FISCAL NOTE



FUND(S):

General Revenue Fund, County Coal Severance Revenue Fund

Sources of Revenue:

General Fund,Special Fund

Legislation creates:

A New Fund



Fiscal Note Summary


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


The stated purpose of this bill is dedicate five percent of current severance taxes imposed on coal, gas and oil, timber, waste coal, and “other” natural resources (such as limestone) to a special fund, to be allocated by the development office to the counties, and the cities within those counties, from which the severance tax on those natural resources are generated at the same percentage as the percentage of the total severance tax revenues are generated from the county. As written, this bill provides that, in addition to all other dedications of tax provided by the Severance Tax Law, 5 percent of the Severance Tax as levied by West Virginia Code Sections §§11-13A-3, 11-13A-3a, 11-13A-3b, 11-13A-3c, and 11-13A-3e is dedicated for the use and benefit of the counties and municipalities from which those taxes were generated. The bill also provides that the moneys resulting from the 5 percent calculation be deposited into a newly created “County Severance Revenue Fund” and the fund is to be administered by the Development Office. After deduction of administrative expenses, one-half of the net proceeds in the County Severance Revenue Fund will be allocated to the counties from which the Severance Tax was derived and one-half of the net proceeds will be allocated to the municipalities within the specified counties. Counties and municipalities receiving distributions from the County Severance Revenue Fund may only expend the moneys for the purposes of infrastructure, recreation or senior services, but only after the county or municipality has submitted a description of the intended expenditure to the Development Office for review and approval. The bill also requires the Development Office to conduct an audit, not less than once every three years, of each county or municipality which has received funds to determine whether the allocation of funds was expended for the intended purpose. Expenditures for unapproved purposes must be refunded. According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the County Severance Revenue Fund will receive roughly $20.3 million per year, the General Revenue Fund would be reduced by roughly $20.3 million per year. Since Development Office administrative expenses, including the cost of the required audits, are deducted from the funds in the County Severance Revenue Fund and those administrative expenses are yet to be determined, the State Tax Department is unable to accurately estimate the amount of revenue that will be distributed to counties and municipalities. Based upon our interpretation that this bill proposes that the specified dedication of Severance Tax revenue is “in addition to all other dedications,” no reallocation of Severance Tax attributable to West Virginia Code Sections §§11-13A-3 (i.e., tax attributable to behavioral health services), 11-13A-3b (i.e., timber), and 11-13A-3e (i.e., waste coal) will occur since those amounts are subject to existing statutory dedications. Similarly, no change in the dedication of Severance Tax revenue to the Infrastructure Fund will occur. As written, this bill provides that the expenses of the Development Office associated with the administration of the County Severance Revenue Fund are to be deducted from the fund. However, the State Tax Department may incur significant administrative costs in determining the county location from which the Severance Taxes subject to the 5 percent dedication was generated.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2009
Increase/Decrease
(use"-")
2010
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):


As written, this bill provides that, in addition to all other dedications of tax provided by the Severance Tax Law, 5 percent of the Severance Tax as levied by West Virginia Code Sections §§11-13A-3, 11-13A-3a, 11-13A-3b, 11-13A-3c, and 11-13A-3e is dedicated for the use and benefit of the counties and municipalities from which those taxes were generated. The bill also provides that the moneys resulting from the 5 percent calculation be deposited into a newly created “County Severance Revenue Fund” and the fund is to be administered by the Development Office. After deduction of administrative expenses, one-half of the net proceeds in the County Severance Revenue Fund will be allocated to the counties from which the Severance Tax was derived and one-half of the net proceeds will be allocated to the municipalities within the specified counties. Counties and municipalities receiving distributions from the County Severance Revenue Fund may only expend the moneys for the purposes of infrastructure, recreation or senior services, but only after the county or municipality has submitted a description of the intended expenditure to the Development Office for review and approval. The bill also requires the Development Office to conduct an audit, not less than once every three years, of each county or municipality which has received funds to determine whether the allocation of funds was expended for the intended purpose. Expenditures for unapproved purposes must be refunded. According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the County Severance Revenue Fund will receive roughly $20.3 million per year, the General Revenue Fund would be reduced by roughly $20.3 million per year. Since Development Office administrative expenses, including the cost of the required audits, are deducted from the funds in the County Severance Revenue Fund and those administrative expenses are yet to be determined, the State Tax Department is unable to accurately estimate the amount of revenue that will be distributed to counties and municipalities. Based upon our interpretation that this bill proposes that the specified dedication of Severance Tax revenue is “in addition to all other dedications,” no reallocation of Severance Tax attributable to West Virginia Code Sections §§11-13A-3 (i.e., tax attributable to behavioral health services), 11-13A-3b (i.e., timber), and 11-13A-3e (i.e., waste coal) will occur since those amounts are subject to existing statutory dedications. Similarly, no change in the dedication of Severance Tax revenue to the Infrastructure Fund will occur. As written, this bill provides that the expenses of the Development Office associated with the administration of the County Severance Revenue Fund are to be deducted from the fund. However, the State Tax Department may incur significant administrative costs in determining the county location from which the Severance Taxes subject to the 5 percent dedication was generated.



Memorandum






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