FISCAL NOTE
Date Requested: February 07, 2022
Time Requested: 02:58 PM |
| Agency: |
Division of Regulatory and Fiscal Affairs, WV |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2501 |
Introduced |
HB4007 |
|
|---|
| CBD Subject: |
Taxation |
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|
FUND(S):
General Revenue Fund; Revenue Shortfall Reserve Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Creates New Fund: Stabilization and Future Economic Reform (SAFER)
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
House Bill 4007 has two primary components. The first component decreases the personal income tax (PIT) rate for each by bracket by 10 percent starting January 1, 2023. This would result in a similar 10 percent reduction in PIT collections in each fiscal year beyond Fiscal Year (FY) 2023. Because this change would occur in the middle of FY 2023, it would experience a half-year reduction in PIT collections, or approximately 5 percent. The Department of Revenue estimates that in FY 2023 PIT collections will be $2.19 billion and FY 2024 collections will be $2.65 billion, so 5 percent and 10 percent reductions on each yield estimated decreases in revenue of $109,500,000 in FY 2023 and $264,500,000 in FY 2024. Reductions are likely to be greater further out as PIT revenues are forecasted by the Department of Revenue to continue increasing through FY 2027, the last year of its current projections. If PIT revenue projections are underestimated, the true revenue decrease to the state would be higher; the opposite holds for overestimated revenue projections.
The second component is the creation of the Stabilization and Future Economic Reform (SAFER) Fund. Currently, the first fifty percent of all unappropriated surplus revenues at the end of a fiscal year are allocated to the Revenue Shortfall Reserve Fund, more commonly known as the Rainy Day Fund. Under the bill, these allocations would be diverted to the SAFER Fund. The goal of the SAFER Fund is to create a source of funds which can be used as one-time offsets to facilitate further permanent decreases in the PIT rates. Upon elimination of the PIT, the SAFER Fund is closed, and any remaining funds would become available for appropriation. H.B. 4007 does not, however, specify how the funds would be used, when they would be used, and what the new PIT rates would be when they are used. Such changes would require additional future legislation.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2022
Increase/Decrease
(use"-") |
2023
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-109,500,000 |
-264,500,000 |
Explanation of above estimates (including long-range effect):
House Bill 4007 would decrease the personal income tax (PIT) rate for each by bracket by 10 percent starting January 1, 2023. This would result in a similar 10 percent reduction in PIT collections in each fiscal year beyond Fiscal Year (FY) 2023. Because this change would occur in the middle of FY 2023, this first affected fiscal year would experience a half-year reduction in PIT collections, or approximately 5 percent. The Department of Revenue estimates that in FY 2023 PIT collections will be $2.19 billion and FY 2024 collections will be $2.65 billion, so 5 percent and 10 percent reductions on each yield estimated decreases in revenue of $109,500,000 in FY 2023 and $264,500,000 in FY 2024. Reductions are likely to be greater further out as PIT revenues are forecasted by the Department of Revenue to continue increasing through FY 2027, the last year of its current projections. If PIT revenue projections are underestimated, the true revenue decrease to the state would be higher; the opposite holds for overestimated revenue projections.
West Virginia’s five PIT brackets are currently 3.0, 4.0, 4.5, 6, and 6.5 percent. The income ranges over which these figures apply vary on whether a tax unit files as married filing separately or not. For individuals and families filing as single, head of household, or married filing jointly, these rates apply to incomes $10,000 and below; above $10,000 to $25,000; above $25,000 to $40,000; above $40,000 to $60,000; and above $60,000, respectively. Those income thresholds are each halved for those married filing separately ($5,000; $12,500; $20,000; and $30,000). The bill would reduce the rates in the first sentence of this paragraph to 2.7, 3.6, 4.05, 5.4, and 5.85 percent, respectively. As mentioned above, a similar percentage reduction in each rate (10 percent) yields a decline in PIT revenue by that same percentage.
This is the extent of PIT changes as set forth in H.B. 4007. Although the SAFER Fund is established by this bill and funds are diverted into it as a means of further reduction and elimination of the PIT, this Fiscal Note cannot predict whether, how, or when these further reductions would occur as they would require an additional act by the Legislature.
Memorandum
Currently, the first 50 percent of all unappropriated surplus revenues at the end of a fiscal year are allocated to the Revenue Shortfall Reserve Fund, more commonly known as the Rainy Day Fund. Under the bill, these allocations would be diverted to the SAFER Fund. This could affect the state’s bond ratings as well as its ability to meet current and future financial obligations. Should creditors view the changes made by this bill as concerning to the state’s financial health or its ability to repay its debts, the state’s bond ratings could be affected, ultimately causing the state to pay higher rates or need to purchase bond insurance to issue bonds. This could also affect counties or municipalities. Depending on the degree to which these rates are affected, which is impossible to predict, this could have substantial financial implications for the state.
Another concern involves a lack of specificity regarding SAFER Funds. First, it is unclear how such offsets may be used. A permanent reduction in PIT rates would create a reduction in revenues for each subsequent fiscal year. The bill does not specify how (or whether it is even allowable) to allocate funds across the many fiscal years which would be impacted by such a change. Second, the bill does not provide clarity as to how unappropriated revenues at the end of the fiscal year would be handled upon elimination of the PIT and the closing of the SAFER Fund.
Person submitting Fiscal Note: Peter Shirley
Email Address: peter.shirley@wvlegislature.gov