Confr fronting West V Virginias L Looming B Budget C Crisis - - PowerPoint PPT Presentation

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Confr fronting West V Virginias L Looming B Budget C Crisis Revenue Options to Sustain Investments in the Mountain State Covenan ant Ho House April 11, 2016 600 Shrewsbury Street Charleston, WV 25301 presented by Ted Boettner,

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SLIDE 1

Confr fronting West V Virginia’s L Looming B Budget C Crisis

Revenue Options to Sustain Investments in the Mountain State presented by

Ted Boettner, Executive Director West Virginia Center on Budget and Policy www.wvpolicy.org @WVCBP tboettner@wvpolicy.org @WVPolicywonk

Covenan ant Ho House

April 11, 2016 – 600 Shrewsbury Street – Charleston, WV 25301

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SLIDE 2

Budget R Rules es t to Remem ember er

  • The fiscal year begins July 1st and ends June 30th.
  • The budget must be balanced (true in 49 states).
  • The budget does not contain the money we spend each through the

tax code (tax expenditures).

  • Go

Gover ernor e exer ercises s s signi gnificant budg budget po power

  • er. This includes line-item

veto power (takes 3/5 to override veto) and producing the revenue estimate and most fiscal notes. Unlike 36 other states, West Virginia does not have a legislative fiscal office.

  • Two-thirds of General Revenue Fund is constitutionally or statutorily

protected.

  • The budget is always in flux.
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SLIDE 3

Importance o

  • f State Budg

dget

620, 620,000 000 – approxim

imate n number of

  • f Wes

est Vi Virginians w who r

  • rec

eceive hea ealt lth care coverage ( (Med edic icaid id/CHIP) w who a

  • are c

e chil ildren, s sen eniors, d disable led, a and l low-income a e adults.

277, 277,000 000 – approximate n

number o

  • f children e

enrolled i in K-12 public s school system i in Wes est Vi Virgin inia ia.

36, 36,000 000 – approxim

imate m miles of

  • f roa
  • ad o
  • ver

erseen b by the e Wes est Vi Virgin inia ia D Dep epartment

  • f H

Highways.

88, 88,000 000 – approximate n

number of students e enrolled i in public h higher e education institut utions i in West V Virgini nia.

Source: West Virginia State Budget Office, FY 2017 Executive Budget

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SLIDE 4

State F Funds Acc ccount f for Nearly T Two-Thirds o

  • f

f Wes est Vi Virgini nia’s S State e Budg Budget

Lottery & Excess Lottery Funds $420 20 M Million 3% General Revenue Funds $4.3 B 3 Billion 34% State Road Funds $1.3 B 3 Billion 11% Special Revenue Funds $1.8 B 8 Billion 14% Federal Funds $4.7 B Billio llion 38%

Governor’s FY 2017 Appropriated Budget = $12.5 Billion

Source: West Virginia State Budget Office, FY 2017 Executive Budget

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SLIDE 5

More T Than T Two-Thirds of Base Budget S Spending S Supports Education and Health a and Human S Servi vice ces

2% 2% 4% 8% 9% 10% 27% 41% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Commerce: $71. $71.2 Mi Millio lion Senio ior S Servic ices: $63. $63.3 Mi 3 Millio lion Judic ical & l & Legis gisla lativ ive: $167. $167.8 Mi 8 Millio ion Public lic S Safety: $356. $356.6 6 Mi Millio lion Admin inis istratio ion & & Other: $382. $382.6 Mi 6 Millio lion Hi High gher E Educatio ion: $451. $451.5 Mi 5 Millio lion He Healt lth & & Human R Resources: $1. $1.3 3 Billio ion Public lic E Educatio ion: $1. $1.9 9 Billio lion

