Sources of Revenue:

General Fund,Other Fund Turnpike Toll Revenues

Legislation creates:

A New Program

Fiscal Note Summary

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

This bill could cost the Parkways Authority approximately $13-24 million in revenue annually to reimburse the State for this toll tax credit. If the State of West Virginia were required to absorb the cost of this toll tax credit, the General Revenue Fund could be impacted with an approximate $13-24 million expense per year. This range of annual revenue loss was developed using the following criteria based upon users of the West Virginia Turnpike: % of WV non-commercial vehicles – 15.6% x $53 million = $8.268 million % of WV commercial vehicles – 8.4% x $53 million = $4.452 million % of out-of-state commercial vehicles – 45.2% x $53 million - $23.956 million If 80% of West Virginia non-commercial and commercial vehicles would claim the tax credit and 60% of out-of-state commercial vehicles would claim the credit (since they are required to file WV income tax returns for miles traveled within the State), the total potential value of the tax credits would be $24.550 million. Even if you lowered it to 50% WV and 33% out-of-state, the tax credit could amount to $14.265 million. More exact estimates would require traffic engineering studies and WV State Tax Department analysis. ______ West Virginia Turnpike Distribution of Vehicle Toll Revenue by State of Vehicle Registration – Data from “Traffic and Toll Revenue Update Study, November 2005, prepared by Wilbur Smith Associates, Traffic Engineers.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	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):

NOTE: Fiscal Year 2010 Effect of Proposal - $13-24 million decrease in revenue. It is unknown what the annual impact of this bill would be in the future without a traffic revenue and forecast study being conducted.

