FISCAL NOTE
Date Requested: February 08, 2018
Time Requested: 02:00 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2094 |
Introduced |
HB4438 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, Oil and Gas County and Municipality Reallocated Severance Tax Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Oil and Gas County and Municipality Reallocated Severance Tax Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to reallocate and dedicate three percent of oil and gas severance tax revenues up to $20 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for economic development projects and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of the State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill authorizes legislative and emergency rules.
As written, this bill provides, effective July 1, 2018, that two percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, and one percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $3.5 million in FY 2019 (with roughly $2.3 million to be allocated to oil and gas producing counties and roughly $1.2 million to be allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $3.5 million. The fall in oil prices and continued instability in oil and natural gas markets will make the revenue changes attributable to passage of this bill highly volatile.
The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
Additional administrative costs incurred by the State Tax Department would be $40,000 in FY2018, $102,000 in FY2019 and $70,000 in fiscal years thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
40,000 |
102,000 |
70,000 |
| Personal Services |
0 |
70,000 |
70,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
2,000 |
0 |
| Other |
40,000 |
30,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-3,500,000 |
-3,500,000 |
Explanation of above estimates (including long-range effect):
As written, this bill provides, effective July 1, 2018, that two percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, and one percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $3.5 million in FY 2019 (with roughly $2.3 million to be allocated to oil and gas producing counties and roughly $1.2 million to be allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $3.5 million. The fall in oil prices and continued instability in oil and natural gas markets will make the revenue changes attributable to passage of this bill highly volatile
The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
Additional administrative costs incurred by the State Tax Department would be $40,000 in FY2018, $102,000 in FY2019 and $70,000 in fiscal years thereafter.
Memorandum
The stated purpose of this bill is to reallocate and dedicate three percent of oil and gas severance tax revenues up to $20 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for economic development projects and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of the State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill authorizes legislative and emergency rules.
The bill is vague and would be difficult to administer. This bill does not state that the one percent for county commissions and the two percent for municipalities be placed into two separate funds. Instead each goes into the Oil and Gas County and Municipality Reallocated Severance Tax Fund. This potentially causes several problems, as it is possible that municipalities could receive more than their one percent allocation and that the natural gas and oil could be counted twice – once for the municipality and once for the county.
The bill title is defective as it fails to note the internal effective date of July 1, 2018.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov