FISCAL NOTE
Date Requested: February 05, 2018
Time Requested: 01:54 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2404 |
Introduced |
SB486 |
|
|---|
| CBD Subject: |
State Personnel, Taxation |
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|
FUND(S):
General Revenue Fund, PEIA Fund
Sources of Revenue:
General Fund PEIA Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: PEIA Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to stabilize the public employees insurance agency benefits. The bill dedicates a portion of the severance tax on natural gas to the benefit of public employee and retiree health care. The bill creates a special fund account entitled the PEIA Fund. The bill requires that portion of the severance tax on natural gas to be deposited into the PEIA Fund.
According to our interpretation, the proposed bill would dedicate 33 percent of State Severance Tax revenues collected on natural gas production to the Public Employees Insurance Agency (PEIA) effective July 1, 2018. As written, the bill refers to the “severed tax” on natural gas, which is presumed to mean the Severance Tax. In addition, the proposed bill includes language dedicating “33 percent of the 7.5 per cent of the severed tax on natural gas imposed by §11-13A-3a” to the newly-created PEIA Fund to be administered by the Treasurer’s Office. As it is unclear to what the 7.5 percent provision is referring, this portion of the proposed bill is disregarded for purposes of this fiscal note.
Under current natural gas Severance Tax projections, the proposed bill would result in General Revenue Fund losses of roughly $54.3 million in FY2019, $63.1 million in FY2020, and $68.2 million in FY2021, with greater losses expected in out years. This benefit to PEIA comes at the expense of the General Revenue Fund and would necessitate budgetary considerations to shift funding from other purposes to fill the gap. In addition, the proposed bill relies on an historically volatile industry to fund PEIA. The extraction industry is sensitive to a variety of economic factors, which could lead to dedications of less than those currently projected if the economy slows.
Additional costs incurred by the State Tax Department would be $25,000 in FY2018 and $25,000 in FY2019.
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 |
25,000 |
25,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
25,000 |
25,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-54,300,000 |
-63,100,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would dedicate 33 percent of State Severance Tax revenues collected on natural gas production to the Public Employees Insurance Agency (PEIA) effective July 1, 2018. As written, the bill refers to the “severed tax” on natural gas, which is presumed to mean the Severance Tax. In addition, the proposed bill includes language dedicating “33 percent of the 7.5 per cent of the severed tax on natural gas imposed by §11-13A-3a” to the newly-created PEIA Fund to be administered by the Treasurer’s Office. As it is unclear to what the 7.5 percent provision is referring, this portion of the proposed bill is disregarded for purposes of this fiscal note.
Under current natural gas Severance Tax projections, the proposed bill would result in General Revenue Fund losses of roughly $54.3 million in FY2019, $63.1 million in FY2020, and $68.2 million in FY2021, with greater losses expected in out years. This benefit to PEIA comes at the expense of the General Revenue Fund and would necessitate budgetary considerations to shift funding from other purposes to fill the gap. In addition, the proposed bill relies on an historically volatile industry to fund PEIA. The extraction industry is sensitive to a variety of economic factors, which could lead to dedications of less than those currently projected if the economy slows.
Additional costs incurred by the State Tax Department would be $25,000 in FY2018 and $25,000 in FY2019.
Memorandum
The stated purpose of this bill is to stabilize the public employees insurance agency benefits. The bill dedicates a portion of the severance tax on natural gas to the benefit of public employee and retiree health care. The bill creates a special fund account entitled the PEIA Fund. The bill requires that portion of the severance tax on natural gas to be deposited into the PEIA Fund.
The proposed bill contains a title defect. Per the title, the bill requires “the increase in the severance tax on natural gas to be deposited into the PEIA Fund” but the bill does not provide for an increase. Further, the bill’s title identifies “the severance tax on natural gas” but the bill consistently identifies the tax as the “severed tax.”
The intent of the bill appears to dedicate 33 percent of the 5 percent tax on the gross value of natural gas, but this is unclear. The bill fails to address whether the 33 percent is to be determined before or after deductions for costs, including transportation and transmission, as allowed in W.Va. C.S.R. §110-13A-4.3. Further, the bill does not address how refund claims are to be considered.
The proposed bill does not mention a fund for PEIA in proposed changes to W.Va. Code §11-13A-3a(b), nor does it reference the fund created in changes to W.Va. Code §11-13A-5a(a). In addition, the proposed bill refers to “33 percent of the 7.5 [percent] severed tax” but there is no 7.5 percent tax imposed in either W.Va. Code §11-13A-3a or W.Va. Code §11-13A-5a.
As written, the proposed bill is too ambiguous to be administered. The proposed bill gives no guidelines for the distribution of monies to or from the PEIA Fund, nor does it provide for Legislative audit or reporting. The language is silent as to a sunset date or other ending point for funding the account. Also absent are provisions and guidance as to who is to disburse the funds, the timing of the disbursement, and any qualifying event for the disbursement.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov