FISCAL NOTE
Date Requested: January 09, 2019
Time Requested: 04:10 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1751 |
Introduced |
HB2087 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund Oil & Gas County & Municipality Reallocated Fund
Legislation creates:
Increases Existing Expenses, Creates New Fund: Oil & Gas County & Municipality Reallocated 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 natural gas severance tax revenue up to $20 million dollars annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocation severance tax funds and provides for the 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 of 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 and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets fourth 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.
According to our interpretation, passage of this bill would result in the annual allocation of up to $20 million of State General Revenue Fund collections to the Oil & Gas County & Municipality Reallocated Tax Fund solely for economic development and infrastructure projects with oil and gas production other than coal-bed methane production first effective in FY2020. The proposed reallocation would be in addition to the 10 percent annual allocation under current law. Based on current oil and natural gas revenue trends and projections, initial distributions of the proposed reallocated General Revenue would be less than $7 million per year with two-thirds allocated to counties and one-third allocated to municipalities. By the end of the six-year forecast period, forecasted annual reallocations would total more than $10 million but less than $20 million. The long-term cap on reallocations would be set at $20 million. The bill provides that such revenue transfers would occur quarterly from the Oil & Gas County & Municipality Reallocated Tax Fund to each oil and gas producing counties and their respective municipalities based upon oil and gas production.
The current ten (10) percent oil and natural gas revenue sharing program with local government is based upon an 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 1 for activity of the prior calendar on each county’s share of total production for oil and each county’s share of total production of natural gas, as determined by the DEP. If the provisions of this bill contemplate an accurate accounting of oil and 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 the industry and either the State Tax Department or Department of Environmental Protection.
Even though roughly 45 counties and their associated municipalities might benefit from the reallocation of the general revenue, the distribution of the proposed reallocation would be highly concentrated with roughly 80 percent of total benefits for just seven counties. However, based on current production data, the bill contemplates less than $20 million of additional State revenue sharing spread out over nearly 250 separate local jurisdictions out of the roughly 290 local jurisdictions in the State. In many cases, cost of local compliance with use of additional funds will exceed amount received.
Additional administrative costs to the Tax Department would be $45,000 in FY2020 and $20,000 in the fiscal years thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2019
Increase/Decrease
(use"-") |
2020
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
45,000 |
20,000 |
| Personal Services |
0 |
20,000 |
20,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
25,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-6,500,000 |
-20,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, passage of this bill would result in the annual allocation of up to $20 million of State General Revenue Fund collections to the Oil & Gas County & Municipality Reallocated Tax Fund solely for economic development and infrastructure projects with oil and gas production other than coal-bed methane production first effective in FY2020. The proposed reallocation would be in addition to the 10 percent annual allocation under current law. Based on current oil and natural gas revenue trends and projections, initial distributions of the proposed reallocated General Revenue would be less than $7 million per year with two-thirds allocated to counties and one-third allocated to municipalities. By the end of the six-year forecast period, forecasted annual reallocations would total more than $10 million but less than $20 million. The long-term cap on reallocations would be set at $20 million. The bill provides that such revenue transfers would occur quarterly from the Oil & Gas County & Municipality Reallocated Tax Fund to each oil and gas producing counties and their respective municipalities based upon oil and gas production.
The current ten (10) percent oil and natural gas revenue sharing program with local government is based upon an 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 1 for activity of the prior calendar on each county’s share of total production for oil and each county’s share of total production of natural gas, as determined by the DEP. If the provisions of this bill contemplate an accurate accounting of oil and 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 the industry and either the State Tax Department or Department of Environmental Protection.
Even though roughly 45 counties and their associated municipalities might benefit from the reallocation of the general revenue, the distribution of the proposed reallocation would be highly concentrated with roughly 80 percent of total benefits for just seven counties. However, based on current production data, the bill contemplates less than $20 million of additional State revenue sharing spread out over nearly 250 separate local jurisdictions out of the roughly 290 local jurisdictions in the State. In many cases, cost of local compliance with use of additional funds will exceed amount received.
Additional administrative costs to the Tax Department would be $45,000 in FY2020 and $20,000 in the fiscal years thereafter.
Memorandum
The stated purpose of this bill is to reallocate and dedicate three percent of oil and natural gas severance tax revenue up to $20 million dollars annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocation severance tax funds and provides for the 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 of 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 and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets fourth 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 difficult to administer. The bill title is defective as it does it does not note a special fund being established in the State Treasury. In addition, the bill title fails to note the internal effective date of July 1, 2019.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov