State Budgets

West Virginia: Governor Recognizes Problems, but Solutions Fall Short

Newly elected West Virginia Governor Jim Justice delivered his inaugural speech on an unusually warm January afternoon. His speech proved to be unusually warm as well. “Today we’ll have a little bit different speech. I’ll speak to you directly from my heart…I want absolutely nothing… all I want is goodness for this incredible state and its incredible people.” If delivery and mannerisms accurately convey intentions, the governor possesses the best of them. However, the policy prescriptions generally fell short of practical solutions.

Unfortunately, taxation–rather than budget efficiencies or pro-growth policies–seem to be the governor’s preference. “There’s no question there’s waste. And there’s no question we’ve got to do something about that. But we have to raise revenue. We have to got to find a way to raise revenue,” the governor admonished.

The governor is hinting at saddling coal and natural gas extracting firms with yet more taxes, arguing “when the companies are really hurting, I say we try to help, but when the companies are really winning, we’ve got to get more too.” West Virginia currently imposes severance taxes on coal and oil of 5 percent (state and local combined). And this tax is in addition to a 6.5 corporate income tax. Sadly, former Governor Earl Ray Tomblin opposed efforts to drop this tax to 3 percent over four years. The state’s energy industry has been under assault from federal regulators and must compete with other energy producing states; refusing to lower the severance tax deters investment, suppresses energy production and depresses job creation.

Perhaps the most interesting item of the speech was a call for “an environmental subsidy” from the federal government to cover a percentage of wages for hardwood furniture. Because hardwood furniture sequesters carbon otherwise released into the atmosphere, the governor claims this subsidy is justified. But what if a subsidy did cover a “social cost of carbon,” estimated at $36 per ton by a recent Obama Administration interagency working group? A kitchen table 2 inches thick, four feet wide and six feet long constitutes about 48 board feet of wood and thus about 200 kilograms of sequestered carbon (each board foot sequesters a net of approximately 4 kilograms of carbon). The “value” of this sequestration is just over $7.

Relying on such a subsidy to “bring many, many manufacturing jobs back to the states” is an empty hope for multiple reasons. Not only is Congress unlikely to enact such a subsidy, but a $7 subsidy on a $1500 dining room table is hardly the spark required to draw furniture mills into the state. In addition, the environmental benefits are nil, considering hardwood furniture manufactured anywhere in the nation or world sequesters carbon as well.

If the governor really means to make furniture manufacturing more competitive, how about starting with a repeal of 2016’s new timber severance tax increase? The infrastructure spending proposals also bordered on an alternative reality: “There’s a way to get things going with no money.” The governor explained he hopes to parlay $225 million in capital into a $4.5 billion financial instrument (presumably bonds) issued by Wall Street. The state will receive $1.4 billion up front by discounting the value of this debt, which will be repaid over a period of 15 to 25 years. Under the governor’s plan, “as many highway matching dollars” as possible will supplement this $1.4 billion. But is using long-term debt of equal to more than $9,700 for each family of four in the state prudent?

The governor also called for putting “real dollars into tourism and marketing.” But a recent study by the non-partisan Mackinac Center for Public Policy found, “The new spending generated by taxpayer-funded tourism advertising is funneled to just a few sectors of the economy: retail, accommodations and amusements, where the impact is visible, but tiny. Meanwhile, the cost of these programs is spread across Michigan’s taxpayers, and the employment losses in other sectors of the economy more than offset the gains to the tourism sector.” A few politically favored entities benefit at the expense of taxpayers.

The governor did indicate a desire for serious reform of the public education system. “We’ve got to get the bureaucrats out of the way,” complained the governor as he called for “elimination of a bunch of unnecessary agencies” related to education. He pointed out that compared to 1980, the state instructs “half as many students and [employs] ten times as many bureaucrats.” By continuing to allow public schools to be micro-managed from Charleston, “we have proven how to be last.” Indeed, ALEC’s most recent Report Card on American Education ranks West Virginia 44th in the nation on state education policy.

“We don’t need to be a third world country,” says the governor. He’s right. He insists, “We’ve got to solve the riddle.” Right again. And he insists, “There’s no point in dividing ourselves between republicans and democrats and independents…We are truly just west Virginians.” Trifecta. And he correctly understands “we‘ve got to have jobs. We’ve got to have hope. We’ve got to have opportunity.”

We know what clouds the state’s economic future: tax increases, a bloated public sector and the nation’s worst tort system. It’s no wonder West Virginia is near the bottom in terms of Rich States, Poor States economic outlook; in 2016, West Virginia sank for the third year in a row, to number 37.

The governor bemoaned “we’re at the bad end of a lot of jokes. And we’ve been that forever more. I don’t like it. I don’t like the fact that we are 50th at everything coming and going.” If that’s the case, then maybe it’s time to embrace the pro-growth agenda nearby states such as Michigan, Ohio and Indiana are following. Raising taxes, begging for federal subsidies and plunging into debt are not solutions to West Virginia’s woes.

 


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