What to watch as the Legislature takes up Justice’s latest budget ideas

CHARLESTON, W.Va. — After a week and a half away, the state Legislature returns to the Capitol with a revised revenue bill to consider, a deadline now less than a month off and about as little consensus as when lawmakers left town.

Both the Senate and House of Delegates set 11 a.m. as their time to gavel back in Monday. They probably will do so around then, but don’t expect swift resolutions.

Instead, the action will start with the House Finance Committee, where a proposed revenue bill revised by the Justice administration is expected to be introduced as a strike-and-insert amendment.

And that’s where everything could start to change.

Daryl Cowles

“I would expect the bill to be openly worked in committee,” House Majority Leader Daryl Cowles, a member of Finance Committee, said in a telephone interview.

“I think if they go to committee they go there to be worked. I think it would be unrealistic to expect them to stay as they were introduced.”

Gov. Jim Justice had asked for the special session hiatus as a chance to negotiate with leaders of both parties of the House and Senate.

Over a period of several days, the governor divided House Republicans, Senate Republicans, House Democrats and Senate Democrats among four rooms and went to each to discuss possible common ground.

Last week, the governor himself suggested a plan that combined elements of what had earlier passed the House and Senate. Justice said it’s a good proposal, as long as it’s not nitpicked.

But a close examination of the details is almost certainly what will happen in committee, where most of the delegates were not among those who negotiated directly with Justice during the hiatus.

The governor’s proposal offers a 6.35 percent sales tax and a slower rollout of the personal income tax reductions favored by Republicans in the Senate.

The income tax changes would include an average 7 percent reduction the first year, and triggered reductions of a 7 percent average the second year and 6 percent the third year.

Another big piece would address the desire of House Republicans to broaden the economic sectors subject to consumer sales tax to include telecommunications, digital goods, electronic data processing, health and fitness services, primary opinion research, all contracting services and direct use communications.

The multifaceted revenue measure is a key component of a $4.35 billion revenue bill that state leaders hope to have in place by July 1.

As the bill hits House Finance, here are some of the key issues:

Income tax

This is the big one because the change is backed by Governor Justice and by Senate Republicans but generally opposed by House Republicans, House Democrats and Senate Democrats.

The governor and the Senate Republicans contend that reducing the income tax will result in economic growth as taxpayers of all brackets have more money to spend.

The House Republicans, House Democrats and Senate Democrats say the state can’t afford to cut taxes at the same time leaders are struggling to fill a budget gap of about $250 million.

They also argue that the other taxes — like the sales tax — that would have to be raised to make up for the income tax cut would unfairly affect lower- and middle-class wage earners.

Linda Longstreth

“As far as tax reform, reducing and eventually eliminating our income tax is not the place to start. That’s our biggest concern in this revenue bill at this time,” House Finance member Linda Longstreth, D-Marion, said in a Friday telephone interview.

“The constituents I talk to, that’s not a concern right now. They know we’re in debt. That would be nice (to reduce income taxes.) But they also know we need to put our feet back on the ground first.”

An issue within that issue is the triggers that could cause further reductions take place the second and third years. Defining those triggers will be key because skeptics want assurances the state is on solid financial footing and supporters want to make sure the triggers aren’t impossible to reach.

Ron Walters

Delegate Ron Walters, another member of House Finance, says he would support an amendment to toss the income tax reductions out of the bill.

Walters doubts the reductions will live up to their intended effect of luring entrepreneurs to West Virginia and believes the structure benefits the well-off at the expense of lower wage-earners.

“It’s a nonstarter for me because 1) no one is clamoring about an income tax cut. It’s the most stable source of our revenue and 2) why would we decrease taxes on the rich at the same time we’re increasing taxes on the poor? I don’t know if it sounds Republican or not, but whatever it is it’s me saying it,” said Walters, R-Kanawha.

“You’ve got every House Republican, every House Democrat and every Senate Democrat that said no. All you’ve got is 19 senators and the governor. I wouldn’t do it. I’d call their bluff to see if they’d really shut the government down over lowering taxes on rich people.”

The income tax reductions were a key component of what both the Senate Republicans and the governor wanted in the revenue bill, though, so Majority Leader Cowles has a hard time seeing that aspect being removed entirely from the framework advocated by the governor last week.

“I don’t know. That would be a fairly sizable piece of the reluctant agreement, I think. It would be tough to totally get it out. Could it be changed in some way to appease some concerns in the House? Perhaps,” said Cowles, R-Morgan. “I think if that’s part of the reluctant agreement, it stays part of the agreement.”

Eric Householder

Delegate Eric Householder, the assistant Finance Committee chairman, said he would actually be more inclined to support the revenue bill if triggers to lower the personal income tax were date-specific to assure they would be achieved.

“I’m concerned even with any triggers in it if you didn’t make it date-specific you’d never see the reduction,” said Householder, R-Berkeley, acknowledging that taking those steps would almost certainly require further reductions in government spending.

Tax on contracting

This tax was in a previous version of a revenue bill that passed the House of Delegates, but that bill capped the tax to the first $40,000 spent.

The concern about this provision is that it would create additional expenses ranging from average West Virginians making home renovations to companies that want to expand physically.

The complication of removing this provision or scaling it back is that it accounts for $92 million in new revenue.

