On the last day of the regular session of 1990 the West Virginia Legislature passed H.B. 4127 (the Appraisal Act), a new and far-reaching property tax statute.  The Act was subsequently amended by Senate Bill No. 8, passed on August 31, 1991. It was the intent of the Legislature, and of the Property Tax Study Commission which had recommended the legislation, that the Appraisal Act would bring to a conclusion a period of property tax turmoil that began in West Virginia during the 1970s.
The past two decades have been a time of upheaval over property taxes in many of the 50 states.  By the 1970s, the so- called baby boomers of the post-World War II era had created pressures on school finance and a demand for rapid expansion of state and local government services.  The need for more local government revenue, together with escalating property values, forced property taxes upward to an extent that property owners began to revolt, as they did in California where Proposition 13 was passed in June of 1978 (Kuttner 1979).
 The nationwide property tax protest came to life in West Virginia in that same year when a citizen's group in Mingo County called Tug Valley Recovery Center went to court in an effort to force corporate land owners to pay what they viewed as a more
equitable share of their county's property taxes (Tug Valley Recovery Center, Inc. v. Mingo County Commission, 261 S.E. 2d 165 (W.Va. 1979)).  Ultimately, the litigation led to several other important law suits and judicial decisions, some landmark legislation, a constitutional amendment, expenditure of some $35 million for a statewide reappraisal whose use was later forbidden by the Legislature, remedial efforts on the part of three governors and tax commissioners, and intense activism by a wide array of interest groups including property owners, county officials, and school teachers.
Whether the Appraisal Act will succeed as a remedy for the state's property tax problems remains to be seen, but this chapter will attempt to show that legislative remedies in the past have been ineffective in solving West Virginia's major property tax problems because they have lacked sufficient political backing and enforcement.  Whatever the outcome, the Appraisal Act is a policy statement of great importance for West Virginia's future, and the present seems a good time to review the problems the statute was designed to solve, to identify those problems it is not likely to solve, and to raise questions about where West Virginians wish to go in property tax policy in the future.
 The Property Tax as an Institution
The property tax is one of the most widely criticized of all taxes, partly because state and local governments have generally failed to administer the tax fairly and effectively (Netzer 1966; Groves 1967).  The tax is also generally viewed as being regressive as it applies to home owners (Phares 1980), though not all experts on tax policy agree with this contention (Aaron 1974).  Still others have argued that the property tax, as an ad valorem (on value) tax, discourages owners from improving and developing their property because improvements lead to higher taxes (Gaffney 1965).
Occurrences of incompetent administration and inequities in the application of the property tax have been so widespread and frequent that taxpayers have little confidence in it.  As early as 1895 a prominent expert in public finance said the general property tax "... as actually administered, is beyond all doubt one of the worst taxes known in the civilized world" (Seligman 1921). During the 1960s, the Advisory Commission on Intergovernmental Relations described the administration of the property tax in acerbic terms, blaming the state legislatures for preserving almost intact the organization and conduct of primitive fiscal administration as it relates to property tax assessment (ACIR 1963). In 1973, a nationwide poll of taxpayers found the property tax to be the most unpopular of all the sources of public revenue and in 1985 it did not fare much better, placing only behind the national income tax as the most unpopular public revenue source (Back 1973; Wright 1988).
Viewed in historical perspective, the problem of property tax administration can be seen as the failure of governmental institutions to adapt to changes in the rest of society.  The property tax came into widespread use in America at a time when society was largely agrarian, government was decentralized, means of transportation and communication were primitive, and the public sector was relatively small (Lynn 1967).  Most assets were tangible, and the tax applied to personal as well as real property.  But over time, assets changed to include intangibles such as stocks and bonds that were easy to hide from the assessor, and local governments either dropped taxation of personal property or merely ignored the tax statutes dealing with personal property except for those items, such as automobiles, that were obvious and required registration.  In the name of home rule, the administration of the property tax has, for the most part, remained in the grasp of local government and has failed to adapt to an urbanized, technological, society where the size and complexity of government has required centralization and a higher level of administrative sophistication.
In most parts of the world, the general property tax is now applied only to real estate.  However, in West Virginia and in many other states it is still applied to personal property.  In fact, as indicted on Table 1, property tax revenue in West Virginia has been shifting inadvertently over the past two decades toward a greater emphasis on personal property.  This trend results from the reluctance on the part of assessors to increase real estate assessments and the relative difficulties of objectively measuring real estate values.  In contrast, assessments on certain personal property such as motor vehicles

 Table l.

Division of Property Taxes Levied in West Virginia, by Year and Percentage.

      Percent       Percent         Percent
Year    On Real Estate   On Personal Property   On Pub. Util. Prop.

