale responded, “I’m not stopping anything. If we’re asking intelligent questions of experts, I think we should be able to have information.”
The committee voted down Plymale’s motion. He left the meeting, which went on to hear expert testimony without him. The committee was set to meet again at 10 a.m. Monday.
I don’t blame him for leaving. It’s hard to take the bill seriously if you don’t know the impacts on state revenues under revised taxes. https://t.co/MgiTlMSEJt
— Tom S. Witt, Ph.D. (@WVEconomist) February 24, 2017
That’s not the only obstacle for the tax overhaul. The original draft called for a consumer sales tax of 8 percent, which would include food, an area of taxation that West Virginia had completely phased out by 2013.
That could make it a tough sell over in the House, where Speaker Tim Armstead was one of those who pushed hardest to eliminate it. “We’ve always felt this was an immoral tax. It was the wrong thing to be taxing the essentials of life and it’s been a top priority of the Republicans in the House for more than 20 years,” Armstead said in 2013.
Wholesale replacement of the income tax with a consumption tax would get a cool reception in the House, agreed Delegate Matthew Rohrbach, R-Cabell.
“In the House, there’s not much appetite to do that,” Rohrbach said last week while on a panel sponsored by the West Virginia Center on Budget and Policy.
“If we go that direction, it’s going to have to be slow and scaled. To think going to develop a bill where, poof, you wake up on first of July and there’s no personal income tax, I frankly don’t see any appetite in the House at all.”
Governor Justice has endorsed doing away with the state income tax — but only after the state has found its economic footing.
“We don’t think that’s possible at this time,” Justice’s chief of staff, Nick Casey, said while speaking on the same budget panel. “We think it should be studied.”
Right now there are concerns with estimating the revenue of an approach that has never been relied upon so heavily, as well as how an increased and broadened consumer sales tax might affect the shopping habits of those who live in border counties.
One of the original Senate sponsors, Patricia Rucker, a Republican from Jefferson County, withdrew her sponsorship four days after the bill’s introduction. Senate Finance Chairman Mike Hall never did sign on as a sponsor.
Hall, speaking on last week’s budget panel, said he thinks those who feel passionately about repealing the income tax should study it, but he cast doubt on whether that change would be ready to take effect immediately.
“It may be a while before we see that come to fruition,” said Hall, R-Putnam. “We have a lot to work on there.”
Hall went on to say the estimated fiscal gap — and West Virginia’s fragile economy — make coming up with a budget a fragile operation.
“This budget crisis is so severe that the focus is just trying to get through it,” he said on the panel.
Speaking after the budget panel, Hall acknowledged that getting those with various viewpoints about the budget to agree on one approach will be a process.
“People come into this process with opinions about what ought to be,” Hall said. “I would say the situation is very dire, and I respect the fact that members want to go through and take a look.
“Right now I don’t think the Legislature has reached a point where it’s assembled around an agreed-to solution. I think it’s moving in the direction of trying to have a compromise, maybe cutting back on some things and providing some revenue, but I don’t know.”
Hall said the tax reform discussion is an example of the differing viewpoints that will just have to be sorted out.
“Even in the tax reform discussion, those people who would not normally be for tax increases, they’re saying that in the context of tax reform they could live with new revenue.
“So you’ve got different groups talking about revenue, understanding revenue’s needed. Just how you get there right now, in week three, we haven’t really gotten there yet.”
Casey, speaking during the panel, was even more blunt about the budget situation and what it’s going to take from all involved parties to fix it.
“It’s going to be hard even with great cooperation between our legislators and the governor’s office,” Casey said. “Don’t deceive yourself. It’s awful.”