Date Requested: January 26, 2015
Time Requested: 10:29 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
1977 Introduced HB2407
CBD Subject: Tax


FUND(S):

General Revenue Fund, Oil & Gas County & Municipality 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 three percent of oil and gas severance tax revenues up to $20 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas 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 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 economic development projects and infrastructure 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 authorizes legislative and emergency rules.
    
    As written, this bill provides, effective July 1, 2015, that two percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, and one percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
    
    According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $6.8 million in FY2016 (with roughly $4.5 million to be allocated to oil and gas producing counties and roughly $2.3 million to be allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $6.8 million. The fall in oil prices and continued instability in oil and natural gas markets will make the revenue changes attributable to passage of this bill highly volatile. It should be noted that, per existing statute, local governments already receive ten percent of oil and natural gas revenue from the state, an amount that is estimated to be $20.6 million in FY 2016.
    
    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 costs to the State Tax Department will be $30,000 in FY 2015, $42,000 in FY 2016 and $35,000 in each subsequent fiscal year.



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 30,000 42,000 35,000
Personal Services 0 35,000 35,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 7,000 0
Other 30,000 0 0
2. Estimated Total Revenues 0 -6,800,000 -20,000,000


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


    As written, this bill provides, effective July 1, 2015, that two percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, and one percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
    
    According to our interpretation, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $6.8 million in FY2016 (with roughly $4.5 million to be allocated to oil and gas producing counties and roughly $2.3 million to be allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $6.8 million. The fall in oil prices and continued instability in oil and natural gas markets will make the revenue changes attributable to passage of this bill highly volatile. It should be noted that, per existing statute, local governments already receive ten percent of oil and natural gas revenue from the state, an amount that is estimated to be $20.6 million in FY 2016.
    
     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 costs to the State Tax Department will be $30,000 in FY 2015, $42,000 in FY 2016 and $35,000 in each subsequent fiscal year.
    
    



Memorandum


    



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