Date Requested: January 21, 2015
Time Requested: 10:31 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
1816 Introduced HB2080
CBD Subject: Tax


FUND(S):

General Revenue Fund, Natural Gas and Oil Division of HIghways Reallocated Severance Tax Fund, Natural Gas and Oil County Reallocated Severance Tax 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 to reallocate and dedicate oil and gas severance tax revenues up to $30 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes a special fund known as the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund and provides for distribution of the moneys to the districts of the Division of Highways by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas 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 secondary road projects with the respective counties. The bill sets forth duties of the 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 authorizes legislative and emergency rules.
    
    According to our interpretation, passage of this bill would result in the annual reallocation of $30 million of State General Revenue Fund collections to the State Division of Highways for use in road maintenance in counties with oil and gas production other than coal-bed methane production first effective in FY2017. The bill provides that such revenue transfers would occur quarterly to the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund on the basis of each county's relative share of natural gas production and each county's relative share of oil production.
    
    The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
    
    Additional administrative costs to the State Tax Department would be $20,000 in FY2016 and $25,000 every year thereafter.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 20,000 25,000
Personal Services 0 15,000 25,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 5,000 0
2. Estimated Total Revenues 0 0 -30,000,000


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


    According to our interpretation, passage of this bill would result in the annual reallocation of $30 million of State General Revenue Fund collections to the State Division of Highways for use in road maintenance in counties with oil and gas production other than coal-bed methane production first effective in FY2017. The bill provides that such revenue transfers would occur quarterly to the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund on the basis of each county's relative share of natural gas production and each county's relative share of oil production.
    
    The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
    
    Even though 45 or more county road systems might benefit from reallocated general revenue, the distribution of the proposed reallocated general revenue fund collections would be highly concentrated in just a few counties. In 2013, the top 5 producing counties accounted for 63 percent of total production, up from 19 percent five years ago. These five counties received $6.7 million in severance tax revenues this fiscal year associated with the current severance tax revenue sharing program in addition to the benefit of significantly higher local property tax revenues associated with their expanding natural gas industry. Under the proposed program, the top five counties would be allocated roughly $20 million out of a total of $30 million and the 15 lowest producing counties would collectively receive roughly $0.5 million. In most of these lower producing counties, the administrative costs for the Division of Highways related to the new program may largely absorb the amount of reallocated general revenue.
    
    Additional administrative costs to the State Tax Department would be $20,000 in FY2016 and $25,000 every year thereafter.



Memorandum


    The stated purpose of this bill is to reallocate and dedicate oil and gas severance tax revenues up to $30 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes a special fund known as the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund and provides for distribution of the moneys to the districts of the Division of Highways by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas 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 secondary road projects with the respective counties. 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 authorizes legislative and emergency rules.
    
    Passage of this bill may require additional reporting dependent on timing of the collection. If the timing of collection is immediate, this could create problematic data gathering issues in collection and distribution. Exact production reports will need to be generated on a constant basis. The Department of Highways could incur addition administrative costs as well to properly process payments. Under current law, the State shares 10 percent of revenue generated from the severance tax with the counties. There is no indication of how this percent is affected. There is also no indication of when distributions are to occur.
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov