FISCAL NOTE
Date Requested: January 12, 2023
Time Requested: 07:45 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2731 |
Introduced |
HB2001 |
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| CBD Subject: |
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FUND(S):
General Revenue Fund, Revenue Shortfall Reserve Fund, Stabilization and Future Economic Reform Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Stabilization and Future Economic Reform Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to reduce personal income tax rates and to create a fund into which one half of each fiscal year’s general revenue surplus will be deposited to offset any loss of revenues determined by the Legislature to have resulted from this and any future reductions of those rates instead of using that portion of the surplus to fund the state’s Rainy Day Fund.
The bill would reduce current Personal Income Tax rates by ten percent for Tax Years beginning after December 31, 2023. In addition, the bill establishes the “Stabilization and Future Economic Reform Fund” (SFER Fund). Within sixty days of the end of each fiscal year, the first fifty percent of all surplus revenues, if any, determined to have accrued during the fiscal year just ended, will be deposited into the SFER Fund. These surplus funds were previously deposited into the State’s Revenue Shortfall Reserve Fund. The Legislature may also appropriate additional moneys to be deposited to the SFER Fund. The moneys in the SFER Fund may be expended only by appropriation of the Legislature and solely for the purpose of further reducing the Personal Income Tax rates. When the Personal Income Tax rates have been reduced to zero, the SFER Fund shall be closed, and the balance of the fund shall be expended pursuant to appropriation by the Legislature. The transfer of fifty percent of surplus revenues generated during the Fiscal Year into the new Stabilization and Future Economic Reform Fund would be effective starting with FY2023.
There is insufficient guidance provided in the bill to determine when or in what amount funds from the Stabilization and Future Economic Reform Fund would be transferred to the General Revenue Fund or when additional reductions of the Personal Income Tax rates would occur.
Based on our interpretation, the proposed ten percent reduction in Personal Income Tax rates would decrease General Revenue Fund collections by at least $109.1 million in FY2024, $286.2 million in FY2025, $297.9 million in FY2026, and by increasing amounts in subsequent fiscal years. We are unable to readily quantify the amount of possible additional tax reductions in future years associated with use of the Stabilization and Future Economic Reform Fund.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2024 and $35,000 in FY2025.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
30,000 |
35,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
30,000 |
35,000 |
| 2. Estimated Total Revenues |
0 |
-109,100,000 |
286,200,000 |
Explanation of above estimates (including long-range effect):
The bill would reduce current Personal Income Tax rates by ten percent for Tax Years beginning after December 31, 2023. In addition, the bill establishes the “Stabilization and Future Economic Reform Fund” (SFER Fund). Within sixty days of the end of each fiscal year, the first fifty percent of all surplus revenues, if any, determined to have accrued during the fiscal year just ended, will be deposited into the SFER Fund. These surplus funds were previously deposited into the State’s Revenue Shortfall Reserve Fund. The Legislature may also appropriate additional moneys to be deposited to the SFER Fund. The moneys in the SFER Fund may be expended only by appropriation of the Legislature and solely for the purpose of further reducing the Personal Income Tax rates. When the Personal Income Tax rates have been reduced to zero, the SFER Fund shall be closed, and the balance of the fund shall be expended pursuant to appropriation by the Legislature. The transfer of fifty percent of surplus revenues generated during the Fiscal Year into the new Stabilization and Future Economic Reform Fund would be effective starting with FY2023.
There is insufficient guidance provided in the bill to determine when or in what amount funds from the Stabilization and Future Economic Reform Fund would be transferred to the General Revenue Fund or when additional reductions of the Personal Income Tax rates would occur.
Based on our interpretation, the proposed ten percent reduction in Personal Income Tax rates would decrease General Revenue Fund collections by at least $109.1 million in FY2024, $286.2 million in FY2025, $297.9 million in FY2026, and by increasing amounts in subsequent fiscal years. We are unable to readily quantify the amount of possible additional tax reductions in future years associated with use of the Stabilization and Future Economic Reform Fund.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2024 and $35,000 in FY2025.
Memorandum
The stated purpose of this bill is to reduce personal income tax rates and to create a fund into which one half of each fiscal year’s general revenue surplus will be deposited to offset any loss of revenues determined by the Legislature to have resulted from this and any future reductions of those rates instead of using that portion of the surplus to fund the state’s Rainy Day Fund.
The bill does not specify when funding from surplus revenues ends for the Revenue Shortfall Reserve Fund. The wording of the bill indicates that deposits to the new Stabilization and Future Economic Reform Fund would occur “within 60 days of the end of each fiscal year”.
Under new §11B-2-33, the bill creates a Stabilization and Future Economic Refund Fund to be funded “in accordance with the provisions of this section, as may be required by other provisions of this code, and by any appropriation made to the fund by the Legislature.” The phrase “as may be required by other provisions of this code” is very vague.
Moneys in the fund shall be made available to the West Virginia Board of Treasury investments and to the West Virginia Investment Management Board for management and investment of the moneys in accordance with the provisions of §12-6C-1 et seq. in such amounts as may be directed in the discretion of the Secretary of Revenue. Leaving the amount of money to be invested by the Board of Investments, and the Investment Management Board to the discretion of the Secretary of Revenue raises Constitutional concerns. This may be an unconstitutional delegation of Legislative powers. “As a general rule the Legislature, in delegating discretionary power to an administrative agency, such as a board or a commission, must prescribe adequate standards expressed in statute or inherent in its subject matter and such standards must be sufficient to guide such an agency in the exercise of such power conferred upon it.” Syl. Pt. 4. State ex rel. W.Va. Citizens Action Group v. W.Va. Econ. Dev. Grant Comm. 213 W.Va. 255 (2003).
The money in the Stabilization and Future Economic Reform Fund may only be expended upon appropriation of the Legislature solely for the purpose of reducing the rates of personal income tax. The bill gives no direction or formula as to how the personal income tax rates are to be reduced with money from this Fund.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov