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February 23, 2017 - Volume 37 Issue 4

Gov. Jim Justice, West Virginia’s 36th governor, will address participants attending the West Virginia School Board Association’s Winter Conference. His presentation is slated for 1:00 p.m., on Friday.

“We are delighted our honorable governor can be with us,” WVSBA President Sam P. “Doc” Sentelle, Ed.D. “He is a true friend of education – all facets of public education – and brings the right combination of experience, commitment and charisma to lead this state in terms of respect for county boards, superintendents, our teachers and administrators.”

State school board member Miller Hall will introduce the governor. Hall is a former Raleigh County Board of Education central office administrator and served as co-chairman of the governor’s public education transition team.

Another state school board member, Barbara Whitecotton, also plans to attend the WVSBA conference. She is a former Hardy County schools superintendent. In addition, House Education Vice Chairman Joe Statler, R-Monongalia, plans to attend the conference as well.

Sentelle is a Putnam County Board of Education member and former county school superintendent.

The conference will conclude on Saturday. Here is a link to the conference program: http://www.wvsba.org/sites/default/files/WVSBA%20Winter%20Conference%20%2717%20program.pdf

By Jim Wallace

State Supt. Michael Martirano has told legislators he would like to be able to provide incentives to attract teachers to fill positions that are difficult to fill, especially in special education. He made that and other comments in Department of Education budget presentations to the House Finance Committee and the Senate Finance Committee.

Members of those committees expressed interest in making changes that could affect the future of the Regional Education Service Agencies (RESAs), allow retired teachers to work longer in filling vacant teaching positions, provide better and cheaper broadband internet service for schools, change the method for laying off teachers and consolidate professional development services.

Senate Finance Chairman Mike Hall. R-Putnam, advised his committee members that the education section of the state budget “is pretty expansive.” The money issues “are manifold in the Department of Education,” he added.

“This is a significant area of spending, and of those who would call for reductions in government or reductions in funding, to get to the levels that some people are talking about, the challenge would be to look at this section,” Hall said, although he added that he didn’t see much room for cutting education spending. The department’s budget is about $2.5 billion, but some of that comes from lottery funds and federal funds, so only about $1.8 billion is from the general revenue fund.

“If you’re going to grapple with the budget problem, you must spend time with this presentation.” – Sen. Mike Hall

“If you’re going to grapple with the budget problem, you must spend time with this presentation,” Hall told the committee before Martirano spoke.

The presentations that Martirano and other department officials gave to the two finance committees was similar to those they gave last week to the education committees from both chambers of the legislature, but different issues came out when finance committee legislators asked questions. Martirano’s main theme again was that West Virginia has a crisis with 718 teaching positions that are not being filled by fulltime, permanent teachers appropriately certified for those positions, and no county is exempt. But he spent a bit more time describing legal problems that could develop from that situation and his proposals for filling vacancies.

“My philosophy is people are programs and programs are people,” Martirano said. “The crisis facing education in the state of West Virginia is based upon the vacancies that we have in our workforce in teaching.”

Of those 718 positions not being filled properly, 238 of them are in special education, even though there are about 3,000 teachers with special education certification who are not working in special education. Martirano said that shortage has serious legal implications because each special education student has an individual education plan (IEP). If schools fall out of compliance with those plans, parents could sue local school systems for services not provided, he said.

“If we don’t have the staff, we still don’t have the flexibility to deny services,” he said.

Martirano suggested offering a $3,000 incentive for teachers certified for special education to fill vacant special education positions. It would cost $714,000, which he called a drop in the bucket compared to the costs of not providing education to special education students. If the special education positions could be filled, he then could backfill other positions, he said.

“That’s a bargain in the sense of the amount of money we have to pay to ensure that services are provided from the IEP, the additional stress that’s being placed on teachers who have a larger caseload, et cetera, et cetera,” Martirano said.

“I would love to be able to dig into the census data somehow to determine how many teachers are living in the state of West Virginia who are now teaching in other states.” – Supt. Michael Martirano

“I would love to be able to dig into the census data somehow to determine how many teachers are living in the state of West Virginia who are now teaching in other states,” he said. “The Eastern Panhandle and the Northern Panhandle have this happen often because they can live in the state of West Virginia, where the quality of life is higher [with] a lower cost of living.”

Teachers can make significantly more money in neighboring states, he said. “Ladies and gentlemen, we have fallen so far behind with our teacher salaries that we are now ranked number 46 in the nation,” he said.

Filling teaching positions is even harder in some counties with schools located in isolated areas in rugged terrain, Martirano said. He then suggested a three-pronged process to address the problems:

  1. ) Salary enhancements;
  2. ) Legislation to remove barriers or restrictions to recruiting teachers; and
  3. ) Establishment of a teacher corps that would be similar to the Peace Corps.

