Maloney tax plans tangled
The Republican candidate for governor said he wants to amend the state constitution to eliminate a key tax on businesses and give local governments more authority to come up with their own taxes.
Critics, including incumbent Democrat Gov. Earl Ray Tomblin, wonder how Bill Maloney will deal with the tens of millions of dollars in lost revenue and avoid dramatically cutting services or shifting burdens to other taxpayers.
Maloney has repeatedly said he wants to eliminate the business personal property tax, which local governments collect based on businesses' equipment and inventory.
"We need a constitutional convention to get that done, and that's going to be a tall order," Maloney said last week during a televised debate. "There's some things we need to do just to start the process to make it easier for folks to invest in new equipment."
The state has carved out ways to reduce the tax for certain industries but hasn't been able to eliminate it because of a constitutional provision and because of the significant revenue it generates for local governments. Eliminating the tax has been a perpetual priority for state businesses and is also a top priority of House Republicans in next year's legislative session.
Former Gov. Joe Manchin, a Democrat, tried in 2010 to gradually reduce the tax.
He proposed a constitutional amendment to exempt new businesses or those that bought new equipment. His plan passed the House but stalled in the Senate, which Tomblin led at the time.
(While efforts to eliminate the tax do require a constitutional amendment, a constitutional convention is not necessarily required to amend the constitution).
Critics of Maloney's plan say it will meet a fate similar to Manchin's plan.
The biggest concern is for education.
Counties, cities and school boards tax businesses. Counties alone bring in about $70 million a year from business inventory and equipment taxes, according to state deputy revenue secretary Mark Muchow. About 75 percent goes to schools.
Tomblin said the state couldn't lose that much money and expect school systems to continue to operate as they do.
"When you eliminate one tax, you've got to have another one to backfill to make sure our education system continues to operate in West Virginia," Tomblin said during the debate.
In fact, the state has a school aid formula that makes sure counties are funded at a certain level. If local revenue drops, the state has to make up most of the revenue.
"It's all a shift, unless you want to cut back massively on local services beyond education," said Ted Boettner, executive director of the liberal West Virginia Center on Budget and Policy.
The state is already cutting its budget, so it's unclear where that money would come from. At the same time, Maloney has pledged not to cut state education funding.
The state's hands are somewhat tied when it comes to funding public education.
In the landmark 1982 decision that ruled state schools must be equitably funded, Circuit Court Judge Arthur Recht said the old system of relying on local taxes for education funding wasn't working in West Virginia.
"Indeed," the judge said then, "counties where children have the greatest educational needs attend school in counties which in most instances have the least taxable wealth per pupil and the fewest education resources."
Maloney argued during the debate that counties should be given more freedom to come up with their own taxes. He said, "Different cities and communities need to have more control over the way they tax."
In 2006, the West Virginia Tax Modernization Project said a full elimination of the business personal property tax would require a "substantial alternate source of revenue be found for use by local governments which would be under local control."
The West Virginia Association of Counties also doesn't want the freedom Maloney wants to give local authorities.
"My stock response to the Legislature when these bills come up to committee is - and I usually ask this when I'm at the podium - 'What will replace it?' " said Patti Hamilton, executive director of the county association. "And there's usually no response."
She said county commissions generally aren't in favor of losing one important tax and then having to create new ones.
Part of the reason is that new taxes would have trouble making up losses from the elimination of the personal property tax.
The personal property tax could be replaced with a county-level sales tax.
Local governments in other states fund services with local income or sales taxes but are prohibited from doing so in West Virginia. Even if they were allowed, Hamilton said there's not enough retail trade in some counties to make up for the loss of the business taxes.
She said the state would have to come up with a way to redistribute county revenue.
All of these implications are left unaddressed in Maloney's talk on the business personal property tax so far.
House Republicans last week offered a bit more detail about what they would do to help local governments cope with the lost revenue.
They are proposing what they call a "Tax Reduction Fund" to offset that revenue loss at the county level.
The fund would rely on increased tax collections from Marcellus and Utica shale natural gas drilling by diverting a certain percentage of those taxes into the new fund.
House Republicans said business personal property tax has a negative effect on businesses that is too great to ignore.
Asked for more details about Maloney's plan, the campaign provided none.
Instead, campaign manager Seth Wimer attacked Tomblin for backing taxes with "job-killing consequences." He said Maloney, a former businessman, wanted a "fairer, flatter and simpler tax system" that would - without explaining how - "generate more revenue to ensure a first-class education for our children."
The campaign also said Tomblin's comment that the state would need to offset tax reductions with increases elsewhere meant he wanted "more taxes," although Maloney also suggested there could be other taxes, like a local sales tax.
Tomblin campaign spokesman Chris Stadelman said Maloney's plans were proof he doesn't understand policy.
Stadelman said Tomblin "believes tax reductions should be done responsibly and with appropriate planning, not in a way that just shifts the burden from one group to another."