FISCAL NOTE

Date Requested: January 27, 2023
Time Requested: 02:03 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
3149 Introduced HB3110
CBD Subject: Environment


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Decreases Existing Revenue, Increases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to ensure that the WVDEP Office of Oil and Gas has sufficient money to inspect the oil and gas wells of the State of West Virginia in an efficacious and diligent manner that protects the people and environment of the State from degradation related to violations of the West Virginia oil and gas production laws. Natural gas and oil severance tax revenues are highly volatile over time with yield heavily dependent on pricing. If such a proposed revenue dedication would have been imposed over the past five fiscal years, the total annual funding for the Oil and Gas Operating Permit and Processing fund (Special Fund) would have varied from a low of roughly $0.8 million in FY2020 to a high of $3.4 million in FY2022 with an overall five-year average of closer to $1.5 million per year. The proposed bill provides for the proposed allocation to the Special Fund to begin in FY2024 based on severance activities on or after July 1, 2023. If prices remain at CY2022 levels, the annual yield from severance tax dedicated to DEP could approach or exceed $5.0 million. Based on the current outlook for FY2024, the revenue yield for the Special Fund would fall back to roughly $2.7 million for the activity occurring in FY2024. The proposed method of funding the special fund is less predictable and less efficient than either a direct general revenue fund appropriation or a set amount of severance tax allocation spelled out in statute necessary to fund the mission of the Special Fund (e.g., $4.0 million per year). Because the proposed allocation relates to actual severance tax revenues received as opposed to a hard budgetary number, there will be a delay in transfer of funds to the Special Fund until the numbers are fully reconciled for a completed year after the conclusion of the year in question to determine the proper amount to be transferred. Allocation to this Special Fund would begin in FY2025 with the first distribution relating to the second half of CY2023 occurring in October 2024 with an expected distribution of roughly $1.35 million. In fiscal years 2026 and thereafter, the Special Fund distributions would be based on natural gas and oil severance tax collections for a full tax year. Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2024.



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 5,000 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 5,000 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


Natural gas and oil severance tax revenues are highly volatile over time with yield heavily dependent on pricing. If such a proposed revenue dedication would have been imposed over the past five fiscal years, the total annual funding for the Oil and Gas Operating Permit and Processing fund (Special Fund) would have varied from a low of roughly $0.8 million in FY2020 to a high of $3.4 million in FY2022 with an overall five-year average of closer to $1.5 million per year. The proposed bill provides for the proposed allocation to the Special Fund to begin in FY2024 based on severance activities on or after July 1, 2023. If prices remain at CY2022 levels, the annual yield from severance tax dedicated to DEP could approach or exceed $5.0 million. Based on the current outlook for FY2024, the revenue yield for the Special Fund would fall back to roughly $2.7 million for the activity occurring in FY2024. The proposed method of funding the special fund is less predictable and less efficient than either a direct general revenue fund appropriation or a set amount of severance tax allocation spelled out in statute necessary to fund the mission of the Special Fund (e.g., $4.0 million per year). Because the proposed allocation relates to actual severance tax revenues received as opposed to a hard budgetary number, there will be a delay in transfer of funds to the Special Fund until the numbers are fully reconciled for a completed year after the conclusion of the year in question to determine the proper amount to be transferred. Allocation to this Special Fund would begin in FY2025 with the first distribution relating to the second half of CY2023 occurring in October 2024 with an expected distribution of roughly $1.35 million. In fiscal years 2026 and thereafter, the Special Fund distributions would be based on natural gas and oil severance tax collections for a full tax year. Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2024.



Memorandum






    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov