Sources of Revenue:

General Fund,Other Fund West Virginia Future Fund

Legislation creates:

A New Fund

Fiscal Note Summary

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

The purpose of this committee substitute is to create the West Virginia Future Fund and provide funding for such fund. The committee substitute provides allocation of twenty-five percent of the Severance Tax on oil and natural gas in excess of $175 million to the West Virginia Future Fund. The committee substitute also allows for future legislative appropriations or designation of funding sources. The committee substitute provides that only the investment income may be spent beginning in FY2020. Funds may only be used for economic development projects, infrastructure projects and educational enhancement. As written, the committee substitute indicates that, commencing with the fiscal year beginning on July 1, 2014, 25 percent of the annual revenue from the Severance Tax on natural gas and oil (levied via W. Va. Code §11-13A-3a) in excess of $175 million shall 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 is expected to increase over the next several years. However, the price of natural gas and oil is subject to significant fluctuation. In addition, given that natural gas is a substitute fuel for coal in electric power generation, Severance Tax revenue gains associated with gas may be at least partially offset by decreases in Coal Severance Tax collections. Given all of these factors, we are unable to accurately estimate the long term decrease to the State General Revenue Fund or the long term increase to the West Virginia Future Fund. However, based on current estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2015 would be roughly $5.3 million or more with an offsetting $5.3 million increase to the Future Fund. Additional administrative costs related to the transfer of funds to the West Virginia Future Fund would be minimal.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2014 Increase/Decrease (use"-")	2015 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, the committee substitute indicates that, commencing with the fiscal year beginning on July 1, 2014, 25 percent of the annual revenue from the Severance Tax on natural gas and oil (levied via W. Va. Code §11-13A-3a) in excess of $175 million shall 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 is expected to increase over the next several years. However, the price of natural gas and oil is subject to significant fluctuation. In addition, given that natural gas is a substitute fuel for coal in electric power generation, Severance Tax revenue gains associated with gas may be at least partially offset by decreases in Coal Severance Tax collections. Given all of these factors, we are unable to accurately estimate the long term decrease to the State General Revenue Fund or the long term increase to the West Virginia Future Fund. However, based on current estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2015 would be roughly $5.3 million or more with an offsetting $5.3 million increase to the Future Fund. The official FY2015 estimate for tax revenue collections via W. Va. §11-13A-3a include $176.4 million in State Severance Tax on natural gas, $11.0 million in State Severance Tax on oil and $18.9 in local oil and natural gas Severance Tax distributions for a grand total of $206.3 million. Additional administrative costs related to the transfer of funds to the West Virginia Future Fund would be minimal.

Memorandum

Person submitting Fiscal Note: Mark B. Muchow
Email Address: Roger.D.Cox@wv.gov