“Now here’s my thought on that — if you were going to build a billion-dollar cracker in West Virginia along the Ohio River, why would you spend a billion and sixty million when you can go two miles across the river and build it for one billion?” Walters asked.

“No one’s going to build anything because the tax on our labor is going to kill the economy. Why would you build a plant here if you were going to pay 6.35 percent on labor with an unlimited cap? I think that’s the worst possible thing we could do.”

There was talk late last week of capping the first $15,000 spent on contracting services.

Roads bills

This is the cornerstone of Justice’s vision for economic growth in West Virginia. The governor wants to increase the state’s highways tolling capacity and raise more revenue through the gasoline tax, higher DMV fees and a 6 percent sales tax on vehicle purchases and then leverage the revenue through bonding for about $2.8 billion in infrastructure spending.

An amended Road Fund bill with a revised revenue mix is to be rolled out in House Finance this week.

The Senate, two weeks ago, passed its roads bills so if different versions were to pass the House they would need to be reconciled.

Larry Rowe

Delegate Larry Rowe, a member of House Finance, says the roads bills are his main priority, beyond all the disagreements over the tax bills.

“What I have seen is the real push for the governor is his road plan,” said Rowe, D-Kanawha. “It’s an economic stimulus, but we’re spending all of our time on the revenue portion. In a way it’s an entirely separate matter.

“I’d like to see us go forward with the road plan and keep working on the revenue budget, but I think this road plan — that’s  a really good idea.”

Justice’s budget framework specifically takes into account significant economic growth attributed to highways construction and related jobs.

It amounts to $100 million for the coming fiscal year, $214 million each for fiscal years 2019 and 2020 and $244 million for 2021 and 2022. For a general revenue budget of a little more than $4 billion, that would be in the ballpark of 5 percent growth, a seemingly ambitious achievement.

House Finance spent several days last month discussion the Road Fund bill — as well as a companion bill dealing with tolls. Rowe says it’s time for those bills to move out of committee.

“The road bill, I’d like to see move. I’d like to see it move out of the House,” Rowe said. “I think people are screaming for that. They want good roads. I think they would be willing to pay for good roads.”

Walters says he’d have very little objection to the Road Fund bill at this point, noting how long it’s been since West Virginia raised fees at the Division of Motor Vehicles.

“Some of the DMV fees have not been changed since 1951. Some since 1987. I don’t think the public would mind a minor adjustment on that,” Walters said. “You’re not going to get much pushback from me on that.”

Householder, who is among those concerned about how potentially higher fuel taxes and a higher sales tax might affect spending habits in border counties, said he is unlikely to vote for the Road Fund bill.

“I will not vote for the highway funding mechanisms. Everybody in our area, on social media, they tell us to stand our ground,” Householder said. “I really don’t think the road bond is going to pass the scrutiny of the voters.”

Commercial Activities Tax

This gross receipts tax on businesses has been touted by the governor since his State of the State address, although he has changed its amount, its purpose and — sometimes — whether it’s in the bill or out.

As of late last week, it was out.

Earlier last week, the governor’s proposed framework had included a commercial activities tax of .015 percent to support highways funding. To simplify, if a company’s gross income is $1 million, the tax would be $150.

At that amount, the tax was anticipated to bring in about $12 million a year.

Justice had wanted the tax as a demonstration that the state’s business community is helping the state cope with its budget struggles.

But there are a couple of arguments against the commercial activities tax. One is its structure in taxing gross receipts, rather than revenue. It’s viewed as being a killer for businesses that are barely getting by.

The other issue is that the state would need to make significant adjustments to collect a whole new tax, and all for $12 million in collections.

“I think the CAT tax was certainly the item that got the most pushback,” Cowles said. “If anything changes, I think that’s what would come out.”

So what will happen?

Yeah, good question. But whatever happens, it will start in House Finance.

Rowe appreciates that any questions, changes or areas of contention will be worked out in public.

“What I like about the committee process is the transparency that’s involved,” he said. “It’s difficult for the average citizen to understand the legislative leaders are meeting informally. I think it’s an appropriate way to do it, but what gets lost is the transparency and the input of other people who have other ideas.”

The bill that was negotiated among the governor and legislative leaders over the past 10 days could be changed significantly in committee.

“It’s coming to Finance. I know there will be amendments,” Longstreth said. “I hope they’re good amendments that may make this a little better.”

If the bill isn’t changed, some lawmakers are already having trouble envisioning its passage by the whole House of Delegates.

“I think if they leave the construction tax in there and they leave the personal income tax in there you won’t get any Democrat votes, and you may get 25 Republicans, maybe,” Walters said. “That’s not going to pass it. I’m not going to vote for that kind of bill coming out of Finance Committee.”

Householder cast similar doubt on the success of the revenue bill as it stands now.

“I’m hearing from Democrats there might only be 20 votes for it, and I bet it would only get 20 Republican votes,” he said.

Meanwhile, the clock is ticking on the possibility of a government shutdown after July 1.

Rowe is among the advocates for abandoning some of the more complicated aspects of the budget framework and finding a simple solution such as a small increase in the sales tax.

“I want to fill the budget hole. I know people want to use this as an opportunity to rewrite tax law. I think we should keep it simple, keep it fair, and fill the budget hole so we don’t have huge reductions in education, higher education, arts and other programming that we need,” Rowe said.

“I’m getting very nervous as I look at July 1.”





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