Finance chairmen say severance tax too volatile to stabilize PEIA

CHARLESTON, W.Va. — The finance chairmen in both houses of West Virginia’s Legislature claim raising the severance tax on natural gas is the wrong way to increase funding for the Public Employees Insurance Agency.

Increasing the severance tax has become a popular idea among teachers and public employees who want assurance the state will stabilize health insurance costs. They see natural gas as a healthy part of West Virginia’s economy that is often subject to export.

The topic arose again Wednesday during a meeting of the PEIA Task Force, which generally agrees that funding the insurance plan will cost an additional $50 million a year, every year.

“Increasing the tax might get you the $50 million you need to cover increased costs next year, but where will you get the $50 million to cover increased costs the year after that? Or $50 million more the year after that?” House Finance Chairman Eric Nelson said.

“Even if the tax revenue remains stable — which I doubt — you’d still have to raise taxes again each year down the road to cover costs, so this is not a viable, long-term solution.”

Mark Muchow

Deputy Revenue Secretary Mark Muchow made a presentation to the Task Force, focusing on the role severance tax plays in West Virginia’s budget. He noted the significant fluctuations that energy markets can make.

West Virginia taxes natural gas at a 5 percent rate. Most proposals from the public encourage increasing that tax by up to 2.5 percent.

Nelson and Senate Finance Chairman Craig Blair are on the task force. Less than an hour after the meeting, Blair and Nelson sent out a joint statement: “Natural gas severance taxes too volatile to properly fund PEIA.”

Their position is important because any tax increase would need legislative support.

Eric Nelson

“When you’re dealing with something as important as employee pay and benefits, you need a solid, reliable stream of revenue to ensure you have enough money to pay these costs,” said Nelson, R-Kanawha. “History clearly shows that a natural gas severance tax is too volatile to use as a foundation to pay for employees’ benefits.”

State government’s share of PEIA cost comes from the General Fund and a mix of taxes — mostly sales and income tax but also severance and tobacco tax.

Craig Blair

“The truth of the matter is we have a dedicated revenue stream to fund PEIA — it’s called the General Revenue Fund,” said Blair, R-Berkeley.

“That fund draws on nearly two dozen tax and fee streams to cover the costs of government. It’s diversified and ensures that volatility in one sector doesn’t hinder our ability to fund important programs. We just need to have the dedication to fund PEIA in the budget.”

Today’s meeting of the Task Force was a combined meeting of the coverage and plan subcommittee and the cost and revenue subcommittee.

“There were a lot of comments made by folks: ‘Let’s raise the severance tax.’ So we wanted to have some information for people about the severance tax,” said Joe Letnaunchyn, subcommittee chairman and president of the West Virginia Hospital Association.

The committee also made a request for additional information about revenue sources such as taxes on food tax and sugary drinks. One of the committee members, State Health Officer Rahul Gupta, urged the task force to view their work as a health investment.

“I do think it’s an investment and we have to figure out whether we’re going to make that investment or not,” Gupta said.

Task force members also talked about the importance of making their recommendations in a timely manner. PEIA Director Ted Cheatham said each year in July or August the system makes a budget recommendation to the Governor’s Office. The resulting guidance lets PEIA shape a plan that it then presents to the PEIA Finance Board and for a public hearing period that starts each year in November.

PEIA is running a $35 million surplus this year and projects another strong surplus next year. Cheatham said he might not have to ask for extra money. But members urged the task force to move toward its recommendations so the agency would be able to start assessing effects.

“My concern is there’s a calendar that’s already running, that’s established,” said Delegate Mick Bates, D-Raleigh, a task force member.

Letnaunchyn, whose background is the healthcare industry, related the process to surgery that needs to be performed. He recommended moving expediently but not rushing.

“I think we’re talking about some outpatient procedures here for a plan design and change,” Letnaunchyn said. “And I think that’s going to take some time. I don’t know what luxury of time we have. It’s a balancing act.”

School systems are continuing to experience a personnel crisis, though, said Amy Loring, human resources coordinator for Berkeley County Schools.

Teachers continue a steady flow out of the county, Loring said. Spring Mills High School in Berkeley County just lost its entire four-person math department, she said.

“It’s a crisis for education. It’s a crisis for children of the state,” she said. “You can see our personnel actions. Every board meeting, there are several resignations on there.”

Blair said the task force needs to fix problems over the long haul.

“I recognize this crisis. I’m from Berkeley County. There’s no question about it that we’re in a crisis,” Blair said. “We need to fix this for decades out and into the future.”

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