FISCAL NOTE

Date Requested: January 30, 2018
Time Requested: 02:12 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1699 Introduced HB4354
CBD Subject: Natural Resources


FUND(S):

General Revenue Fund, Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund

Sources of Revenue:

General Fund Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund

Legislation creates:

Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to reallocate and dedicate the natural gas and oil severance tax revenues, up to $30 million annually, to the natural gas and oil producing counties of origin. The bill provides for distribution of the moneys to the districts of the Division of Highways by the State Treasurer. The bill establishes amounts each natural gas and oil-producing county in a district is to receive. The bill requires moneys be used solely for the secondary roads and provides duties of State Tax Commissioner. The bill requires reports of expenditures to Joint Committee on Government and Finance. The bill provides audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill provides an effective date. The bill authorizes legislative and emergency rules.
    
    According to our interpretation, passage of this bill would result in the annual reallocation of $30 million of State General Revenue Fund collections to the State Division of Highways for use in road maintenance in counties with oil and gas production other than coal-bed methane production first effective July 1, 2018. The bill provides that such revenue transfers would occur quarterly to the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund on the basis of each county's relative share of natural gas production and each county's relative share of oil production.
    
    The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
    
    No additional costs would be incurred by the State Tax Department only under the assumption of a revenue distribution system that allocates quarterly revenues based on prior year production data collected by the Department of Environmental Protection.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    According to our interpretation, passage of this bill would result in the annual reallocation of $30 million of State General Revenue Fund collections to the State Division of Highways for use in road maintenance in counties with oil and gas production other than coal-bed methane production first effective July 1, 2018. The bill provides that such revenue transfers would occur quarterly to the Natural Gas and Oil Division of Highways Reallocated Severance Tax Fund on the basis of each county's relative share of natural gas production and each county's relative share of oil production.
    
    The current 10 percent oil and natural gas revenue sharing program with local governments is based on annual production data collected by the Department of Environmental Protection (DEP) from more than 50,000 wells and finalized more than seven months following the conclusion of a calendar year. The Tax Department distribution to local governments occurs once a year around October 1st for activity of the prior calendar year based on each county's share of total production for oil and each county's share of total production of natural gas as determined by DEP. If the provisions of this bill contemplate an accurate accounting of oil and natural gas production on a current quarterly basis, the proper administration of this new additional general revenue reallocation program would require new quarterly production reports from the more than 50,000 producing wells at significant cost to both the industry and either the State Tax Department or Department of Environmental Protection.
    
    No additional costs would be incurred by the State Tax Department only under the assumption of a revenue distribution system that allocates quarterly revenues based on prior year production data collected by the Department of Environmental Protection.
    
    



Memorandum


    The stated purpose of this bill is to reallocate and dedicate the natural gas and oil severance tax revenues, up to $30 million annually, to the natural gas and oil producing counties of origin. The bill provides for distribution of the moneys to the districts of the Division of Highways by the State Treasurer. The bill establishes amounts each natural gas and oil-producing county in a district is to receive. The bill requires moneys be used solely for the secondary roads and provides duties of State Tax Commissioner. The bill requires reports of expenditures to Joint Committee on Government and Finance. The bill provides audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill provides an effective date. The bill authorizes legislative and emergency rules.
    
    This bill is vague and would be difficult to administer. This bill does not define what is meant by a district of the division. In addition, he term “county by county production pro rata basis” is not defined.
    
    The bill title is defective as it does not note that the bill establishes a special fund in the State Treasury. Furthermore, the bill title notes that the bill provides duties for the State Tax Commissioner and the Division of Highways, but does not mention that it also provides duties for the State Treasurer even though it is listed in the section heading.
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov