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CHARLESTON — A House of Delegates plan to phase out West Virginia’s personal income tax would require diverting nearly $169 million a year in state Lottery profits. That money currently pays off state bond issues and funds programs including Promise scholarships and senior citizen tax credits.

That’s the conclusion of a fiscal note on House Bill 3300 submitted Friday by the Lottery Commission. It warns that the loss of Lottery funds would reduce the debt coverage ratios on the bond issues that are being paid off with Lottery profits, assuring that interest payments on the bonds would increase.

“This appropriation would result in the reduction of the state’s bond coverage by 2.3 coverage points, most certainly raising the costs to the state to do business,” Lottery managing general counsel W. Brian Nickerson stated in the fiscal note.

The proposal would divert more than half of the $290 million Excess Lottery Fund each year, taking $164.5 million annually from that account to help fund an Income Tax Reduction Fund that could be used to accelerate the income tax phase-out, potentially reducing the length of the phase-out from 18 years to as little as 12 years.

About $105 million a year of the Excess Lottery Fund goes to pay off economic development bonds, infrastructure bonds, School Building Authority debt service and bonds for higher education and state parks construction projects.

Other major funding from the Excess Lottery Fund includes $29 million a year for Promise scholarships and nearly $10 million a year for senior citizen income tax credits for lower-income seniors.

About $125 million a year from the Excess Lottery Fund goes into general revenue, further blowing a hole in the state’s $4.5 billion general revenue budget.

As drafted, the House plan also would shift up to $35 million a year in sales tax collection and $11 million a year in severance, tobacco, corporate net, business and occupation, and insurance premium taxes to help fund the Income Tax Reduction Fund.

Under the plan, each time that fund reaches $400 million, $100 million of that amount would be transferred back to general revenue.

According to the fiscal note, the House income tax proposal also would require taking $2.1 million a year in Lottery sports-wagering profits, $1.5 million in i-gaming profits and more than $500,000 in Travel Keno profits.

The Lottery Commission did not respond to requests for comment for this report.

The House on Friday laid over the tax cut bill. It will be on passage stage on the House floor Monday, March 29, with six amendments pending.

Some of the amendments would significantly alter the phase-out plan. One would replace it with an annual $300-per-person reduction in income taxes. Another would require overall annual growth in state revenue of at least 3% before any of the yearly reductions in income taxes could take effect.

Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220 or follow @PhilKabler on Twitter.

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