“I’m looking at the creation of a teacher corps that would bring young people into the state of West Virginia as first-year teachers and incentivize by giving them $5,000 a year to pay off their student loans.” – Supt. Michael Martirano

”In general, what I’m also looking at is we need to increase our teacher salaries, as is contained in the governor’s budget,” Martirano said. “But also, I’m looking at the creation of a teacher corps that would bring young people into the state of West Virginia as first-year teachers and incentivize by giving them $5,000 a year to pay off their student loans. You give us three to five years in geographical isolated areas, critical need areas across the board, and we will assist you in paying off your student loan. If we did that for 200 teachers at $5,000 each, that’s $1 million. That’s a small price tag to address this critical need area across the board, and no county is exempt from this. Some are worse than others.”

Noting that not everyone agrees with such incentives, he said, “But we’ve got to do business different to get different results. How we’re doing it now is not working for us because this, during my three years as your superintendent, has gone up exponentially each year, and some parts of our state are a critical area and have greater issues of concerns, such as counties that are surrounded by other states. The other states are coming in and taking our teachers because they can incentivize and pay them higher salaries.”

Delegate Ron Walters, R-Kanawha, suggested it might make sense for the state to require many local administrators who are certified as teachers to teach at least one class each. Martirano said some school districts have done that, but it’s not a state requirement. He said he would prefer to keep it as a local option rather than a state mandate.

Walters also suggested easing restrictions on how much retired teachers could work as substitutes. Martirano said his department is working on that and it would provide “another big tool in the toolbox” to address the problem. Currently, retired teachers are limited to teaching no more than 140 days. “In this time of shortage and scarcity of resources, you have to avail me with every tool that I can use to help me,” Martirano said.

Superintendent offers suggestions about RESAs.

When legislators asked about RESAs, and specifically about Gov. Jim Justice’s proposal to zero-out their budget, Martirano’s basic position was that the state school board, which has had significant turnover in membership in the past month, has not taken a position on that subject yet, so he had no official position. He also pointed out that the RESAs report to the state board, not him, so he has no direct authority over them.

But when a delegate asked what benefits county school boards get from RESAs, Martirano noted that he has been carrying around a report from the Legislative Auditor’s Office that recommends eliminating RESAs. He added that he has been concerned about their mission.

“In times of economic strife, we need to examine all of our agencies to determine: Have we drifted from our overall mission?” Martirano said. That would include determining which services could be absorbed at the county level, which ones are not necessary and which ones need to continue, he said.

“We have 459 positions [funded] from multiple sources that go to the RESAs,” Martirano said. In addition to the services they provide to school districts, he said, the RESAs provide other services, such as training emergency medical technicians, firefighters and people seeking commercial driver’s licenses.

“Is there opportunities for consolidation and further efficiencies to occur?” Martirano asked. “That’s the way that I would approach it if it was under my level of supervision.”

Asked whether school districts would be able to provide services they now receive from RESAs if the RESAs would go away, he said, that would put incredible stress on the districts, considering how financially strapped they are now.

Amy Willard, executive director of school finance, added that RESAs get about $3.5 million from the state and more than $50 million from other sources: $16.7 million from the federal government, $17.9 million from the state, and $18.9 million from local sources, including reimbursements from school districts.

Walters suggested that West Virginia University could take over the training of EMTs and firefighters from the RESAs.

In addition, he also suggested that schools could get better internet broadband service for less than they pay now. “If we had a state-owned, open-access internet system that didn’t charge our schools or government, what would you say?” Walters asked. Martirano said that could be more efficient, but he would have to see the details of the proposal.

House Finance Chairman Eric Nelson, R-Kanawha, asked for Martirano’s opinion of a proposal to consolidate professional development services that is now handled by the Education Department, RESAs and the Center for Professional Development.

“One of my concerns is we’re not hitting all the people we need,” Martirano said. “There needs to be a consolidation of purposes, and that needs to be directed by this body.” – Supt. Michael Martirano

“One of my concerns is we’re not hitting all the people we need,” Martirano said. “There needs to be a consolidation of purposes, and that needs to be directed by this body.”

Targets for cuts are discussed.

Nelson also mentioned that the current setup in which agencies with 811 employees report directly to the state school board without going through the superintendent is unusual. “If one’s running a public company and you have a CEO, the CEO generally has everybody reporting to him and the CEO reports to the board,” he said and suggested that the House Education Committee should look at that issue.

