Budget negotiations continue in special session despite a memo warning of government shutdown

West Virginia legislatures are back after a 10-day break to resume a special session on the budget Monday. With the Justice administration and Senate leadership tweaking a revenue plan in hopes of gaining support in the House of Delegates.

With a state government shutdown looming in just 46 days, chief of staff for Justice, Nick Casey, sent a memorandum Monday to state cabinet secretaries, directing them to prepare contingency plans for continuing essential services after July 1 if no budget bill is passed.

“In an abundance of caution, you need to start developing a contingency plan for all your agencies as to how to proceed should the budget not be in place to be effective on July 1, 2017,” Casey stated in the memo.

“Your planning must identify essential and non-essential services,” the memo added.

Casey requests that the contingency plans be submitted to the governor’s office by May 30, and notes that if the budget impasse is resolved before July 1, the exercise of classifying essential and nonessential services could help identify options for consolidating services and finding financial efficiencies in the future.

Gov. Jim Justice amended the special session call to include legislation, “employee protection bill”, to allow him to furlough state employees in the event of a government shutdown.

Under the current law, if state government shuts down, state employees would effectively be terminated on July 1, and would have to be rehired once a new budget takes effect, potentially costing them health insurance coverage, seniority, and other benefits.

“We have to prepare for the worst case scenario, and if that day comes I want to ensure all of our state workers are protected,” Justice stated. “It’s not right for our state workforce to lose their health insurance coverage or see their benefits disappear on July 1 if there is no budget in place. This bill needs to pass in order to safeguard state employees.”

On at least three occasions, including the past two regular sessions, the Legislature has declined to pass a furlough bill.

In the past, state employee unions have objected that the legislation could allow administrations to require state employees to take unpaid leave days to save money.

Meanwhile, the resumption of the special session got off to a fitful start Monday, as both houses met briefly and recessed, awaiting the drafting of the latest Justice/Senate compromise on the revenue plan.

According to Senate President Mitch Carmichael, R-Jackson, many of the tweaks in the latest version are intended to address objections House Republicans had to the earlier versions of the revenue bill.

“If they don’t like this plan, then what is it?” Carmichael said. “For those who want to say no, it’s incumbent on them to offer an alternative. Saying no is not an alternative.”

Some of the tweaks offered Monday include:

Lowering a proposed increase in the consumer sales tax from 7 percent to 6.85 percent, while eliminating some current sales tax exemptions on business-to-business transactions to make up the difference.

Phasing in a roughly 20 percent reduction in personal income tax rates over two years, to reduce the impact of lost revenue in the 2018-19 budget year.

Increasing the state privilege tax on motor vehicle purchases from 5 percent to 6 percent, providing $40 million for Justice’s road building program. That would allow an equivalent reduction in proposed increases in state gas taxes to provide that funding, reducing the total increase to less than $60 million.

Eliminating a proposed temporary increase in the state corporate net tax from 6.5 to 8.5 percent that would have raised about $45 million a year.

House Majority Leader Daryl Cowles, R-Morgan, said Monday he has doubts about whether the revised plan will garner much support among House Republicans who soundly rejected two earlier versions of the bill.

He noted that only two members of the 64-member Republican caucus indicated support for the 7 percent sales tax, and said the 6.85 percent rate is probably not low enough to persuade others.

“I think there’s growing consensus for simplification,” Cowles said.

Critics of the Justice/Senate plan note that it closes the shortfall in the 2017-18 state budget only because the proposed tax increases would go into effect on July 1, six months before the income tax rate reductions would become effective on Jan. 1, 2018, but that it creates future deficits beginning in 2018-19.

“It underscores the fact that this is a tax cut,” Carmichael said of the revenue projections. “Secondly, it underscores the fact that this governor and this Legislature are invested in the growth these bills will produce with the roads package and the tax cuts.”

Carmichael said the state plan is designed to avoid scenarios experienced in states such as Kansas, where reductions in income tax rates caused massive state budget deficits.

“In contrast to what some of these other states have done when they’ve made these tax cuts, we’re controlling government spending,” he said. “In inflation-adjusted numbers, this government will shrink.”

Monday marked the third day of the special session, at an estimated cost of $35,000 a day.

 

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