1970      47.2               32.6                20.2
1975   40.7   37.0       20.2
1980       39.0       42.4       18.6
1985   38.2   44.4       17.4
1989      41.8         44.4           13.8
 

Sources: West Virginia Chamber of Commerce. 1987. West Virginia
Economic and Statistical Profile. Charleston, WV: West Virginia Chamber of Commerce; and West Virginia Department of Tax and  Revenue. 1990. Study of property valuations, 1989. Charleston, WV: West Virginia Department of Tax and Revenue.
 and business equipment are relatively easy to determine and increase more or less automatically.
Although the West Virginia Code calls for the taxation of personal property items such as stocks, bonds, bills and accounts receivable, and other intangible personal property owned by individuals, in practice individuals are actually assessed and taxed only for motor vehicles.  Businesses, on the other hand, pay a personal property tax on such items as machinery and equipment, inventory, and intangibles.
  The problems of property tax administration can not be passed off as a mere failure to adjust to social change.  Experience shows that the core of the problem is the assessment function (Gold 1986; Tipps and Webb 1980).  Even the assessors agree: a survey of assessors conducted in the early 1970s found that two-thirds of them rated the quality of assessment administration as either relatively poor or very poor (Almy 1973).
 Advantages of the Property Tax
In spite of its unpopularity with taxpayers and many students of tax policy, the property tax remains the most important source of income for local government, accounting for 62.3 percent of local revenue in the United States in 1986 and 49.0 percent in West Virginia (U.S. Bureau of the Census, Statistical Abstract, 1990).  Local governments continue to rely on the property tax for several reasons: it is a dependable and stable source of revenue; compared to an income or sales tax it is relatively difficult to avoid at the local level; it provides local governments an opportunity to exercise independence over the quantity and quality of public services to be offered, such as schools; when administered correctly it provides local voters a greater voice than do other forms of taxation in determining the amount of taxes to be paid; and it is easier to justify to taxpayers because of the more direct relationship it has with the level of services provided (Harris 1973).  Moreover, since
local governmental services, such as schools, transportation networks, and the maintenance of law and order add an increment of value to property, it is both fair and appropriate that the property owner share in their cost.  It can also be argued that the property owner's share of the cost should be proportionate to the value of the property, thus we have the basis for ad valorem taxation.
 What Is A Good Tax? What Is a Good Tax System?
A good tax system is one that produces adequate public revenue in an equitable and efficient manner.  On a more detailed level, a particular tax such as the property tax may be judged according to a number of criteria:  adequacy of revenue produced, equity or fairness to the taxpayers, economy of administration, certainty or dependability, simplicity (including both ease of administration and understanding by the taxpayer of how the system works), neutrality with regard to resource allocation, harmony with the rest of the tax system, legitimacy (the extent to which the laws are obeyed), and accountability of tax officials.
This chapter focuses on three of these criteria:  adequacy of the revenue produced by the property tax, legitimacy of administration of the tax, and equity.  Use of these criteria will permit comments on the more important aspects of the others.  Since tax data have little meaning except in a comparative sense, data will be used to compare West Virginia whenever possible with adjoining states and with the average for all of the states.
 ADEQUACY OF REVENUE FROM THE PROPERTY TAX
The prime attribute of a good tax system is its ability to produce adequate funds for those services which the government is expected to provide.  In West Virginia, the property tax has been deficient for over a half century in producing adequate revenue for the financing of local government.  As a result, West Virginia's state government has had to assume a relatively large share of the cost of local government, mostly in the form of aid to local school systems (Larson and Shamberger 1951; Bowman 1984).  This extraordinary burden on the state, in turn, has strained its revenue-producing capacity and made it difficult for state government to meet other obligations.  As Figure 1 demonstrates, most states have reduced their reliance on the property tax as a revenue source, but West Virginia consistently has been well below the national average.
As Table 2, column 1, indicates, only Kentucky among the adjoining states ranks lower than West Virginia in property tax levies as a percentage of state and local government own-source
  Figure l.

 Trend of Property Tax as a Percentage of State and
 Local Government Own-Source General Revenue, West
 Virginia and United States Average, 1960-1987.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Sources:  U.S. Bureau of the Census. 1987. Census of Governments,  1987. Washington, DC: U.S. Government Printing Office; and  U. S. Bureau of the Census. 1990. Statistical Abstract of  the United States, 1990. Washington, DC: U.S. Government  Printing Office.

 Table 2.

Property Tax as a Percentage of State and Local Government Own-Source General Revenue and on a Per Capita Basis, West Virginia and Adjoining States, 1987.

State  % of Own-Source Revenue  Per Capita Taxes

KY      12.0%     $205
MD      18.3      464
OHIO      19.7      412
PA      19.5      412
VA      20.8      429
WV      12.2      215

U.S. Average      21.2      498
 

Source:  U.S. Bureau of the Census. 1990. Statistical Abstract of  the United States, 1990. Washington, DC: U.S. Government
Printing Office.

 general revenue and both are substantially below the other four adjoining states and the national average.
West Virginians also pay relatively little in property taxes on a per capita basis.  As indicated in Table 2, column 2, with the exception of Kentucky, West Virginia's per capita property taxes in 1987 were about half of what they were in adjoining states and less than half of the national average.
Although state newspaper editors frequently claim that West Virginia's property taxes are low because West Virginia is a relatively poor state, West Virginians actually pay a total tax bill that is high relative to personal income.  As Table 3 demonstrates, when compared to personal income, West Virginia's taxes and fees (general revenue from own sources) are the highest among the adjoining states and are higher than the national average.  However, West Virginia's property taxes are next to the lowest in the region and are far below the national average.  It is difficult to cite poverty as the explanation for West Virginia's low property taxes when the total tax bill is relatively high.
Property taxes are the chief source of revenue for local government (counties, school districts, and municipalities). When local government revenue is inadequate to meet their needs, the state government must step in and make up for the deficiencies, at least to the extent politically possible.  As Table 4 indicates, West Virginia's local governments supply only about a quarter of combined state and local revenue, far below the
  Table 3.