Hall noted that Gov. Jim Justice has said West Virginia’s the education bureaucracy is top-heavy, so he expects a proposal to eliminate positions in the Department of Education. When he asked if Martirano also expected such a proposal, Martirano said that was why he made a point of telling legislators which positions are under his authority and which are under the state school board.

Noting that he has reduced the department by 80 positions, Martirano said, “The department is extremely thin to oversee the $2.4 billion [budget]. My accounting department is extremely thin. A variety of other things are expected and mandated by code and law that has to occur. I just don’t want us to get to the point where we have errors and concerns because we’ve cut so many thus far.”

Sen. Ed Gaunch, R-Kanawha, expressed surprised that the Schools for the Deaf and Blind’s budget is $13,850,324 for 125 students. “There’s obviously more than 125 deaf and blind students in West Virginia,” he said. “How do we educate the rest of them?”

Martirano said there are 163 positions at the Schools for the Deaf and Blind to provide intensive services to students. However, he said, many parents don’t want to send their children to Romney, so they get the services elsewhere.

“There are different ways to provide those services across the board, and I believe there are some opportunities for further savings there, as well, by using the local counties.” – Supt. Michael Martirano

“There are different ways to provide those services across the board, and I believe there are some opportunities for further savings there, as well, by using the local counties,” Martirano said.

“That’s $110,000 per student,” Gaunch said, still expressing surprise at the cost.

“Very intensive services for some of the young people, but there are different ways to provide those services in a more efficient manner,” Martirano said. “If you have not been to the Schools for the Deaf and Blind, it’s eye opening. It’s an extremely archaic facility. It has a very palpable institutional feel, things that I have not seen in quite a while.”

Changes in testing could save money and students.

Martirano also took the opportunity to point out to legislators that the state school board has decided to limit summative testing in high school to just the eleventh grade. He said that would save about $1 million in this year’s budget.

That subject of testing also came up when Sen. Corey Palumbo, D-Kanawha, said he had seen that the high school graduation rate has gone up in West Virginia, but some colleges still have complained that many students are not ready for college work.

Martirano said not only will high school students have to take the statewide summative test only in the in 11th grade, but that it will be part of an effort to improve students’ readiness for college and careers. He said the department will set a standard defined as college-ready, meaning students would be ready to go into credit-bearing courses. For students who don’t meet that mark in 11th grade, they would receive remediation in high school and opportunities to take the test again. That would reduce the remediation rate, he said.

“I think we can solve this in our high schools,” Martirano said. But he added that test data must be available in a timely fashion to affect the next year of instruction. He added that future statewide summative assessments should stand the test of time without changing every year or two and that they should be tied to a component to improve college- and career-readiness.

“I agree with that,” Palumbo said. “Changing them frequently is not good for anyone. I think that sounds like a reasonable plan to go forward.”

“Many of our schools across the state are using online recovery processes that are approved by the Department of Education.” – Supt. Michael Martirano

In response to another question from Palumbo about credit recovery, Martirano said that is about responding when children are failing because those who fall behind are at risk of dropping out. “As soon as we notice it in ninth grade if a young person is falling behind, and they’re not going to be able to get that credit, how do we intervene in a timely fashion to get that credit and not drop out?” he asked. “Many of our schools across the state are using online recovery processes that are approved by the Department of Education.”

The students can work on those processes on their own time with support from teachers, he said. That occurs mainly in the core content areas of reading, language arts, math, social studies and science, he said.

Martirano added that the same type of methods also can be used for opportunities for original credit to allow students to take advanced placement courses. Those opportunities need to be expanded, he said, because they help provide equity in education across the state.

“It’s not for the faint of heart,” he said. “You have to be a self-directed learner. You can’t fall behind, and it requires a lot of independence with the teachers providing that guidance and opportunity. I’ve heard many of our students say it is not for everyone because you have to commit and you have to put the work in.”

House Education Chairman Paul Espinosa, R-Jefferson, asked about the lottery system school districts have to use to determine which teachers to lay off. “Is that consistent with your effort to ensure that we have the most qualified educators in our classrooms?” he asked.

“I have never experienced that system before in my career,” Martirano said. “That’s all I going to say.”

“Well said,” Espinosa replied. “Thank you.”

Funding for maintenance is an issue.

When Hall expressed concern about seeing heating and air conditioning systems that are not properly maintained, suggesting that something seems “totally out of whack here,” Martirano expressed concern about how much is being spent to maintain school facilities. He said many systems are not very efficient. He said there are still three coal-fired furnaces in schools, two of them in Fayette County.