Source: West Virginia State Budget Office, FY 2017 Executive Budget

Governor’s FY 2017 Base Budget Appropriations = $4.7 Billion

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SLIDE 6

1% 2% 3% 4% 4% 6% 9% 29% 41% 0% 10% 20% 30% 40% 50%

Other R Revenue: $66 $66 Mi Millio lion B&O T Tax: $115 $115 Mi Millio lion Insurance T Tax: $119 $119 Mi Millio lion Corporate Net Income T Tax: $166 $166 Mi Millio lion Tobacco & & Alcohol l Taxes: $202 $202 Mi Millio lion Severance T Tax: $280 $280 Mi Millio lion Lottery Revenue: $420 $420 Mi Millio lion Sale les & & Use T Tax: $1. $1.4 4 Billio ion Personal I l Income T Tax: $1. $1.9 9 Billio lion

Source: West Virginia State Budget Office, FY 2017 Executive Budget

More T Than T Two-Thi Thirds o

  • f Bas

Base Budg e Budget Revenue enue Co Comes es F From Income a and Sales T Tax Collect ctions

Governor’s FY 2017 Base Budget Revenue Appropriations = $4.7 Billion

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SLIDE 7

West V Virginia h has had Persistent B Budget Gaps Since ce 2 2014

Expressed in Millions

Source: West Virginia State Budget Office. *Note: On current pace, shortfall is projected to be $122 million less. Nine month collections down $146 million (July to March 2016)

  • $75
  • $216
  • $195
  • $381*
  • $466
  • $558
  • $20

FY 2014 FY 2015 FY 2016 FY 2016 (additional) FY 2017 (Jan 2016 ) FY 2017 (Mar 2016) FY 2018

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SLIDE 8

General R Revenue F Fund Ex Expected t to be Below 2 2012

$31 $311 million bel below 2005 2005, a , adj djusting f for inflation

Source: WVCBP analysis of WV State Budget Office data. Note: FY16 assumes current revenue pace of 95% of FY16 original revenue estimate.

General Revenue Fund collections, FY2004-FY2017 (in thousands)

$1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Nominal Real (2016 dollars)

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SLIDE 9

Base B Budget S Spending Down A Acr cross t the Board

Medicaid a and S Supreme C Court o

  • nly growing d

departments

Source: WVCBP analysis of WV State Budget Office data.

FY 2012 Actual and FY 2017 Governor’s Proposed Ba Base Bu Budget Expenditures (thousands)

Department FY 2012 FY 2017 Difference Percent Change Legis gisla lature $31,082 $24,022

  • $7,060
  • 23%

Judic icia ial $126,817 $143,760 $16,943 13% Exe xecutive $60,051 $36,570

  • $23,481
  • 39%

Admin inis istratio ion $165,480 $114,779

  • $50,701
  • 31%

Comme mmerce $90,071 $71,173

  • $18,898
  • 21%

Educat ation $2,074,822 $1,928,645

  • $146,177
  • 7%

Education a and t the Arts $52,825 $49,510

  • $3,315
  • 6%

Environment $12,309 $6,633

  • $5,676
  • 46%

Health a and H nd Hum uman R Resour urces $847,518 $1,261,494 $413,976 49% Mi Milit itary A Affairs & & Public lic S Safety $366,541 $356,579

  • $9,962
  • 3%

Rev even enue $205,964 $168,490

  • $37,474
  • 18%

Transportatio ion ( (Doesn’t i inclu lude R Road F Fund) $7,589 $5,885

  • $1,704
  • 22%

Veterans A s Assistance ce $10,604 $10,499

  • $105
  • 1%

Seni nior S Services $64,224 $63,280

  • $944
  • 1%

Hi High gher E Educatio ion $514,890 $451,495

  • $63,395
  • 12%

Mi

  • Misc. B

Boards & & Commis issio ions $64,989 $55,000

  • $9,989
  • 15%

Total Ba Base Budg Budget $4,630,776 $4,682,814 $52,038 1.10%

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SLIDE 10

20 2017 Base se Budget $60 $600 m million L Less t ss than projected i in 201 2012

