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Cracker tax break could cost locality $300 million

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CHARLESTON, W.Va. -- A tax break that Gov. Earl Ray Tomblin rushed through the Legislature to try to lure a natural gas "cracker" plant to West Virginia could cost the community where such a facility locates $300 million in revenues for schools and other local government efforts, according to an analysis released Friday.

The reduced property taxes allowed under the bill would save the developers of any cracker facility an average of $12 million per year over the next 25 years, according to a review by the West Virginia Center for Budget and Policy.

Center policy analyst Sean O'Leary examined HB4086 and an accompanying financial note by the state Tax Department that put the costs of the cracker tax credit at $0.

"There are several problems with the reasoning behind the $0 fiscal impact, and it is likely that there will be a significant fiscal impact if a facility is built, and takes advantage of the tax incentive," O'Leary wrote.

Under the bill, any company that invests at least $2 billion to build a cracker plant in West Virginia would receive a 25-year tax break. The legislation allows the cracker's manufacturing property to be assessed for tax purposes at 60 percent of its salvage value, which is 5 percent of its original cost.

With this tax break, the assessed value of a $2 billion cracker plant would, with depreciation, fall from $1.14 billion to $362 million over the course of the 25 years, O'Leary projected.

Over the 25 years, the facility would pay an estimated $32.6 million in property taxes with the incentive in place, compared to $335.8 million without it, the analysis said.

"The substantial amount of revenue forgone could have significant implications for local governments and schools, which rely heavily on property tax revenue," the report said.

Other tax revenues generated as a result of the cracker -- increased personal income taxes or sales taxes -- would not make up the difference, because those revenues go to the state, not local governments and school systems, the report said.

The report noted that the Tax Department's review did not include any discussion of potential costs to the local community for increased infrastructure demands, need for other services like police and fire departments, or even the potential for increased school enrollment for workers' children.

"This could lead to higher property taxes on other business and homeowners in order to reduce the fiscal strain, and should have been included in a fiscal impact analysis," O'Leary wrote.

O'Leary also questions the notion that the tax break was necessary to lure a cracker plant to West Virginia.

"There is little evidence to suggest that West Virginia's property taxes are a deterrent, or that the tax incentive will be the reason why West Virginia would be chosen," O'Leary wrote. "While West Virginia does have a higher tax rate on business personal property, its rate on real property is far below both Pennsylvania and Ohio, according to the Council on State Taxation.

"Taken together, West Virginia's business property tax rates are close to the national average."

O'Leary and the center do not oppose efforts to bring the cracker to West Virginia, they just argue that state officials are not studying the full picture of positive and negative impacts of those efforts.

"While the location of a new cracker facility in West Virginia would be a great asset for the state, generating hundreds of jobs and boosting manufacturing, it is imperative that state and local officials understand the fiscal impact of tax incentives contained in HB4086."

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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