State and Local Government Revenue Per $l,000 of Personal Income, West Virginia and Adjoining States, 1987.
 

     General Revenue      All    Property
State            Own Sources      Taxes     Taxes

KY       $142           $100      $17
MD      139        105       26
OHIO    143        103       28
PA    139        102       27
VA      125          94       28
WV      160        112       20

U.S. Average    151        107       32
 

Source:  U.S. Bureau of the Census. 1990. Statistical Abstract of  the United States, 1990. Washington, DC: U.S. Government
Printing Office.
  Table 4.

Source of State and Local Government Revenue, By Percentage, West Virginia and Adjoining States, 1987.

   State Gov't.     Local Gov't.
State U.S. Gov't. Own Source       Own Source Total %

KY   20%   55%        25%   100%
MD   16   49        35   100
OHIO   17   47        36   100
PA   18   46        36   100
VA   16   49        35   100
WV   23   53        24   100

U.S. Average 17   46        37    100
 

Source:  U.S. Bureau of the Census. 1990. Statistical Abstract of
the United States, 1990. Washington, DC: U.S. Government
Printing Office.
 national average which is over one-third.

West Virginia uses most of its property tax revenue to support its school system.  Schools account for roughly two- thirds of the spending of property tax revenue, with about one- quarter going to counties, 8 percent to municipalities, and a very  minor portion to the state government (West Virginia Department of Tax and Revenue 1990b).  However, the property tax dollars going to schools are not nearly sufficient to fully fund the schools.  In 1989, 27.9 percent of school revenues came from local government while 72.1 percent came from federal and state aid.  As Table 5 indicates, with the exception of Kentucky, all of West Virginia's adjoining states obtained about half of their school receipts from local sources.
 Low Income and Excess Levies
West Virginia's 55 counties and school districts differ substantially in their ability to raise revenue through the property tax.  Although this inability has been described as an insufficiency of the tax base (Temple 1984), in many cases it is a problem of low income and a reluctance to approve excess levies.  For example, a comparison of Clay and Kanawha
Counties reveals that in 1986 they were about equal in gross assessed value per capita:  $11,737 and $12,388, respectively. However, on a per capita basis, the amount of property taxes levied in these counties were quite disparate:  $167 and $296, respectively.  The effective rate of property taxation in Kanawha County in 1987 was 2.36 percent, while in Clay County it was only

 Table 5.

Percentage of School Receipts from Local Government, West Virginia and Adjoining States, 1989.

          Percentage of Receipts
State          from Local Government

KY          20.l%
MD          55.4
OHIO      47.2
PA          49.0
VA          60.7
WV       27.9

U.S. Average        43.5
 

Source:  U.S. Bureau of the Census, Statistical Abstract of the
  United States, 1990. Washington, DC: U.S. Government
Printing Office.
 1.30 percent.  The difference is accounted for by the fact that voters in Kanawha County had approved an excess property tax levy that raised its total levy by 50 percent, while Clay County voters had not approved an excess levy (West Virginia Department of Tax and Revenue 1990a).
It seems reasonable to assume that excess levies are more likely to be approved by voters in counties where personal income is high.  For example, per capita income in Kanawha County in 1988 was $14,400, while in Clay it was only $6,929 (West Virginia University Center for Economic Research, 1990).  This suggests that the low level of personal income in some West Virginia counties may preclude them from taking full advantage of their property tax base.
 Excess Levies and School Funding
West Virginia's constitution requires its state government to accept school-funding responsibility where local revenues are inadequate to ensure equality of education across the state.  State aid to school districts is allocated on the basis of a complex formula that distributes funds in roughly inverse proportion to a county's tax base.  As a result, the disparity among school districts in expenditures per pupil is reduced (Gillenwater and Gorrell 1972).  However, as was seen in the Clay-Kanawha County comparison, excess levies approved by voters in many counties tend to increase the disparity.  In other words, in spite of efforts to equalize education funding statewide, the funding of a school district in West Virginia is still dependent on the wealth of the people in the district, but not necessarily the wealth represented by the property tax base; personal income may be a more important limiting factor.
 While the state aid formula helps to overcome disparity among school districts in per-pupil receipts, it provides a disincentive for county assessors to raise assessments.  Any increase in a county's share of school funding that might result from higher assessments is offset by a reduction in state aid.  Since increases in state aid funds do not generate local political repercussions as do property tax increases, there is a built-in bias against property tax increases and a bias against the property tax as a source of public funds as compared to the sales or income tax.
The state aid formula also tends to promote excess levies rather than reassessments because excess levy receipts are not included in the formula; i.e., they do not cause an offsetting reduction in state aid.  This helps to explain why excess levies are so prevalent in West Virginia.  In 1989, 36 percent of the counties, 75 percent of the school districts, and 25 percent of the municipalities had excess levies.  Only six of West Virginia's 55 counties had no excess levies by any of their taxing authorities (West Virginia Department of Tax and Revenue 1990a).
 Total Tax Effort and Harmony Within the System
  In the final analysis, the question of whether West Virginia's property tax system produces adequate revenue must take into account the State's total tax effort; i.e. the State's total tax payments in relation to its ability to pay.  Previous studies have shown that West Virginia's tax effort has varied over the years.  During the 1920s, West Virginia's tax effort was greater than the national average and during the 1950s it was less than the national average (Blakey 1930; Hanczaryk and Thompson 1958).  As Table 6 demonstrates, West Virginia's current tax effort, measured as a percentage of per capita income and as a percentage of net worth, is now well above the national average and is the highest in the region.
It is apparent that West Virginia property owners are subject to a relatively low property tax but pay relatively high state taxes, mostly in income and sales taxes.  As a result, West Virginia's total state tax effort is higher than in any of the adjoining states.  Moreover, this analysis uses data for years prior to the extension of the sales tax to food and prior to the substantial tax increases enacted in 1989.  The relative tax burden on West Virginians may be even greater now.
 What Constitutes Tax Harmony for West Virginia?
The important policy question arising from the foregoing analysis is not whether West Virginia state and local taxes are adequate but whether the tax "mix" is optimum.  The U.S. Advisory Commission on Intergovernmental Relations recommends that states achieve tax "balance" by raising approximately the same revenue from all three of the major taxes:  income, sales and property
  Table 6.