Source: WV State Budget Office, FY 2013 Executive Budget, Budget Report 1

Actual and Projected Base Budget Expenditures, FY 2013-2017 (thousands)

$4,553 $4,852 $5,031 $5,196 $5,285 $4,636 $4,584 $4,694 $5,033 $4,683 2013 2014 2015 2016 2017 Fiscal Year Projected Actual

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SLIDE 11

As Revenue F enue Fal alls R Rel elative t to the he State’ e’s E Econo nomy, W Wes est Vi Virginia Loses A Ability t to Invest i in Human and Ph Physical C Capital

Source: WVCBP analysis of U.S. Bureau of Economic Analysis and WV State Budget Office data

General Revenue Funds as a Share of State Personal Income (per $1,000 of Personal Income)

$62 $62 AVG = = $68 $68 $55 $60 $65 $70 $75 $80 1990 1995 2000 2005 2010 2015

FISCAL YEAR

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SLIDE 12

The D Declin cline of

  • f the C

Corp

  • rporate N

Net t Income a and B Busin iness F Franch chis ise Tax

Source: West Virginia State Budget Office data.

Down by $250 million since 2008, shrinking from 10% in 2008 of GRF to 3% 2017 (in millions)

$222 $191 $182 $179 $185 $219 $235 $251 $222 $263 $218 $214 $220 $181 $181 $281 $348 $358 $388 $270 $233 $303 $188 $238 $204 $202 $178 $137

12.7%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Business taxes as a share of General Revenue Fund

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SLIDE 13

Another E Econ

  • nomic R

ic Rece cessio ion i in West V Virgin ginia ia

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics

Nonfarm jobs at 2006 levels, seasonally adjusted (in thousands)

710 720 730 740 750 760 770 780 790 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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SLIDE 14

Mi Mining Econ conom

  • my i

y in West V t Virginia t taking a g a hit

Source: WVCBP analysis of MSHA data and U.S. Bureau of Labor Statistics (Current Employment Statistics)

About 13,000 fewer jobs since 2011 peak, production under 100 million tons in 2015

15 20 25 30 35 40 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Min ining & & Log

  • gging J

Job

  • bs, 200

2004-201 2016 6

(seasonally adjusted, in thousands) 50 100 150 200 250 300 350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

WV C Coal Mi Minin ing P Productio ion and Producin ing C g Coal Mi Mines, 2000 2000-20 2015 15

Producing Coal Mines Annual Coal Production (tons)

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SLIDE 15

Ma Major

  • r R

Revision

  • ns in Severance

ce T Taxes H Highlight t Weak E k Energy y Econ conom

  • my

Source: West Virginia State Budget Office.

*Updated March 2016 estimate for FY2017 now $262.5 million, -$17.6 million

$414 $472 $280 $292 $303 $323 $337 $475 $472 $525 $581 $606 $632

2015 2016 2017 2018 2019 2020 2021 FISCAL YEAR Governor's 2016 Estimates Governor's 2015 Estimates

Expressed in Millions

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SLIDE 16

State S Spending o

  • n Medicaid C

Continues to Grow

Medicaid spending has increased from 11 percent of GRF in 2007 to 15.5 percent in 2017 (in millions)

Source: NASBO and WV State Budget Office

$162 $156 $213 $216 $183 $193 $179 $228 $295 $315 $409 $389 $309 $252 $334 $543 $375 $518 $520 $554 $673 $192 $188 $129 $136 $199 $210 $239 $211 $232 $258 $201 $239 $239 $211 $210 $243 $490 $404 $400 $386 $289 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiscal Year

General Revenue Other State Funds

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SLIDE 17

Drop i in K-12 S 12 Stud uden ent E Enr nrollmen ent H Has E s Eased ed B Budg udget Ga Gaps

Source: West Virginia State Department of Education

State Aid to Schools Down $172.5 million since 2013

281,907 281,827 282,130 282,086 282,309 281,013 279,899 277,137 Fall 2008 Fall 2009 Fall 2010 Fall 2011 Fall 2012 Fall 2013 Fall 2014 Fall 2015

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SLIDE 18

Wes est Vi Virgini nia H Has as Made Substantial C Cuts to Higher E Education

Since 2008, West Virginia has Reduced Higher Ed Funding by $124 million (adjusting for inflation)

Source: West Virginia State Budget Office and U.S. Bureau of Economic Analysis data $575 $532 $503 $498 $533 $536 $497 $480 $458 $451

$497 $477 $449 $453 $500 $513 $482 $473 $452 $451

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 FISCAL YEAR Real (2016$) Nominal

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SLIDE 19

Budget G Gap Closed M Mostly C Closed wi with S Spending C Cuts

Source: West Virginia State Budget Office

New Base Budget Gap for FY 2017 = $552 million

$48.9 $77.1 $87.8 $99.4 $238.9

Revenue transfers (Gov) Program & service cuts (Gov) Budget adjustments (Gov) Less funding required (Gov) UNKNOWN?

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SLIDE 20

Hypothetical al B Budget et S Scenarios

  • s from Gov
  • vernor
  • r To

Tomblin

New Base Budget Gap for FY 2017 = $270 million?

  • OPTION 1:
  • 4% cut to public education – 805 teachers and 495 services workers laid off
  • 8% cut to higher education – and eliminate PROMISE Scholarship with $43 million gap in PEIA funding left.
  • OPTION 2:
  • 6.8% cut to public education – 1,369 teachers and 841 services workers laid off
  • 18 percent cut to higher education and phase out of PROMISE Scholarship, but fully funding PEIA.
  • OPTION 3:
  • 6.8% cut to public education, close six state police detachments and six tax offices.
  • OPTION 4:
  • Eliminate the Departments of Commerce, Education and the Arts, Environmental Protection, Revenue (excluding Tax

Dept., Transportation, Veterans’ Assistance, Senior Services and the State Police, resulting in the elimination of 2,758 positions.

  • OPTION 5:
  • Spending reduction of $150 million and $120 million tax increases
  • 2% cut to public education
  • 10% cut to higher education
  • Fully fund PEIA
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SLIDE 21

Reven enue e Sho hortfall R Reser erve e Fund B und Balances es

Source: West Virginia State Budget Office

Rainy Day Fund A at lowest point since 2011

$274 $335 $516 $565 $562 $480 $379 $276 $307 $329 $353 $369 $386 $370 $549 $643 $845 $918 $931 $866 $748 2010 14.6% 2011 15.8% 2012 20.6% 2013 22.6% 2014 22.7% 2015 20.6% 2016 18.3% March of Each Year

RDF A RDF B Total

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SLIDE 22

Revenue O Options: R Raising T g Tobacco T Taxes

Source: WVCBP

U.S. average rate $1.61 per pack

$71.5 $135.0 $4.7 $24.4 $1.8 $161.2 $78.0

$1 per pack $1.55 per pack 12% other tobacco 39% other tobacco E-Cigs 7.5 cent High Tobacco Low Tobacco (Gov Rec)

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SLIDE 23

Wes est V Virgin inia lead eads n natio ion i in pac ack p k per er per erson

Source: WVU BBER

WV per pack tax 6th lowest in the United States

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SLIDE 24

Additional R Revenue O Options ( (in millions)

Source: WVCBP

$200 $60.0 $13.6 $10.0 $5.8 $289.4 7% Sales Tax 6% Telecom Services Beer/Wine/Liquor Digital Downloads Personal Services TOTAL

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SLIDE 25

Additional R Revenue O Options ( (in millions)

Source: WVCBP

$50.5 $44.8 $18.5 $18.0 $9.9 $141.7

Soda Tax 7.4% on $150k + 6% Natural Gas 10% NGL Eliminate Personal Exemptions Total