FISCAL NOTE



FUND(S):

General Revenue Fund

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 reallocate and dedicate the coal severance tax revenues annually to the coal producing counties of origin and their respective municipalities. The bill establishes state and local coal county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each coal producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for renovation and improvement projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill establishes a July 1, 2015 effective date. The bill authorizes legislative and emergency rules. As written, the bill states “Effective July 1, 2015, all of the tax attributable to the severance of coal imposed by section three-a of this article shall be transferred to the county commissions and the governing bodies of municipalities within the coal producing counties on a population pro rata basis ...” The bill also establishes a new fund to be named “Coal County and Municipality Reallocated Severance Tax Fund”, provides information for the distribution of the revenue deposited into the new fund, requires the recipients to create a special account in which their distribution will be transferred, provides some guidance on how the revenue is to be expended, and requires each jurisdiction receiving moneys to file a report with the Legislature on the expenditure of the revenue. The bill also specifies that the State Tax Commissioner is to propose Legislative rules for the administration of the revised statute. The bill includes the phrase “severance of coal imposed by section three-a of this article” two separate times. Our translation of “section three-a of this article” in a different form would be W. Va. Code §11-13A-3a, which imposes the Severance Tax on natural gas and oil. The Severance Tax on coal in its basic form is a product of the volume of production times the price per unit of production times the tax rate. Both the amount of coal produced and the price of coal are subject to significant variation due to competition from other states and other energy types (e.g., natural gas). Thus, we are unable to accurately estimate the long term revenue consequences attributable to passage of this bill. Using a strict interpretation of the phrase “severance of coal imposed by section three-a of this article,” passage of this bill, as written, would have no revenue impact since coal is not taxed under “section three-a.” However, if the bill were to be revised to correctly reference the section imposing the Severance Tax on Coal, passage of the bill would result in a reduction in the General Revenue Fund of roughly $292.9 million in FY2016 and an offsetting deposit to the Coal County and Municipality Reallocated Severance Tax Fund. Passage of the bill would also appear to result in a reduction in revenue for some counties and municipalities. Counties with no coal production, and municipalities within counties with no coal production, would no longer receive a portion of the distribution provided in W. Va. Code §11-13A-6. Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $5,000. Counties and municipalities receiving an allocation of revenue attributable to passage of this bill would incur additional administrative costs.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2014
Increase/Decrease
(use"-")
2015
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 5,000 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 5,000 0 0
2. Estimated Total Revenues 0 -292,000,000 -292,000,000


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


As written, the bill states “Effective July 1, 2015, all of the tax attributable to the severance of coal imposed by section three-a of this article shall be transferred to the county commissions and the governing bodies of municipalities within the coal producing counties on a population pro rata basis ...” The bill also establishes a new fund to be named “Coal County and Municipality Reallocated Severance Tax Fund”, provides information for the distribution of the revenue deposited into the new fund, requires the recipients to create a special account in which their distribution will be transferred, provides some guidance on how the revenue is to be expended, and requires each jurisdiction receiving moneys to file a report with the Legislature on the expenditure of the revenue. The bill also specifies that the State Tax Commissioner is to propose Legislative rules for the administration of the revised statute. The bill includes the phrase “severance of coal imposed by section three-a of this article” two separate times. Our translation of “section three-a of this article” in a different form would be W. Va. Code §11-13A-3a, which imposes the Severance Tax on natural gas and oil. The Severance Tax on coal in its basic form is a product of the volume of production times the price per unit of production times the tax rate. Both the amount of coal produced and the price of coal are subject to significant variation due to competition from other states and other energy types (e.g., natural gas). Thus, we are unable to accurately estimate the long term revenue consequences attributable to passage of this bill. Using a strict interpretation of the phrase “severance of coal imposed by section three-a of this article,” passage of this bill, as written, would have no revenue impact since coal is not taxed under “section three-a.” However, if the bill were to be revised to correctly reference the section imposing the Severance Tax on Coal, passage of the bill would result in a reduction in the General Revenue Fund of roughly $292.9 million in FY2016 and an offsetting deposit to the Coal County and Municipality Reallocated Severance Tax Fund. Passage of the bill would also appear to result in a reduction in revenue for some counties and municipalities. Counties with no coal production, and municipalities within counties with no coal production, would no longer receive a portion of the distribution provided in W. Va. Code §11-13A-6. Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $5,000. Counties and municipalities receiving an allocation of revenue attributable to passage of this bill would incur additional administrative costs.



Memorandum


The stated purpose of this bill is to reallocate and dedicate the coal severance tax revenues annually to the coal producing counties of origin and their respective municipalities. The bill establishes state and local coal county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each coal producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for renovation and improvement projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill establishes a July 1, 2015 effective date. The bill authorizes legislative and emergency rules. The bill includes the phrase “severance of coal imposed by section three-a of this article” two separate times. The West Virginia Code reference (i.e., section three-a) is incorrect, as W. Va. Code §11-13A-3a imposes the Severance Tax on natural gas and oil, not coal. The bill also contains an apparent contradiction in the specification of how the revenues would be allocated. Proposed subsection (b) indicates the revenue is to be transferred to local jurisdictions on a population pro rata basis, while subsection (e) provides for an allocation based upon tonnage of coal mined.



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