State and Local Per Capita Taxes as a Percentage of Per Capita Income and Per Capita Net Worth, West Virginia and Adjoining States.
 

 
State   % of Income (1987)    % of Net Worth (1982)*
_______________________________________________________________

KY        9.4%      17.l%
MD        9.8      10.3
OHIO        9.3      13.9
PA    9.6      15.l
VA    8.8      14.7
WV       10.5      49.4

U.S. Average     10.l      11.2
 

*Per capita net worth was estimated by dividing total net worth
of the "top wealthholders" by population.
 

Source:  U.S. Bureau of the Census. 1990. Statistical Abstract of
the United States, 1990. Washington, DC: U.S. Government
Printing Office; and author's computations.

 (Kleine and Shannon 1986).  Other public finance experts argue that revenue balance is not important and that states should strive for balance among conflicting policy goals such as revenue adequacy, fairness, and economic neutrality (Ladd 1988).
As has already been shown in Figure l, the property tax seems to be losing its place in most state tax systems.  The trend toward greater reliance on statewide revenue sources such as the income tax and sales tax is evident in many states and is generally the result of the inability of states to overcome the political barriers to generating adequate revenue at the local level through property taxes.
But to say that West Virginia is merely following a trend in this respect masks two factors that make West Virginia different.  First, since 1934, when the affects of the Tax Limitation Amendment of 1932 became apparent, West Virginia has never achieved the level of property taxation, in relation to the potential, that has been achieved in most other states.  Second, to a greater extent than in most other states, West Virginia's wealth lies in its stock of land resources, not in the magnitude of economic flows such as personal income or consumption expenditures.  While it may be appropriate for Ohio or Pennsylvania, with their large populations and huge industrial bases, to deemphasize property taxes in favor of income or sales taxes, it may not be appropriate in a resource-rich state such as West Virginia.
Another important consideration regarding the tax "mix" in West Virginia relates to the exportability of the tax burden.  In an open economy such as that of the United States, taxes move freely, especially those imposed on business.  Some taxes are more exportable than others.  For example, at least part of any tax imposed on the production of a primary product such as coal is likely to be passed on to the consumer of the coal and part will be paid by the owner of the land from which the coal is extracted.  In the case of West Virginia coal, both consumer and owner are likely to be located somewhere other than in West Virginia.  Similarly, the property tax is partly exportable because property taxes are offset by a deduction on federal income taxes.  In contrast, a sales tax on basic consumer items, in addition to being highly regressive, has little exportability and nearly the entire burden of the tax remains in the state (Pechman and Ochner 1974).
A nationwide study in 1980 showed that West Virginia ranked 43rd of the 50 states plus D.C. in ability to export state taxes via business, and 47th in ability to export taxes via federal offsets (Phares 1986).  These statistics reflect the State's peculiar mix of taxes. For example, West Virginia has a 6 percent sales tax on food, one of the more regressive forms of taxation, one which has little exportability and does not qualify for federal tax deduction.  At the same time, much of West Virginia's land resource is valued for property tax purposes well below its actual worth.  Taken as a whole, the West Virginia tax system appears to be working at cross purposes with little thought given to the concept of exportability, progressivity or adequacy.
All of this raises a question of legislative intent and possible alternative measures for making the system more harmonious.  Is the de facto property tax system in the state built on law, or is it the result of repeated and continual disregard for the law?
 LEGITIMACY OF PROPERTY TAX ADMINISTRATION
 The failure of the property tax to generate adequate revenue is attributable, on the one hand, to constitutional constraints imposed through a property classification system, and on the other, to tax administration which has all too often contravened the law.  The principal focus here will be on the administration of the tax, but familiarity with the elements of the classification system and the limits it imposes on taxing authorities is vital to an understanding of the property system in West Virginia.
The Classification System
The tax limitation amendment of 1933 established a tax structure which divided all taxable property into four classes and assigned a rate limit beyond which the taxing authorities (counties, municipalities and school districts) could not go in any one year except through voter-approved excess levies.  A short description of the classification system follows, with the maximum current rate and the 1989 statewide average rate, including excess levies, in parenthesis.
Class I Tangible personal property used in farming; farm products while owned by the producer; intangible personal property such as notes, bonds, stocks and other evidence of indebtedness.  (Maximum current rate:  $0.50 per $100 of assessed value.  Statewide 1989 average combined rate:  $0.75.)