Memorandum

The purpose of this bill is to offer tax credits for tolls paid by West Virginians, both non-commercial and commercial. It is not stated in the bill if the WV Parkways Authority would be required to reimburse the State Tax Department for this toll tax credit or if the money would come from the State’s General Revenue Fund. The following are points to consider under either scenario: Parkways Required to Fund Tax Credit with Toll Revenue: • The Parkways Authority does not have the money to fund this program of toll tax credits. o Tolls on the West Virginia Turnpike have remained at the same levels since 1981 – a period of 28 years. Toll revenues have grown by an average of less than 1% annually over the last 8 years. Due to the extraordinary economic downturn, FY/2009 toll revenues are projected to decrease in excess of $3 million (or over a 5% decline). At the same time that toll revenues have been decreasing, fuel and construction costs have increased dramatically. The Turnpike receives no funding from the State of West Virginia or the Federal Government. o To maintain the Turnpike at a performance level recommended by our Consulting Engineers and expected by the public, $238 million of deferred maintenance work must be done over the next 5 to 10 years in order to catch up with paving and other capital and renewal and replacement needs. • Under bond and trust indentures, this diversion of approximately $13-24 million, even if the Parkways Authority had the money, would cause the Authority’s expenditures to be in violation of applicable debt service coverage ratios and strict covenants regulating the budget and budget-making process. o The trust indentures do not permit the toll collection schedule to be altered unless certain tests have been met. These requirements were established to protect the bondholders investment, to ensure adequate revenues to maintain and operate the Turnpike and to provide for future capital needs of the Turnpike. Every penny spent on the operation, maintenance and upkeep of the Turnpike comes from toll revenues. • The West Virginia Parkways, Economic Development and Tourism Authority is governed by its enabling legislation, its bond trust indentures and a tri-partite agreement between the Authority, the Federal Highway Administration and the West Virginia Division of Highways. The covenants of these agreements strictly govern the collection and expenditure of toll revenues, but do not affect the General Revenue of the State of West Virginia. • Under the Tri-Partite Agreement, tolls may be used only for bond debt service or Turnpike operation, repair and maintenance (i.e., not to finance tax credits or deductions). • Any toll reduction or budget that does not follow the indenture requirements, or the eradication of the Authority’s ability to deal with toll increases, decreases and annual budgets would be contrary to those indenture requirements, violate the indenture and lead to an event of default if not properly cured. The bond trustee, the bond insurer, the rating agencies (Standard & Poors and Moody’s) and certain other parties would have to be put on notice. Remedies available to the bond trustee in the face of such defaults include acceleration of the entire debt on the Toll Revenue Bonds, and appointment of a receiver to operate the turnpike until the bonds are paid off (sometimes referred to as “receivership”). • The wording of this bill seems to indicate that Turnpike customers filing a Personal Income Tax return (“non-commercial users”) would be allowed to receive a tax credit of $300 (the total annual cost of a Parkways Authority Commuter (PAC) discount program); however, section §11-21-10b.(c), states “a credit against the tax imposed by the provisions of this article shall be allowed for the amount attributed to the tolls paid electronically through the use of an E-ZPass card by users of the West Virginia Turnpike”. We interpret this to mean that any West Virginia taxpayer owning an E-ZPass could receive a tax credit for the entire amount of tolls paid during the year. Similarly, Turnpike customers filing a Corporate Net Income Tax return (“commercial users”) would be allowed a maximum credit allowed of $1,500; however, section §11-24-9d.(b), states “a credit shall be allowed against the tax imposed by the provisions of this article for the amount attributed to the tolls paid electronically through the use of an E-ZPass card by users of the West Virginia Turnpike”. Again, this would be unlimited credit for commercial users of the Turnpike. State of WV Required to Fund Tax Credit with General Revenue Fund: • If the State of West Virginia were required to fund this toll tax credit, the impact to the State’s General Revenue Fund could cost approximately $13-24 million annually. Concerns Common to Either the Parkways Authority or State General Revenue Funding of the Tax Credit: • The Interstate Commerce Clause of the U.S. Constitution (Art. I, Section 8, clause 3) “not only grants Congress the authority to regulate commerce among the States, but also directly limits the power of the States to discriminate against interstate commerce.” Although Turnpike tolls are user fees, they are similar to taxes, so any discrimination against out-of-State users also violates Commerce Clause principles. Thus, the Parkways Authority cannot charge West Virginians less than it charges a person from Ohio or Oregon, nor can it use a complicated tax rebate system for residents because essentially that amounts to West Virginians’ paying a lower toll and discriminates against out-of-State residents. o These tax relief programs may be challenged on the grounds that they discriminate against interstate commerce by generating lower tolls for residents than non-residents who don’t pay any state income tax (and therefore can’t benefit from a tax deduction or credit). • Under the U.S. Constitution’s “Equal Protection” clause, no state may discriminate against persons based on nonresident status in the imposition of a fee that burdens the fundamental “right to travel.” o State taxes or fees that discriminate against interstate commerce in either their purpose, or in their effect, have been invalidated by the courts. • As this bill would make toll receipts worth a cash value, there would be concerns of the receipts being sold and given to family, friends, etc. • Receipts would be worth face value of $1.25 cash and could be copied and made on a home computer. This would create a “black Market” in paper toll receipts. • With the demand for receipts that are given 100% cash value, there may become a demand from every patron entering the lane and this would slow down the processing of traffic. In summary, passage of this bill could create a significant impact on the Authority’s budget and possibly result in the inability to meet debt service on outstanding bonds or create an additional financial burden on the State’s General Revenue Fund. It should be noted that high frequency passenger car users of the West Virginia Turnpike receive a substantial 85% discount on their tolls through the Parkways Authority Commuter (“PAC”) discount program (user pays $95/per toll plaza annually or $25/quarterly for unlimited usage at that plaza). In addition to the PAC discount, all West Virginia citizens who participate in the E-ZPass non-commercial commuter pass program are able to deduct from adjusted gross income up to $1,200 per year on their State income tax return for taxable years beginning on or after January 1, 2007 (minimum amount eligible for deduction is $25.00).

Person submitting Fiscal Note: Gregory C. Barr, General Manager
Email Address: gbarr@wvturnpike.com