“We have reduced our county budgets so much that one of the first things that’s going is the amount of money for our maintenance.” – Supt. Michael Martirano

“We have reduced our county budgets so much that one of the first things that’s going is the amount of money for our maintenance,” Martirano said. “One school system within our state has a budget of $25,000 only for maintenance, and that’s depleted within the first couple of months. Goodness, we hope we have winters like this every year where our energy costs are reduced.”

Then he expressed hope the legislature would work with his department and the School Building Authority to address that issue.

Hall responded that the state is not seeing enough return on investment. He said there are companies that would handle such maintenance issues for the entire state, and other states have saved millions of dollars by using them. Martirano said he did something like that when he was a county superintendent in Maryland.

In his prepared presentation to the committee, Martirano emphasized the importance of investing in education by noting that the United States spends an average of $35,000 a year to incarcerate someone and just $10,000 a year to educate someone.

His presentation included concern about the financial status of many school districts, which he said are running “a very, very low – almost non-existent – fund balance.” Martirano said he can’t legally approve districts’ budgets unless they are balanced. This past year, Boone County had a budget that was not balanced, so he refused to sign off on it. He said the district could have run out of money as early as April.

“So teachers would not have been paid,” Martirano said. ”Children would not have been educated. So they had to go back and make some very tough choices.”

As he did for the two education committees, Martirano spent a good portion of remarks noting that most of the people in positions funded in the Department of Education’s budget do not work directly for the department at its headquarters in Building 6 of the Capitol Complex. He said the 239 positions in the department at Building 6 represent a reduction of 80 positions, or 25.1 percent, since 2011. During that same period from 2011 to the present, Martirano said, the number of students in public schools has dropped by 9,000, or 3.2 percent, from 282,000 to 273,000.

“So we have a very lean department in many ways at a time when the expectations have increased on me regarding the federal expectations,” he said.

By Jim Wallace

The West Virginia Senate has approved Senate Bill 242, which is similar to a bill approved by the legislature last year but vetoed by then-Gov. Earl Ray Tomblin. The bill would remove the requirement for schools to have 180 separate days of instruction and allow schools to use accumulated minutes to make up time missed because of snow days and other issues.

“In my opinion, this bill is well needed and will be a great step in the right direction to give flexibility back to our county school systems.” – Sen. Kenny Mann

“In my opinion, this bill is well needed and will be a great step in the right direction to give flexibility back to our county school systems,” Senate Finance Chairman Kenny Mann, R-Monroe, told his colleagues in the Senate. “This bill gives our educators across this state their voice. This is what they’ve communicated to us.”

The bill also would increase the number of faculty senate meetings from four to six with at least one occurring in the first month of the school year and one in the last month, as well as one each in October, December, February and April. Each county board also would have to designate one day for opening schools and one day to prepare for closing schools, but those days could be used for other purposes at teachers’ discretion.

The Senate voted 33 to nothing with one member absent to approve Senate Bill 242 and send it to the House of Delegates. If it is approved there and signed into law by Gov. Jim Justice, it would become effective July 1.

Bill on summative tests gets sidelined for further work.

The Senate Education Committee was scheduled on Tuesday to consider Senate Bill 18, which would require the use of the ACT and ACT Aspire as comprehensive statewide student assessments, but the committee put off action on it. Mann referred the bill to a subcommittee made up of: Patricia Rucker, R-Jefferson; Bob Plymale, D-Wayne; and Charles Trump, R-Morgan. The subcommittee is to work out issues with the bill’s wording before bringing it back to the full committee. It was on the committee’s agenda for today’s meeting.

Last week, when the bill first came before the committee, Hank Hager, counsel for the committee, and a few members questioned whether the bill would be constitutional as it is worded because it calls specifically for use of products provided by a commercial vendor instead of using generic language that would include the ACT offerings but could also include tests available from other vendors.

Also on the committee’s agenda for today’s meeting was Senate Bill 251, which would create a pilot program for school-based mental and behavioral health services for students and families.

By Jim Wallace

The House Education Committee spent a few hours Wednesday initiating work on House Bill 2524, which is voluminous legislation that would do many things, including eliminating the Department of Education and the Arts, the Center for Professional Development and the Principals’ Academy. But its main purpose is described as improving “the focus on school-level continuous improvement processes led by the principal.” In other words, it is the latest effort to decentralize professional development and put more of it at the local level.

“The thrust of the legislation is to really reinforce the principal as being the instructional leader of our school and really move a lot of that decision-making down to the local level.” – Delegate Paul Espinosa

The lead sponsor of the bill is House Education Chairman Paul Espinosa, R-Jefferson, who said, “The thrust of the legislation is to really reinforce the principal as being the instructional leader of our school and really move a lot of that decision-making down to the local level.”