Class II Property owned, used and occupied by the owner for residential purposes; farms occupied and cultivated by owners or bonafide tenants. (Maximum current rate:  $l.00 per $100 of assessed value. Statewide 1989 average combined rate:  $l.37.)

Class III Real and personal property situated outside of municipalities, exclusive of Classes I and II.  (Maximum current rate:  $l.50 per $100 of assessed value.  Statewide 1989 average combined rate:  $2.43.)

Class IV Real and personal property situated inside of municipalities, exclusive of Classes I and II.  (Maximum current rate:  $2.00 per $100 of assessed value.  Statewide 1989 average combined rate: $3.23.)

The amendment was a drastic measure undertaken to provide relief to home owners and farmers in the depths of economic depression by lowering their property tax rates and insuring that the rates would remain only a fraction of those applied to business.  The amendment resulted in a 46.3 percent drop in taxes levied on property between 1931 and 1933 -- from $50.6 million to $27.2 million (West Virginia State Tax Commission 1932; West Virginia State Tax Commission 1934).  It also produced immense changes in the fiscal relationship between state government and local governments, with the local governments becoming greatly dependent on the state (Larson and Shamberger 1951).
The classification system also has resulted in much higher levies against business property than against non-business property.  In 1989, properties in Classes III and IV represented 68.9 percent of the taxable assessed valuation yet paid 83.5 percent of the taxes levied (West Virginia Department of Tax and Revenue 1990b).  In addition, between 1978 and 1989, tax levies for residences and farms (Class II properties) have grown more slowly than other property classes.  Tax levies on Class II properties grew 182 percent over the 13 year period compared to 201 percent for Class I properties, 188 percent for Class III properties and 190 percent for Class IV properties (West Virginia Department of Tax and Revenue, 1990a).
 Misclassification of Farm and Forest Land
The existence of a property tax classification system invites any class or group of property owners that is organized and able to exert political pressure to attempt to shift the tax burden onto others by seeking a downward reclassification.  This problem is most apparent in the classification of farmland and forestland.  The law has been vague as to what constitutes a farm, and the problem is made more acute by the number of part-time farmers and the low intensity of farmland use in West Virginia (Colyer 1983).  There is little doubt that many parcels of land held for purposes of speculation, timber growing, recreation, and other uses are on the tax rolls as Class II farms when they are actually Class III properties.  However, use value assessment regulations for farmland adopted in 1986 should reduce the amount of land misclassified as farmland.
The problem of misclassification of forest land may be even greater than farmland in terms of land area affected.  There are approximately 9.3 million acres of private non-farm forestland in West Virginia (Digiovanni 1989).  However, only 5.3 million acres of that forestland are classified as a Class III property (Don Hebb, West Virginia Department of Tax and Revenue).  This leaves 4.0 million acres in Class II that are being taxed at the preferential rate.  Typically, this land is carried on the rolls as residences even though, in many cases, only a portion of the acreage consists of a homesite.  For example, a homesite occupying the corner of a 300-acre parcel, 299 acres of which are wooded, could be classified as Class II.  There are other situations where a small cabin used only for hunting or occasional recreation purposes, but situated on a large acreage, enjoys Class II status.  In still other cases the misclassification is outright, with no evidence of a residence at all.  Clearly, all such occurrences are a violation of the intent of the law, but assessors have little in the way of specific instructions on such classification problems nor has the Department of Tax and Revenue been able in the past to provide effective oversight on this matter.
 The property tax revenues lost through misclassification are substantial: for forest land alone the figure may be between $3 million and $4 million each year.
 Property Tax Administration
West Virginia's primary property tax problem is the same one Adam Smith observed in Britain in the year of America's founding:  the failure of public authorities to bring up to date "ancient" valuations.  The assessment function is actually a three-step process.  The first step is appraisal, which, according to the West Virginia Code (18-9A-11), is the responsibility of the State Tax Commissioner, although the matter has been much contested (Moran 1983).  The county assessors are then supposed to apply an assessment ratio, also determined by state law but, historically, as a range rather than a precise ratio; eg. at least 50 percent but not more than l00 percent.  In the third step, the local levying bodies (counties, municipalities, and school districts) set a rate, or a levy on each $100 of assessed value.
It has always been a principle of West Virginia law that appraised values are to reflect fair market value and are to be updated yearly so as to maintain currency with the market (West Virginia Code, 11-3-l).  However, a review of the various studies and reports published over the years suggests there has never been a time when undervaluation of property was not a problem (National Industrial Conference Board 1925; Blakey 1930; Larson and Shamberger 1951; Armentrout and Haygood 1953; Levy and Colyer 1975; Colyer and Templeton 1977; Bowman 1984).  The widespread undervaluation that occurs today throughout West Virginia dates back to the Depression of the 1930s when county assessors lowered assessments in response to declining market value of property.  When the improved economic conditions of the 1940s restored property values, assessments remained largely unchanged.  As a result, the average assessment ratio for the state declined from 65 percent in 1930 to 30 percent in 1949 (Shamberger and Thompson 1950).
In 1958, the state undertook a statewide reappraisal intended to equalize assessments, but fractional assessments were used and not made specific:  assessed value was to be at least 50 percent but not more than 100 percent of appraised value.  The minimum fraction was raised to 60 percent in 1981 (West Virginia Code 18-9A-11(f), Supp. 1982). However, assessment ratios have little meaning if appraisal values are well below market values, and that has been the case in West Virginia for decades.  Studies have shown that in 1950 the actual assessment-sale ratio was 31.4 percent (Armentrout and Haygood 1953); in 1971, the ratio varied from 21.9 percent to 58.3 percent depending on tax class (Levy and Colyer 1973); in 1980, 27.6 percent (Bowman 1984); and in 1988, 29.8 percent (West Virginia Department of Tax and Revenue 1989).
 There has been tension and repeated conflict between the State Tax Commissioner and the county assessors, with frequent resort to the courts to settle disputes (Pops 1984).  The courts have added to the confusion at times by using imprecise language in dealing with the assessment function and by rendering contradictory decisions regarding the authority and responsibility of the State Tax Commissioner vis a vis the county assessors (Anon. 1983).  There have been other sources of confusion as well. For example, The Assessor's Handbook (Whiting and Whisker 1973), whose purpose, according to a letter of submittal by Governor Moore, was to "... better explain the duties and functions of the office of assessor," made no distinction between appraisal and assessment, nor did it say anything about fractional assessment.  The definition given for assessed value was "true and actual value of the property," which is not the assessed value but the appraised value.
Such lack of clarity has provided an opportunity for county assessors to interpret court directives as they saw fit (Moran 1983).  The tax commissioners, meantime, have been accused of being timid in the exercise of their responsibility in tax administration (Pauley V. Bailey, Civil Action No. 751268, Circuit Court of Kanawha County).
