Ending West Virginia’s Budget Crisis: Avoiding Mistakes and Building Long-Term Fiscal Health 4th Annual Budget Breakfast, 23 February 2017 presented by Ted Boettner, Executive Director West Virginia Center on Budget and Policy www.wvpolicy.org @WVCBP tboettner@wvpolicy.org @WVPolicywonk

Governor Justice’s FY 2017 Budget Closing the $213 Governor Justice’s FY 2017 Budget Closing the $213.2 Million Base Budget Gap WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) Source: WV State Budget Office

Governor Justice’s FY 2018 Budget Closing the $497 Million Budget Gap $26.6 Million in Budget Cuts – 1/3 from higher education WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) $450.2 Million in Revenue – 40% from sales tax and 48% from CAT Source: WV State Budget Office

Governor Justice’s FY 2018 Budget Save Our State and other major expenditures changes Additional Budget Reductions in FY 2018 Base Budget WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) Budget Increases in FY 2018 Base Budget Source: WV State Budget Office

Persistent Base Budget Gaps Since 2014 (in millions) WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) Budget gaps continue despite revenue enhancements and cuts West Virginia’s credit rating lowered 3 times since 2016 Revenues already $116.2 million below estimates Source: WV State Budget Office

Higher education funding has sharply declined since 2008 (in millions) Adjusting for inflation, higher education funding is down $123.7 million since 2008 Source: WV State Budget Office, U.S. Bureau of Labor Statistics (CPI Calculator), and WV Higher Education Policy Commission

Economic Growth vs. WV Budget Growth State revenues at all-time low @6.8% WV would have $628 million in additional revenue in FY 2017 Economic Growth vs. WV Budget Growth FY 2008 to FY 2016 WC Debt Fund Reserve ($38.3M) One-time Revenues WC Debt Fund Reserve ($38.3M) The department of revenue projects that general revenue fund collection will be only $67 million more than we collected in ten years ago in FY 2008 Source: WV State Budget Office and U.S. Bureau of Economic Analysis. *Estimate based on projected $165 million gap & 3rd Quarter BEA data

Severance Tax and Business Franchise/Corporate Income Tax as a share of General Revenue collections Severance tax collections are back to 2005 levels Growing severance tax collections helped stabilize business tax cuts until 2015 WC Debt Fund Reserve ($38.3M) Severance Taxes Business Franchise & Corporate Income Taxes WC Debt Fund Reserve ($38.3M) COAL & GAS BUST COAL BOOM COAL BUST & GAS BOOM Source: WV State Budget Office

Tax change as a percent of income Impact of Governor Justice’s proposed tax plan by income group Low-income West Virginians see largest change as a share of income WC Debt Fund Reserve ($38.3M) Tax change as a percent of income and average tax change WC Debt Fund Reserve ($38.3M) Source: Institute on Taxation and Economic Policy (2017 Income Levels) Note: Includes Sales Tax rate of 6.5% w/ some professional services and advertising, 0.2% Commercial Activities Tax, and 10 cent increase in motor fuel tax)

Impact of new General Consumption Tax by income group - Senate Leadership Plan (SB 335) Eliminate personal/corporate income and sales & use tax Tax change as a percent of income and average tax change WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) 80% of households get tax increase Richest 20% get tax break Source: Institute on Taxation and Economic Policy (2017 Income Levels) Note: Includes elimination of personal and corporate income taxes and sales and use tax.

West Virginia would have the highest statewide grocery tax in the nation under SB 335 States that currently apply sales tax to groceries WC Debt Fund Reserve ($38.3M) WC Debt Fund Reserve ($38.3M) Source: Federation of Tax Administrators Note: State allows a rebate or income tax credit to compensate poor households. Also, there are places in Alabama were tax on groceries reaches 10%.

Additional options for a more balanced revenue enhancement approach Expressed In Millions Source: WV Department of Revenue and WVCBP calculations

Why is West Virginia SO POOR? An inadequate physical infrastructure Low post-secondary educational attainment Outdated job skills Low population density A rugged topography Unhealthy population Resource curse (Undiversified Economy)

Building a Shared Prosperity in West Virginia A Health Workforce, is a Productive Workforce Raise “Sin” Taxes: Soda, Tobacco, & Alcohol. Protect Medicaid, Paid Family & Medical Leave, & Paid Sick Days Obesity & Opioid Prevention (evidence-based programs) Boost Workforce Participation Enhance Child Care Assistance Refundable WV Earned Income Tax Credit & Child Care Tax Credit Criminal Justice Reform & Subsidized Employment Boost Pay, Education, and Skills Raise and Index State Minimum Wage and Overtime Pay Customized Workforce Training Raise Teacher Pay & Make Higher Education Affordable Infrastructure and Innovation (R&D, broadband and entrepreneurship) Tax Fairness & Long-Term Fiscal Health