Dave Mohr, counsel to the committee, said the bill would be consistent with the findings of the education efficiency audit that was released in 2012. “One of the major issues raised by the efficiency audit was that the education system in West Virginia was one of the most top-down, heavily regulated in code and policy states that they had ever come across,” he said. The audit found no reason for the Center for Professional Development to be separate from the Department of Education, he added.

Mohr said many principals have said they are unable to provide the professional development they want for their schools because they find that uses for professional development funds are planned at higher levels before they get a chance at it.

Delegate John Kelly, R-Wood, noted that parts of the bill would move responsibilities from the Department of Education and the Arts to Regional Education Service Agencies, but other legislation this year would eliminate the RESAs. Thus, he wondered if that would be a problem. Mohr said it should not be a problem because nothing in House Bill 2524 would make any services dependent on RESAs.

Although the name can be a bit confusing, the Department of Education and the Arts is separate from the Department of Education. The Department of Education and the Arts was one of several departments formed in the early 1990s when Gov. Gaston Caperton reorganized state government. His original plan was to put the Department of Education into the new Department of Education and the Arts, but that would have required a constitutional amendment, which voters rejected. Although elimination of the Department of Education and the Arts has been proposed many times before, it could have a better chance of happening this year, when legislators are trying to fill a budget shortfall of $500 million or more.

Legislators also have talked quite a bit this year about consolidating professional development responsibilities. They now are shared by RESAs, the Department of Education and the Center for Professional Development, which is part of the Department of Education and the Arts.

“Some of the other aspects of this legislations are a bit incidental to the overall thrust of the legislation, and that is to empower our schools and to move away from such a centralized approach, which was cited in the governor’s education efficiency audit as being just that,” Espinosa said.

By Jim Wallace

The House Education Committee and Senate Education Committees both approved bills this week that would give county school boards the option of not seeking reimbursement from Medicaid for certain services if the boards don’t receive enough back to make the process worthwhile. Those bills are House Bill 2430 and Senate Bill 231.

“Because there have been so many changes in the Medicaid billing process over the last few years, it has become a lot more labor-intensive for the county boards of education, and they have seen that their revenues are dwindling. So they’re having to expend more effort to get fewer dollars.” – Amy Willard

Asked what the real effect of the legislation would be, Amy Willard, executive director of school finance for the Department of Education, told the House Education Committee, “Because there have been so many changes in the Medicaid billing process over the last few years, it has become a lot more labor-intensive for the county boards of education, and they have seen that their revenues are dwindling. So they’re having to expend more effort to get fewer dollars.”

The existing statute says they are to maximize federal revenue and shall be Medicaid providers, so they haven’t been able to stop billing even if they are losing money when Medicaid doesn’t cover their costs, she said. “So counties would like to have the ability to do a cost-benefit analysis,” Willard said.

School districts still would provide services to the students even if they didn’t get paid for them by Medicaid, she said. “It’s just a matter of whether they want to go through that paperwork process and actually submit the claim,” she said.

Willard further explained that changes have been made in how Medicaid reimburses providers transportation and personal care aides. For example, she said, boards used to get daily rates for personal care aides, but now the billing is done in 15-minute units, so the aides must fill out exactly what they do during each quarter-hour.

“We went from a daily rate that covered probably close to 90 percent of that aide’s salary to now we’re seeing close to 13 percent of the time being covered of that aide’s salary,” Willard said. Likewise, she said, care coordination by teachers used to be billed at daily rates, but now, it’s also billed in 15-minute units, so districts are receiving less money.

Most school boards choose to use Regional Education Services Agencies (RESAs) as billing agents, she said, so they send their paperwork to the RESAs. The RESAs are paid by the county boards for handling the billing matters, but the Medicaid reimbursements go back to the county boards.

“If the RESAs didn’t do it for most counties, they would have to employ someone themselves to do that,” Willard said. “So by utilizing the RESA, it makes it cheaper for them overall.”

The only school district that does its own billing for Medicaid is Braxton County, she said.

“I think that some county boards might be able to absorb it themselves, but others would tell me that they would have to hire additional staff to help with that, at least on a part-time basis,” Willard said.

The House bill’s lead sponsor, Delegate Steve Westfall, R-Jackson, noted that some RESAs bill for several counties. “Theoretically, we are saving money by having the RESAs do it,” he said.

The House Education Committee approved House Bill 2420 and sent it to the House Health and Human Resources Committee for further consideration.

The Senate Education Committee approved Senate Bill 231 with much less discussion. However, the issue received a bit more discussion when the Education Department had its budget hearing before the Senate Finance Committee. Willard told the committee schools received $28.2 million in Medicaid reimbursements in fiscal year 2015 but only $8.8 million in fiscal year 2016.