 Judicial and Legislative Action: 1980s
The best way to describe the confusion about the assessment function, the strained relationships between the Tax Commissioner and county assessors, and the factors that have led to underassessment, is to review briefly the series of judicial and legislative events that took place in the early 1980s, beginning with the situation in Putnam County in 1981 which was resolved in Rose V. Fewell (294 S.E.2ND 438).
Following the 1981 change in the code that raised the fractional assessment from not less than 50 percent of appraised value to not less than 60 percent, a citizens' group in Putnam County claimed that such across-the-board reassessment was a breach of fair and equal taxation provisions because it compounded inequities already existing in the system (Moran 1983).  County officials agreed and refused to raise the assessments to 60 percent.  This case exemplifies a kind of "Catch-22" situation West Virginia has been in for decades: in attempting to abide by one provision of the constitution or statutes, it violates others.
In Rose, the appellate court overturned an earlier ruling in Rease V. Battle (1965) and held that the Commissioner was on firm legal ground in requiring county officials to enforce the law, and also held that the Commissioner had the right to seize the land books in order to carry out his responsibility.  A year later, a decision was handed down in Pauley, a 1982 Lincoln County case involving public school finance, that would have a significant impact on West Virginia's property tax system.  Judge Arthur Recht ruled that the existing system of financing the public schools was unconstitutional because its reliance on property taxes rendered it discriminatory against children in poorer counties (Kinnaman 1983).
Judge Recht also made a scathing and detailed criticism of the Tax Commissioner's Office for not upholding its responsibility to administer the property tax. His main points were that: the Commissioner has broad mandatory enforcement and penalty powers over county assessors, and has historically assumed a role that is too passive for an effective discharge of his duties; current appraisals are at a fraction of market value; effective and uniform appraisals and assessments require centralized management and administration; appraisals vary in base years by more than 20 years from county to county, and within a given county there are different base years within a given species of property; large tracts of undeveloped property tend to be more underappraised than other types of property and are therefore grossly underassessed; the assessor's manual provides no meaningful guidelines as to the assessment of timber; the Tax Department needs the capability to provide updated figures annually to the counties; different approaches to value may be employed for valuation purposes of different species of property, but these approaches must be appropriate to reach equitable valuations; there must be similar treatment of like species of property throughout the state; and, finally, appraisals must be at full market value and assessments at 60 percent of appraisals.
Taking an action that some considered judicial activism in the extreme, the Judge issued a number of orders, including:  "The Tax Commissioner of the State of West Virginia shall cause a plan to be developed to provide remedial action for all the deficiencies identified in the findings contained herein."
This plan was to contain the procedures, mechanisms and timetables for executing the proposed regulations, and was to be submitted to the court within 90 days from the date of the order, May 11, 1982.  Needless to say, there were rumblings within the executive and legislative branches and among county assessors over what was considered to be presumptive behavior by the court.  However, the State Tax Department, given a new and clear mandate, proceeded immediately to develop a plan to meet the court's orders, with special attention to modern techniques for appraisal of natural resource property.
The fractional assessment provision of the law, reaffirmed at 60 percent in both the Rose and the Pauley decisions, was voided by the State Supreme Court by an almost simultaneous ruling in still another case, Killen V. Logan County Comm. (295 S.E.2d at 693).  The Logan County Board of Education had sought to have assessments made at 100 percent of the Tax Commissioner's appraisals on all classes of property.  The Board's argument was that the fractional assessment provided by law was unconstitutional because the equality and uniformity required by the constitution could not be maintained.  The West Virginia Supreme Court agreed, stating, "... the legislature has no authority to allow assessors discretion in determining the value of property ..... equal and uniform taxation cannot result when each county assessor can vary assessments up to 50 percent of the appraised value both within and among classes of property" (Killen, 693).
The Court did not appear to recognize that equal and uniform taxation could result if the fraction were specified as it had been in Pauley.  But the Court did recognize that the existing appraisal values were out of date and should not be used as the basis for implementing a l00 percent assessment ratio.  Accordingly, it ordered that a complete reappraisal be made "with deliberate speed" (Killen, 697).
 Killen would have had a dual impact on property taxes in the state: not only were assessments to be raised to l00 percent of appraised value, but the appraised values were to be 1982 values rather than the values then in place, which dated from the 1950s, 1960s and 1970s, and were much lower than 1982 values.
The Court's decision was received by politicians with a great deal of alarm as many mistakenly believed that the decision would raise taxes for most property owners.  Of course, if assessments went up, rates could be lowered to keep tax levies unchanged.  Nevertheless, claims were made that the Court had usurped the powers of the executive and judicial branches and had violated the principle of separation of powers.  Many legislators called for a special session to counter the Court's mandate and then-Governor Rockefeller, apparently also incensed over the decision, complied with the request and called the Legislature into special session for two purposes: to draw up a constitutional amendment to provide for fractional assessment to nullify the l00 percent directive of the Court, and to raise the homestead exemption for the elderly and handicapped from $l0,000 to $20,000.  County assessors unanimously endorsed a proposal for a constitutional amendment to limit property tax assessments to 50 percent of market value (Charleston Gazette, July 20, 1982).
The Governor's proposal to raise the homestead exemption was designed to prevent a large number of elderly and disabled from suddenly being subjected to a property tax. For example, an owner of a house with a market value of $30,000 and whose assessment ratio was 30 percent, had an assessment of $9,000.  The $l0,000 homestead exemption enabled this owner to avoid paying any property tax on the home.  The Killen decision would have raised the assessment from $9,000 to $30,000.  After the $10,000 homestead exemption, the property owner would now be subject to property taxes on the remaining $20,000.
The Killen decision and the reactions it brought about among state and local politicians and among taxpayers illustrates the inherent conflict between state assessment law and local assessment practice whenever an attempt is made to raise and standardize assessment ratios (Shannon 1967).  It also illustrates why assessments established at the local level tend to fall further and further behind market values during periods of escalating property values.
