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NEWS
Federal stimulus plan could mean loss of state dollars
CHARLESTON -- Congress hopes its $168 billion stimulus plan will ward off a nationwide recession, but it could also pull nearly $44 million in revenue out of West Virginia's budget over three years.
State budget analysts believe most of that money will be made up in increased sales tax collections and other offsets, but a public policy watchdog group warns that extra revenue may not appear.
The danger is that in difficult economic times, what the federal government does to help might actually harm West Virginia and 22 other states.
The Center on Budget and Policy Priorities draws attention to a part of the stimulus package Congress approved this month called "bonus depreciation." Essentially, it's a way for businesses to speed up the tax breaks they'll get for buying new equipment in 2008.
The plan allows them to deduct up to 50 percent of the cost of new equipment from their taxes in 2008, a considerable savings.
This affects states like West Virginia, where the state tax codes are based on federal law. When the federal code changes, the state tax changes with them, so businesses in West Virginia will get an additional tax break if the state follows past practice and amends its laws.
Overall, the center estimates that 23 states face a total revenue loss of $1.7 billion.
"When they put together a long-term budget plan, this could put a damper on things," said Ted Boettner, executive director of the West Virginia Center on Budget and Policy.
Boettner wants the Legislature to refrain from "coupling" state tax laws to the federal changes, to preserve that revenue.
That may not be necessary, according to Mark Muchow, deputy secretary of the Department of Revenue.
Muchow estimates that from fiscal year 2008 through fiscal year 2010, the "bonus depreciation" change along with other, smaller tax breaks could cost the state $43.8 million, mostly concentrated in the fiscal years 2009 and 2010.
But the state projects sales tax revenues -- spurred by tax rebates dispatched by the federal government in June as part of the stimulus -- will be up by about $18 million, essentially eliminating the projected loss in the 2009 fiscal year.
Muchow also projects increased tax revenues in the two fiscal years following 2010, so that when it comes to the state's long-term budget planning, "we come out pretty well neutral," he said.
West Virginia was one of 13 states that experienced a dip in revenue when Congress passed similar stimulus legislation following the terrorist attacks of Sept. 11. Muchow said in that instance, new revenue growth largely offset the money that was lost.
"The biggest impact on state budgets is a cash flow impact, and so some states won't be coupling their codes with the federal codes," Muchow said. "We're lucky to be in a better position than some other states."
Boettner hopes the Legislature won't sync up state law with the new federal code, but concedes that seems unlikely so far.
"As far as I know, the state has no intention of decoupling from this provision," he said.
Senate Finance Committee Chairman Walt Helmick said the state probably will keep its laws matched to the federal codes, even if it means a revenue dip.
"It's a wait and see game," Helmick said. "If this stimulus plan does what it's supposed to, then we'll take in more than we lose."
He's skeptical of that, though, and wants to budget for something other than the best case scenario.
"I'm always conservative when it comes to this kind of thing," the Pocahontas County Democrat said. "I kind of doubt some of these predictions we're hearing from the federal side, and if it turns out they're wrong, it's better to have budgeted for it."
