Sources of Revenue:

General Fund,Other Fund Tax Reduction 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 to dedicate a portion of natural gas severance tax proceeds into the newly created Tax Reduction Fund. The bill permits up to 50% of moneys from that fund to be distributed for the purpose of tax reduction for the benefit of the citizens of West Virginia as the Legislature deems appropriate. The bill provides that, upon the ratification of a Constitutional Amendment that permits the elimination or reduction of the personal property tax on inventory and equipment held for commercial or industrial use, the fund then be annually distributed to counties and county school boards on a proportionate basis. The bill further sets forth how any moneys would be distributed to the counties. As written, this bill would require that for fiscal years beginning on or after July 1, 2015 the Severance Tax on natural gas not dedicated to local governments that is in excess of $68 million would be designated for the Tax Reduction Fund. The Severance Tax on natural gas, 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 production is expected to increase over the next several years. However, the price of natural gas 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 Tax Reduction Fund. However, based upon early FY2016 estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2016 would be roughly $168.6 million or more with an offsetting $168.6 million increase to the Tax Reduction Fund. Moneys accruing in the Tax Reduction Fund would be available for appropriation or distribution beginning with FY2017. If an amendment to the West Virginia Constitution is ratified which permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial and industrial use, distributions from the Tax Reductions Fund are to be made to each county and county school board on a proportionate basis. Absent a change to the West Virginia Constitution, the Legislature would appropriate no more than 50 percent of each fiscal year’s deposit to the Tax Reduction Fund for the purpose of tax reduction for the benefit of the citizens of the State. Additional administrative costs related to the transfer of funds to the Tax Reduction 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, this bill would require that for fiscal years beginning on or after July 1, 2015 the Severance Tax on natural gas not dedicated to local governments that is in excess of $68 million would be designated for the Tax Reduction Fund. The Severance Tax on natural gas, 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 production is expected to increase over the next several years. However, the price of natural gas 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 Tax Reduction Fund. However, based upon early FY2016 estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2016 would be roughly $168.6 million or more with an offsetting $168.6 million increase to the Tax Reduction Fund. Moneys accruing in the Tax Reduction Fund would be available for appropriation or distribution beginning with FY2017. If an amendment to the West Virginia Constitution is ratified which permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial and industrial use, distributions from the Tax Reductions Fund are to be made to each county and county school board on a proportionate basis. Absent a change to the West Virginia Constitution, the Legislature would appropriate no more than 50 percent of each fiscal year’s deposit to the Tax Reduction Fund for the purpose of tax reduction for the benefit of the citizens of the State. Additional administrative costs related to the transfer of funds to the Tax Reduction Fund would be minimal.

Memorandum

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