First, the political responsibility for increased assessments, whether caused by legislative or judicial dictate or by increasing property values, tends to fall heaviest on the county officials, especially the assessors.  Had the Killen ruling held, the elected county assessors would have been at the mercy of the rate-making bodies if the rates were not lowered proportionally.  This "misdirection" of responsibility is a hazard for elected assessors and causes them to exert a more-or-less permanent depressing effect on assessments.  If additional revenue is needed, the preferred method of obtaining it, from the standpoint of the assessor, is for the levying body to raise the rates rather than the assessments.  However, an increase in rates was not possible in West Virginia because they were already at the legal maximum.  State officials, including the Governor, can also be victims of misdirection of responsibility when required to raise taxes by virtue of a judicial order.
Second, there is a long tradition of local authority in property assessment in West Virginia, and county assessors, individually and collectively, have been a potent political force (Davis 1965).  Although the Legislature has enacted laws that give the Department of Tax and Revenue control over the assessment process, such control has really never been realized, as Judge Recht's findings testify.  State tax officials repeatedly have found that in the absence of strong support by the Governor, a legislative mandate is insufficient political backing to carry out a vigorous policy of enforcement at the local level.  Thus, they have tended to deal gently with county assessors.  The fact that upper echelon officials in the Tax Commissioner's office traditionally have been political appointees also may have contributed to this gentle treatment of assessors (Hill 1984).
Third, it is common for assessors to maintain different assessment-sale ratios for the various classes or types of property, usually giving residential property owners (voters) a preferable ratio.  Any abrupt change to a uniform assessment ratio would create a major redistribution of the total tax load, with homeowners likely to receive the greatest jolt.  The political consequences for elected assessors are obvious.
 Fourth, while a high and specified assessment ratio helps to make the tax more uniform and equitable, it also places higher standards of accountability on assessors.  Generally speaking, the lower the fractional assessment ratio, the greater the opportunity for assessors to "bury their mistakes" and to keep hidden from public view all negotiated assessments and intentional acts of favoritism (Kleine and Shannon 1986).
 Fifth, and finally, the lack of a legally mandated, specific assessment ratio increases the power of the assessor to control local spending, especially that of the county school board.  As already discussed, levy rate restrictions in West Virginia are imposed by the constitution.  The more discretion the assessor has in setting assessments through manipulation of the assessment ratio, the greater is his or her power to control local spending.
In view of these incentives and disincentives, it is not surprising that the West Virginia Assessors Association opposed the Logan County decision and advocated the establishment of a lower (50 percent) assessment ratio.
The Killen decision would have shifted power away from the Statehouse, the Legislature, and the assessors' offices toward the local levying bodies.  In addition, the decision promised to create a significant redistribution of the property tax load, including the imposition of higher taxes on homeowners, the politically dominant group.
The means selected to prevent this upheaval was the adoption of a constitutional amendment.  Political support for the amendment was to be obtained by persuading the electorate that the separation of powers principle had been infringed upon by the court and that property taxes would double (or triple or quadruple, depending on who one talked to and when) unless the amendment was approved.
 Constitutional Amendment and Statewide Reappraisal
The Tax Limitation and Homestead Exemption Amendment of 1982 was approved by the voters in November 1982.  Its chief provisions called for a temporary freeze on current assessment levels (at about 60 percent of appraised value), a statewide reappraisal of all property by March 1985, permanent implementation of a 60 percent assessment ratio, and a 10-year phasing in of the new assessments.
The reappraisal seemed doomed right from the start, as many legislators, assessors, anti-tax groups and others sought to discredit it.  The Tax Commissioner had found it necessary to contract with an Ohio company to conduct a large part of the reappraisal of residential property because no West Virginia firm had the requisite size and experience to perform a statewide mass reappraisal.  Some legislators and assessors appealed to the base instincts of West Virginia citizens against outsiders and used the certainty of higher taxes to build sentiment against the reappraisal.  An Associated Press story quoted lawmakers as claiming the reappraisal "will send property taxes soaring into the stratosphere, hounding farmers from their land, pushing the elderly into the streets and putting industry to flight for sanctuary to other states."  "Worst of all," said one lawmaker, "all this is going to be done by Buckeyes.  That company from Ohio is going to come down here and tell West Virginians what their homes and businesses are worth" (Robinson 1983).
In an attempt to keep as much of the reappraisal money as possible within West Virginia, the Legislature required that 95 percent of the people working on the reappraisal had to be West Virginians.  This presented some difficult recruitment problems for the contractor.  When the reappraisal was completed, its critics pointed to examples of inaccuracy and cited the contractor for hiring high school dropouts.
The Legislature had reserved to itself the right to approve the reappraisal before it could be implemented.  By the time the reappraisal was completed in 1985, there was a distinct lack of support for it in the Legislature.  The Legislature put the ball in the Governor's court by indicating that it would approve the reappraisal only if the Tax Commissioner would certify that its values were essentially correct.  By this time, Governor Moore was in the Statehouse and he had no desire to inherit a political problem he considered to be his predecessor's, and the reappraisal was never implemented.
As a result, many of the appraisal values now on the books date from the period of the last statewide reappraisal, 1958-1967.  As Table 7 indicates,  the last general reappraisals in West Virginia took place during the 1970s and no reappraisal of commercial, industrial, or mineral properties has taken place since 1984.
West Virginia's frustration over the property tax dilemma came to a head again in 1987.  At that time the United States Supreme Court ruled in Allegheny Pittsburgh Coal Co. V. County Commission of Webster County (488 U.S. 366) that the Webster County Assessor could not reappraise a recently sold coal property to its sales price of $29.8 million without reappraising similar properties that had not changed owners.  The U.S. Supreme Court ruled that the assessments violated the equal protection clause of the U.S. Constitution.
The Webster County decision was a defining statement in West Virginia property tax history.  It was now clear that West Virginia could not solve its property tax problems one parcel at a time, nor one county at a time, nor one class at a time.  Instead, all of the assessment problems would have to be addressed at once through a comprehensive reform program.  The Webster County decision thus gave rebirth to the notion of statewide reform and provided a major impetus to passage of the Appraisal Act of 1990.
The State Department of Tax and Revenue estimated that West Virginia's property tax revenue for 1989 was about $421 million, $265 million of regular levies and $156 million of excess levies (West Virginia Department of Tax and Revenue 1990a).  The
statewide mean assessment-sale ratio for 1989 is not available but the ratio for 1988 was 29.85 percent (West Virginia Department of Tax and Revenue 1989).  The legal mandate was 60 percent, or about double the actual ratio.  Therefore, assuming
  Table 7.

