FISCAL NOTE
Date Requested: January 09, 2019
Time Requested: 05:02 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1438 |
Introduced |
HB2110 |
|
|---|
| CBD Subject: |
Natural Resources, Taxation |
|---|
|
FUND(S):
General Revenue Fund, Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund
Sources of Revenue:
General Fund Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund
Legislation creates:
Creates New Expense, Creates New Program, Creates New Fund: Natural Gas & Oil Division of Highways 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 the natural gas and oil revenue tax revenues up to $30 million annually, to the natural gas and oil producing counties of origin. The tax bill provides for distribution of the monies to the districts of the Division of Highways by the district to receive. The bill requires funds to be used solely for secondary roads. The bill provides duties of the Tax Commissioner. The bill requires reports of expenditures to the Joint Committee on Government and Finance. The bill provides an effective date. The bill authorizes legislative and emergency rules.
According to our interpretation, passage of this bill would possibly result in the annual allocation of $30 million of State General Revenue Fund collections into the Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund solely for use and benefit of secondary roads with oil and gas producing counties. The bill directs the allocation of the funds to the Division of Highways which will reallocate the funds to the Highway Districts on a county by county production pro rata basis. General Revenue Fund collections would decrease by $30 million per year beginning in FY2020 as such funds would be transferred to the Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund. Even though the intent of the bill is to dedicate just $30 million, the actual language of the bill suggests that all State and local Severance Tax collections, an amount projected to be in excess of $200 million per year, could be redirected to highway needs.
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 State Tax Department distribution to local governments occurs once a year around Oct 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.
The West Virginia Department of Highways is organized into ten (10) separate districts that manages the maintenance and construction of the transportation systems in the counties under their administrative control. Based upon the financial analysis of the proposed bill, it is estimated that the thirty million will be distributed to the highway districts in the following manner:
• District 1: $640,000
• District 2: $600,000
• District 3: $3,980,000
• District 4: $12,800,000
• District 5: $0
• District 6: $10,000,000
• District 7: $1,400,000
• District 8 : $0
• District 9: $30,000
• District 10: $370,000
Based upon the above financial analysis, Highways Districts 4 & 6 will receive over 2/3 of the proposed funding from this bill.
Additional administrative costs to the Tax Department would be $45,000 in FY 2020 and $20,000 in subsequent fiscal years.
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 |
-30,000,000 |
-30,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, passage of this bill would possibly result in the annual allocation of $30 million of State General Revenue Fund collections into the Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund solely for use and benefit of secondary roads with oil and gas producing counties. The bill directs the allocation of the funds to the Division of Highways which will reallocate the funds to the Highway Districts on a county by county production pro rata basis. General Revenue Fund collections would decrease by $30 million per year beginning in FY2020 as such funds would be transferred to the Natural Gas & Oil Division of Highways Reallocated Severance Tax Fund. Even though the intent of the bill is to dedicate just $30 million, the actual language of the bill suggests that all State and local Severance Tax collections, an amount projected to be in excess of $200 million per year, could be redirected to highway needs.
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 State Tax Department distribution to local governments occurs once a year around Oct 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.
The West Virginia Department of Highways is organized into ten (10) separate districts that manages the maintenance and construction of the transportation systems in the counties under their administrative control. Based upon the financial analysis of the proposed bill, it is estimated that the thirty million will be distributed to the highway districts in the following manner:
• District 1: $640,000
• District 2: $600,000
• District 3: $3,980,000
• District 4: $12,800,000
• District 5: $0
• District 6: $10,000,000
• District 7: $1,400,000
• District 8 : $0
• District 9: $30,000
• District 10: $370,000
Based upon the above financial analysis, Highways Districts 4 & 6 will receive over 2/3 of the proposed funding from this bill.
Additional administrative costs to the Tax Department would be $45,000 in FY 2020 and $20,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to reallocate and dedicate the natural gas and oil revenue tax revenues up to $30 million annually, to the natural gas and oil producing counties of origin. The tax bill provides for distribution of the monies to the districts of the Division of Highways by the district to receive. The bill requires funds to be used solely for secondary roads. The bill provides duties of the Tax Commissioner. The bill requires reports of expenditures to the Joint Committee on Government and Finance. The bill provides an effective date. The bill authorizes legislative and emergency rules.
Subsection (a) of this bill provides that all the oil and gas severance tax will be used to benefit the secondary roads in the oil and gas producing counties. Section 5a is not amended or repealed, however.
Subsection (b) sets fourth an effective date of July 1, 2019 and provides that the funds shall be transferred to the Division of Highways. The effective date would pose great difficulties for the counties and municipalities that currently receive proceeds pursuant to W.Va. Code §11-13A-5a.
Subsection (e) provides that no more than $30 million shall be transferred to the DOH. However, after placing the $30 million cap, this subsection continues to say if proceeds exceed $30 million, then each district of the Division of Highways’ share shall be based on its pro rata share of production share of the total amount of natural gas and oil produced within the state for a year.” This language appears to contradict the $30 million limitation.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov