Tomblin unveils plan to end food tax
CHARLESTON, W.Va. - Acting Gov. Earl Ray Tomblin's office unveiled a new plan Tuesday to completely eliminate the food tax while also allowing the state to stash away more money in coming years and cope with rising medical costs.
Tomblin's multi-part plan, with a tax reduction as its selling point, could remove the 3-cent-per-dollar tax on food by as early as 2014, according to details provided by Tomblin Chief of Staff Rob Alsop.
But the plan would also allow the government to set more money aside in one of its two rainy day funds and use a second fund to cope with rising medical costs that threaten to torpedo the budget in coming years.
Democrat Tomblin, who is running in the Oct. 4 special election, has made reducing the food tax a key part of his legislative agenda. Earlier this year, Tomblin convinced the Legislature to reduce the tax to 2 cents per dollar beginning Jan. 1 2012.
He also has asked lawmakers who are in town for a redistricting session to reduce the tax by an additional half cent to 1.5 cents.
Tomblin still wants to see the tax at 1.5 cents beginning in 2012, but the new plan is much broader and would create a series of triggers to cut the tax to zero if the state's budget remained in good shape. Those triggers, in turn, would reshape the state's sales pitch to Wall Street and provide a way for the state to deal with the ever-expensive Medicaid program.
The new plan would peg future cuts in the food tax to the amount of money in one of the state's two rainy day funds, Alsop said.
In recent years, half of the state's multi-million dollar budget surpluses have been deposited in the rainy day account automatically because the law says so. But that law doesn't require the automatic deposits if the rainy day fund grows to be as large as 10 percent of the state's annual general revenue budget.
This year, for the first time, that rainy day fund is set to grow to $512 million, which is nearly 12.6 percent of the state's $4 billion general revenue budget. While lawmakers can continue putting money into the fund, the 10 percent threshold acts like a psychological cap to limit the amount of money the state has to plan for unexpected events ranging from floods to the cost of dealing with new dictates from the federal government.
Under Tomblin's plan, the food tax would come down if the rainy day fund kept growing. If by this time next year, the rainy day fund is 12.5 percent of the budget, another half cent would come off the food tax in 2013.
When the rainy day fund grows to 15 percent of the budget, the food tax would be taken off entirely.
The practical effect of the plan would be to encourage some lawmakers to set aside money in the rainy day fund in order to prompt a tax reduction.
Another effect of the plan would be to grow the surplus fund, known as Rainy Day 'A' and free up a second rainy day fund known as Rainy Day 'B' that was created using money from a tobacco settlement.
Alsop said Tomblin is hoping to use interest from that tobacco trust fund to deal with rising medical costs, including budget shortfalls that may be created by the cost of providing Medicaid, the federal and state health insurance program for the poor.
"Gov. Tomblin, I think, ultimately would like to see 'B' go back to its original purpose," Alsop said.
There's about $315 million in 'B,' and the account earns about $40 million a year in interest. But the state faces a $90 million Medicaid shortfall in the 2013 budget year and a $190 million budget shortfall in the 2014 budget year.
If lawmakers begin emptying 'B' to pay for those Medicaid costs, the rating agencies that determine the state's credit rating could downgrade the state's bond rating, making it more expensive to pay for public works projects. That's because the agencies like to see about states with boom-bust economies like West Virginia that are dependent on the energy market have large reserves.
By encouraging lawmakers to set more money aside in 'A,' the state may be able to keep those rating agencies happy.
Contact writer Ry Rivard at firstname.lastname@example.org or 304-348-1796.