Tuesday, June 14, 2011
Knight Ridder/Tribune Business News
by David Beard, The Dominion Post, Morgantown, W.Va.
Could a severance tax trust fund build a hefty savings account for West Virginia as it has for Alaska, Wyoming and a handful of other states?
Jill Kriesky, an economist with the West Virginia Center on Budget and Policy, thinks it could and brought the idea before the Legislature's Joint Commission on Economic Development, on Monday morning -- the first day of the June interim meetings.
Kriesky's proposal projects that a 1 percent severance tax hike on coal, oil and gas extraction and production could raise $100 million in its first year. A "Severance Tax Permanent Fund" could have a principal balance of $612 million by 2015, $1.18 billion by 2020 and $3.77 billon by 2035.
The state's entire general fund is just over $4 billion now.
The current severance tax is 5 percent and raised $400.5 million in fiscal year 2010, according to Revenue Department figures.
Kriesky told the joint House-Senate commission that six states and the Navajo Nation have such trust funds. They're all western states with relatively undiversified economies heavily dependent on nonrenewable natural resources.
They use the money for such things as boosting their general funds, inflation-proofing, enhanc- ing education, infrastructure and distribution to the public.
Alaska's fund was created in 1976 and has a balance of $40.3 billion. Wyoming's 1974 fund has $4.5 billion. North Dakota has three funds. Its newest, the 2010 Legacy Fund, already has $619 million.
Two unsuccessful Democratic gubernatorial candidates raised similar ideas in their primary election campaigns. Both proposals were more limited -- focused on increased revenues from Marcellus shale gas extraction.
Secretary of State Natalie Tennant proposed the Innovation 2020 Fund to benefit education, local economic development and several other areas.
Acting Senate President Jeff Kessler proposed the West Virginia Future Fund, using 25 percent of the severance tax collected from natural gas extraction and production. The fund would go untouched for 20 years, and would then be used for tax relief, education and economic diversification.
Kriesky noted several advantages to a severance tax trust fund: Nonrenewable resources can produce sustainable wealth. It can stabilize boomand-bust economic turbulence. It can build assets to pay off unfunded liabilities -- such as the OPEB debt.
Kriesky's presentation, which she didn't get to complete Monday, also touched on jobs. She noted that 87 percent of coal produced in West Virginia is exported -- so out-of-state interests would be paying the tax with little effect on in-state jobs.
Sen. Richard Browning, DWyoming and commission co-chair, had questions about that. "How many jobs would it kill?" he asked. Kriesky didn't know. Browning suggested the commission have her back later to complete her presentation and answer questions.
Referring just to coal, Delegate Kevin Craig, D-Cabell, said mining in West Virginia is already more costly than in surrounding states. "If we layer another burden on mining we won't be nearly as competitive as we need to be."
Kessler also was skeptical about Kriesky's more expansive proposal, partly because it raises taxes.
"When you talk about raising a tax," he said, "that's going to make everyone scream. If you take an existing tax and reapportion it, it's going to make everyone scream."
His Future Fund does neither, he said. It uses a new pool of money derived from anticipated expanded Marcellus production.
"No one actually owns it at this point," he said, so the Legislature could set a portion aside to save for future generations.
Copyright (c) 2011, The Dominion Post, Morgantown, W.Va.
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