Sources of Revenue:

General 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 provide cost-of-living benefits to retired teachers to be funded from the severance tax collected on natural gas. As written, this bill would increase the retirement benefits of State Teachers Retirement System annuitants. On July 1, 2008, certain annuitants (i.e., those at least 60 years of age who have received State Teachers Retirement System benefits for at least five years) would receive an increase equal to 5 percent. Thereafter, all annuitants would receive cost-of-living increases equal to the annual increase in the consumer price index as published by the United States Department of Labor, Bureau of Labor Statistics. The bill provides that the cost-of-living benefits would be funded from the Severance Tax on natural gas. According to our interpretation, State Teachers Retirement System annuitants would receive an additional benefit ranging from $14 million to $24 million per year beginning in Fiscal Year 2009 while the General Revenue Fund would be reduced by roughly $70 million per year. In addition, the provisions of the bill would possibly reallocate another $7 million of local natural gas Severance Tax distributions to the Teachers’ Retirement Fund. The cost of this proposed increase in benefits will escalate over time as members of the baby-boom generation begin retiring. Personal Income Tax collections attributable to the annuitants increase in benefits would initially rise by roughly $1 million per year. Additional administrative costs for the State Tax Department associated with this bill would be minimal. The Consolidated Public Retirement Board may incur additional administrative costs due to passage of this bill.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2008 Increase/Decrease (use"-")	2009 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

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

Passage of this bill would increase the retirement benefits of State Teachers Retirement System annuitants. On July 1, 2008, certain annuitants (i.e., those at least 60 years of age who have received State Teachers Retirement System benefits for at least five years) would receive an increase equal to 5 percent. Thereafter, all annuitants would receive cost-of-living increases equal to the annual increase in the consumer price index as published by the United States Department of Labor, Bureau of Labor Statistics. The bill provides that the cost-of-living benefits would be funded from the Severance Tax on natural gas. According to our interpretation, State Teachers Retirement System annuitants would receive an additional benefit ranging from $14 million to $24 million per year beginning in Fiscal Year 2009 while the General Revenue Fund would be reduced by roughly $70 million per year. In addition, the provisions of the bill would possibly reallocate another $7 million of local natural gas Severance Tax distributions to the Teachers’ Retirement Fund. The cost of this proposed increase in benefits will escalate over time as members of the baby-boom generation begin retiring. Personal Income Tax collections attributable to the annuitants increase in benefits would initially rise by roughly $1 million per year. Additional administrative costs for the State Tax Department associated with this bill would be minimal. The Consolidated Public Retirement Board may incur additional administrative costs due to passage of this bill.

Memorandum

The stated purpose of this bill is to provide cost-of-living benefits to retired teachers to be funded from the severance tax collected on natural gas. As written, the bill appears to grant certain annuitants a 5 percent increase in benefits on July 1, 2008 and then provided all annuitants with cost-of-living increases “thereafter.” The term “thereafter” is not adequately defined. The bill provides that the cost-of-living benefits would be determined from the consumer price index as published by the United States Department of Labor, Bureau of Labor Statistics. However, it is not clear which of the several consumer price indexes published by the Bureau of Labor Statistics is to be used. Also, the bill does not contain any provision authorizing the State Tax Commissioner to deposit or transfer the designated Severance Tax receipts to the State Teachers Retirement System.

Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us