“We think that once all the cost settlement is completed that it’s going to be at around the $24 million mark that we will continue to receive,” she said. “At its height, we were receiving $55 million in Medicaid dollars, and it has just gradually gone down over the last five years.”

The Senate Education Committee’s approval of Senate Bill 231 sent it directly to the full Senate without being referred to another committee. The Senate could pass the bill as early as Monday.

By Jim Wallace

Because of West Virginia’s tight budget situation, Legislators are giving much scrutiny this year to bills that would spend money, but members of the Senate Finance Committee had few questions during their budget hearing this week for the School Building Authority. The authority’s budget has only four line-items, so it is a very small part of the state’s overall budget.

As Gary Stewart, director of finance for the agency, presented it, the School Building Authority’s budget request includes these line-items:

  • $23.4 million to pay debt service on bonds issued in the 1990s that are to be paid off in 2022. That is the only line-item using general revenue fund money.
  • $19 million from excess lottery funds for debt service.
  • An operating account funded by interest earnings on debt service reserve.
  • $11.5 million of debt service and $6.4 million for construction from regular lottery funds.

Frank Blackwell, executive director of the authority, said schools across West Virginia have more than $3.6 billion in construction needs, even after $1.85 billion in projects have been completed since the School Building Authority began operating in 1989. He said the completed projects include 34 new high schools, 32 new middle schools, 79 primary and pre-kindergarten schools, and more than 1,500 additions, renovations and improvement projects.

“The School Building Authority is probably one of the greatest accomplishments that has been enacted by the West Virginia Legislature.” – Frank Blackwell

“The School Building Authority is probably one of the greatest accomplishments that has been enacted by the West Virginia Legislature,” Blackwell said.

A previous attempt to improve schools across the state through bonds provided by the 1975 Better Schools Amendment wasn’t successful, he noted. “The money was transferred back to the counties, and without long-range planning and thought, a lot of money was spent,” Blackwell said. But some of the buildings closed within a few years and some additions were no longer needed because of drops in enrollment.

The legislation in 1988 to create the School Building Authority was designed to work better, Blackwell said, because it required long-range planning. Funding sources were designated as lottery and general revenue funds, along with bond sale revenue, he said.

The School Building Authority is scheduled to have another budget hearing before the House Finance Committee on March 8

By Jim Wallace

The Senate Select Committee on Tax Reform is expected on Friday to take up Senate Bill 335, which would repeal West Virginia’s income tax and have the state instead rely more on a sales – or consumption – tax that is broader based than the current sales tax. At the committee’s latest meeting, members heard from an opponent of that plan and from a West Virginia University professor who gave them principles to use in the tax reform process. Although legislators have not said yet how they expect tax changes to affect school districts’ revenue, any major changes are likely to affect the revenues they receive.

“The personal income tax in West Virginia is the only tax based on the ability to pay.” – Ted Boettner

“The personal income tax in West Virginia is the only tax based on the ability to pay,” Ted Boettner, executive director of the West Virginia Center on Budget and Policy, told the committee in arguing against replacing the income tax with a sales tax. “West Virginia has an upside-down tax system pretty close to most states’. There are several that don’t. Low- and moderate-income families, especially in the middle, pay about 9 percent of their income in state and local taxes while the top 1 percent pays about six and a half percent. That’s the opposite of the federal tax system.”

State taxes are regressive mainly because of the sales tax, he said, while the income tax is progressive because it is based on the ability to pay. For the sales tax, people with incomes in the top 1 percent pay about 1 percent of their incomes in state and local sales taxes, Boettner said, while people in the bottom 20 percent of income pay about 6.4 percent in sales taxes. In contrast, he said, for income tax, the top 1 percent pays 4.9 percent of income while the bottom 20 percent pays less than 1 percent.

In regard to Senate Bill 335, Boettner said the proposed new sales tax would take six months to a year to implement. “It’s highly regressive and would further exacerbate growing income inequality in the state,” he said. “It would also reduce consumer spending, which would hurt our state’s economy in our opinion.”

Senate President Mitch Carmichael, R-Jackson, has said he wants West Virginia to drop its income tax because other states that have no income tax – particularly Tennessee, Texas and Florida – have stronger economies. But Boettner said, “Cutting the income tax is not a surefire way to boost economic growth. There is no academic consensus that replacing the income tax with a sales tax boosts economic growth.”

Since 2012, most states that have cut their income tax are underperforming compared to the national average, he said. The only state that’s doing a little better than average is North Carolina, but most of its growth is occurring in the urban areas of Charlotte and Raleigh, Boettner said. Also, Georgia and South Carolina, which have income taxes, are performing better, he added.

