Date Requested:January 13, 2012
Time Requested:03:58 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2012R1433 Introduced SB182
CBD Subject: CREATING WEST VIRGINIA FUTURE FUND
FUND(S)
General Revenue Fund, West Virginia Future Fund
Sources of Revenue
General Fund,Other Fund West Virginia Future Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

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

    The stated purpose of this bill is to create the West Virginia Futures Fund. The bill provides that funding consist of twenty-five percent of the increased revenue received by the state from Marcellus Shale natural gas severance taxes and invites future legislative appropriations or designation of funding sources. Finally, the bill includes a statement of legislative intent not to encumber or otherwise use any principal or interest from the fund for a term of twenty years to the extent the Legislature cannot bind future Legislatures from actions that might otherwise use or encumber the funds. Use of the accumulated fund is left open to address future needs of the state.
    
    As written, the bill indicates that 25 percent of the increased Severance Tax on natural gas and oil (levied via W. Va. Code §11-13A-3a) as a result of Marcellus Shale production and received on or after the effective date of the bill be deposited into a newly created fund designated as the “West Virginia Future Fund.” The Severance Tax on natural gas and oil, as levied via W. Va. Code §11-13A-3a, in its basic form is a product of the volume of production times the price per unit of production times the tax rate (i.e., 5%). The volume of natural gas and oil production from the Marcellus Shale is expected to increase over the next several years. However, the price of natural gas and oil is subject to significant fluctuation (e.g., in 2009, the price was more than 50 percent lower than the 2008 price). Due to the volatility of natural gas and oil prices and since the bill does not specify a period to which collections after the bill becomes effective would be compared, the State Tax Department is unable to accurately estimate the amount of revenue that would be redirected from the General Revenue Fund to the West Virginia Future Fund. As natural gas and oil from the Marcellus Shale becomes a larger portion of all natural gas and oil severed in West Virginia, the potential amount of revenue redirected could become significant.
    
    Since passage of this bill would require the State Tax Department to develop new returns, computer programs, and processes to determine the amount of increase in natural gas and oil Severance Tax proceeds attributable to Marcellus Shale, additional administrative costs attributable to this bill could be significant.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2012
Increase/Decrease
(use"-")
2013
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 0 0
3. Explanation of above estimates (including long-range effect):
    As written, the bill indicates that 25 percent of the increased Severance Tax on natural gas and oil (levied via W. Va. Code §11-13A-3a) as a result of Marcellus Shale production and received on or after the effective date of the bill be deposited into a newly created fund designated as the “West Virginia Future Fund.” The Severance Tax on natural gas and oil, as levied via W. Va. Code §11-13A-3a, in its basic form is a product of the volume of production times the price per unit of production times the tax rate (i.e., 5%). The volume of natural gas and oil production from the Marcellus Shale is expected to increase over the next several years. However, the price of natural gas and oil is subject to significant fluctuation (e.g., in 2009, the price was more than 50 percent lower than the 2008 price). Due to the volatility of natural gas and oil prices and since the bill does not specify a period to which collections after the bill becomes effective would be compared, the State Tax Department is unable to accurately estimate the amount of revenue that would be redirected from the General Revenue Fund to the West Virginia Future Fund. As natural gas and oil from the Marcellus Shale becomes a larger portion of all natural gas and oil severed in West Virginia, the potential amount of revenue redirected could become significant.
    
    Since passage of this bill would require the State Tax Department to develop new returns, computer programs, and processes to determine the amount of increase in natural gas and oil Severance Tax proceeds attributable to Marcellus Shale, additional administrative costs attributable to this bill could be significant.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to create the West Virginia Futures Fund. The bill provides that funding consist of twenty-five percent of the increased revenue received by the state from Marcellus Shale natural gas severance taxes and invites future legislative appropriations or designation of funding sources. Finally, the bill includes a statement of legislative intent not to encumber or otherwise use any principal or interest from the fund for a term of twenty years to the extent the Legislature cannot bind future Legislatures from actions that might otherwise use or encumber the funds. Use of the accumulated fund is left open to address future needs of the state.
    
    The bill titles state that the new section creates the West Virginia Futures Fund (Emphasis added). However, the new section creates the West Virginia Future Fund (Emphasis added). There appears to be a title defect.
    
    Proposed subsection W. Va. Code §5A-2-35(a) appears to relate only to increased revenues from Marcellus Shale production. However, subsection (b) states the legislature’s intent as being “to use the fund as a means of conserving a portion of the state’s revenue derived from the increased revenue proceeds received by the state as a result of any new oil production and Marcellus Shale and other new gas formations . . .”(Emphasis added). It appears there may be an inconsistency between subsection (a) and subsection (b).
    
    As written, the bill indicates “twenty-five percent of the increased proceeds received on and after the effective date of this section as state revenue pursuant to the provisions of section three-a, article thirteen-a, chapter eleven of this code as a result of Marcellus Shale production “ are to be deposited into the fund created in the bill. However, the bill does not provide guidance as to what period before the effective date the collections after the effective date are to be compared to determine the amount of increase.