But Sen. Robert Karnes, R-Upshur, challenged Boettner by asking him what the time frame for South Carolina outgrowing North Carolina is. Boettner agreed that the period selected is very important and said he looked at the period since the income tax cuts in North Carolina took effect. Karnes countered that both of the Carolinas have income taxes, but one South Carolina’s is higher than North Carolina’s. From 1990 to 2015, North Carolina outgrew South Carolina considerably, he said, and he added that legislators are trying to plan for the next 30 years in West Virginia.

Kansas offers a cautionary tale.

Boettner said Kansas serves as an example of what can go wrong in a state that gets rid of its income tax. It has been so bad for the state that a new bipartisan bill in the Kansas House would roll back all of the tax cuts adopted a few years ago, he said. Likewise, he said, Alaska abolished its income tax, and now a bipartisan group of legislators is trying to restore it.

Sen. Ryan Ferns, R-Ohio, challenged Boettner on what happened in Kansas. He said the major tax reform bill introduced by the governor was split into two. Then, he said, the bill with revenue enhancements did not get passed while the bill that passed had the tax cuts.

“I just think it’s a little bit misleading to talk about the bill that was passed without touching on how they got to that point.” – Sen. Ryan Ferns

“I just think it’s a little bit misleading to talk about the bill that was passed without touching on how they got to that point,” Ferns said.

But Boettner argued that even though his bill was split into two, the governor remained very supportive of the version that the legislature passed. “He said it would be a shot of adrenaline into the state’s economy,” Boettner said. “It passed. He could have vetoed it.”

Sen. Bob Plymale, D-Wayne, added that the Senate president in Kansas was ousted before the bill was split. As a result of the tax reform legislation, he said, the state’s deficit was “unbelievable.” He warned that West Virginia could experience such a budget disaster if legislators are not careful. He noted that Kansas had a stable budget before the changes. Boettner agreed that Kansas had surpluses before the tax cuts.

In addition, he said, if a state has higher sales taxes, many businesses will shift their purchases to neighboring states or the internet. Boettner said businesses in West Virginia pay about $500 million in sales taxes and about $400 million in personal and corporate income taxes. If Senate Bill 335 were implemented, West Virginia would have the highest statewide grocery tax in the nation, he said. Virginia is the only border state with a sales tax on groceries, and it is only 2 percent, he said.

It is good not to be overly reliant on one tax, especially the sales tax, which is not as sustainable as the income tax, Boettner said. Sales tax tends to grow more slowly over time than an income tax does, he said.

Instead of cutting the income tax, he suggested updating it. Boettner said West Virginia’s income tax has not been modernized since 1987. He also asked legislators to consider that people of all income levels get the $2,000 personal exemption. Phasing that out would bring in about $10 million to the state, he said.

Another change Boettner advocated is use of earned income tax credits. He said 26 states have earned income tax credits, and 18 of them are refundable. West Virginia could consider that, he said. Taxes can be used to incentivize certain behavior, especially at the low-income level, he said. High-income people who make $200,000 or more spend only about 51 percent of their income, while very low-income people spend a much greater percentage, he said.

Boettner suggested that state policymakers should work with the Institute on Taxation and Economic Policy, which has a widely respected micro-simulation model that is used frequently by the state Tax Department. The institute ran an analysis of the proposed general consumption tax, assuming it would be revenue neutral, and found the result would be a tax increase for 80 percent of households, he said. Someone with income of $40,000 would get a tax increase of $1,071, he said, while someone making $778,000 would get a tax cut of $27,755.

“This would exacerbate our upside-down tax system,” Boettner said. “This would probably put us in the top five in terms of regressivity.”

Sen. Greg Boso, R-Nicholas, countered that entrepreneurs do philanthropic investment that stimulates growth and opportunities. They also create jobs, he said.

But Boettner said many small businesses have small incomes, and the proposed legislation would hit them hard. Businesses react more to demand, he said, so getting more money into the economy among the middle class would help them. State and local taxes are less than 3 percent of the cost of doing business, he said. Labor costs, material costs and energy costs are more significant, he said, and they also are deductible.

A tax cut of $6,000 to $7,000 would do little for a small business because it is not enough to hire more people, Boettner said. Businesses look for a well-skilled workforce, he said, and West Virginia’s main impediment is an unhealthy workforce with many people who have drug problems. The tax reform bill would do nothing to address that issue, he said.

WVU professor offers tax policy advice.

Unlike Boettner, John Deskins, director of West Virginia University’s Bureau of Business and Economic Research, did not advocate any particular tax policy. Instead, he gave committee members advice on how to approach tax reform. He said the three fundamental principles of tax reform are:

  • Simplicity – Simpler tax systems are easier to understand and work better.
  • Efficiency – “Taxes can distort behavior in a whole bunch of ways.” That includes where people live, how much they work, whether they buy homes or rent, how much they save, whether they start small businesses, and whether they should move existing businesses. The goal should be to minimize distortions. “If you tax everything at a lower rate, that’s more efficient than just taxing a few things and leaving a lot of exemptions, deductions and credits and leaving a lot of holes in the base.”
  • Fairness – That’s a value judgment.

“In general, a consumption tax is going to be less progressive or more regressive than an income tax.” – John Deskins

“In general, a consumption tax is going to be less progressive or more regressive than an income tax,” Deskins said. “The fact of the matter is higher-income people save a lot more. Lower-income people – a lot more of their income goes toward consumption.”

The federal income tax system is highly progressive, he said. About half the people don’t pay any income taxes, he said, while people with the top incomes pay as much as 39 percent of their incomes.

Whether to levy taxes on income or consumption is a classic issue in tax policy, Deskins said. A consumption-based system incentivizes savings, he said. Another issue is the difficulty of taxing sales of services rather than sales of products, he said.

“We don’t tax services simply because it’s harder to, especially historically,” Deskins said. “There’s less of a paper trail. It’s just harder to levy taxes on services and to monitor and enforce taxation of services. So we don’t do it just because of difficulty, not because it’s the right or wrong thing to do.”

It is hard to estimate how much more would be brought in by taxing services, he said, because it would be hard to estimate how much tax evasion might occur. Thus, Deskins said, estimates should be conservative, at least for the first year. He also argued for a phased-in approach to make sure that revenues are what are expected.

“Evasion could be much higher for taxation of services versus taxation of goods,” he said. “I think we should err on the side of caution basically.”

As the American economy has evolved, people are spending more on services and less on goods, Deskins said, so more and more consumption escapes the sales tax.

“Another key principle of tax policy is that you need to levy a tax on a base that’s immobile,” he said. “There’s going to be less of an inefficient distortion if you tax something that can’t be moved versus something that can easily be moved.”

A classic example is a land tax because land is the most immobile base, Deskins said. One reason he said he brought that up is because of the tax on business inventory. It can be easy for businesses to move inventory across the state line, he said.

“Business inventory tax is a tax that is on the most mobile base,” Deskins said. “It doesn’t make sense. It might have some positives in other ways, but taxes are supposed to be levied on bases that are immobile. Business inventory is the complete opposite of that.”

Taxing benefits is more efficient than other taxes, he said. For example, the gasoline excise tax is a good proxy for how much someone uses the roads, he said. “We want to rely on taxes where the benefits are tied to the tax as much as possible,” Deskins said.

His bureau at WVU has a system to analyze the personal income tax with much detail, he said. It can determine revenue projections on whatever tax scenario legislators want to try, Deskins said. For example, he said, the system could figure out how much the personal income tax could be lowered to yield revenue neutrality.

Boso said that the West Virginia Constitution calls for taxation to be equal and uniform throughout the state, so it would make sense to reform the tax system in a fashion that promotes fairness. He added that American society does not save as much as it did in the past.

Karnes said an advantage to a consumption tax is that it gives taxpayers a choice in paying taxes. In other words, they pay taxes only when they choose to buy a good or service.

Deskins said, “An income tax gives you no bonus for savings.” He said Boettner was correct in saying that, if everyone increased saving right away, it would hurt the economy in the near term. It’s what economists call the paradox of savings, Deskins said, although savings can benefit the economy in the long run.

When Karnes asked whether states without income taxes are doing much better than those with incomes taxes, Deskins said you can’t look just at whether a state has an income tax or not. “In general, economists believe that taxes do matter,” he said. Positive tax reform will likely yield positive benefits, he said, but usually the benefits are not game-changers.

Plymale said infrastructure is important for growth. He said legislators should look at where West Virginia has deficiencies in improving infrastructure.

Deskins concluded his appearance before the committee by saying, “I don’t envy your job because there is so much to weigh with tax policy, with infrastructure, with drug abuse.” He said the issues must be analyzed holistically.

 

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Editor’s Note – Jim Wallace is a former government reporter for the Charleston Daily Mail, former news director of West Virginia Public Radio and former news director of WWVA/WOVK radio in Wheeling. He now works for TSG Consulting, a public relations and governmental affairs company with offices in Charleston and Beckley. He has a bachelor’s degree in journalism from The Ohio State University and a master’s degree in journalism from West Virginia University. Wallace is the author of the 2012 book,A History of the West Virginia Capitol: The House of State.