Most Recent Reappraisals in West Virginia, By Quinquennium and Number of Counties, 1955-1989

        Number of Counties
Quinquennium General*   Commercial Industrial   Mineral**

1955-59     2   0   0  0
1960-64    23   5   0  0
1965-69     7      15   0  0
1970-74    10   7   0  0
1975-79    12      22      27     26
1980-84     0   6      28  7
1985-89     0   0   0  0

 * No data for Logan County
** No data for 22 counties

Source:  West Virginia Department of Tax and Revenue. 1982.
Appraisal Status Spreadsheet. Charleston, WV: West Virginia Department of Tax and Revenue; and Personal Communication with Donald Hebb, West Virginia Department of Tax and Revenue, 1990.
 
 

 that the assessment-sale ratio for 1989 had not changed since 1988, West Virginia's property tax revenue from regular levies
should have been about double the $265 million actually collected (60/29.85=2.01), or $532 million.  Therefore, the underappraisal of property in West Virginia for regular levies alone cost local governments at least $111 million in 1989.
 For purposes of comparison, and referring once again to the tax harmony question raised earlier, West Virginia's Department of Tax and Revenue estimates that in 1991 the consumer sales tax on food will raise approximately $110 to $120 million.  It appears that strict enforcement of the property tax statutes would raise at least as much additional revenue as the sales tax on food.  Moreover, if, as a consequence of strict enforcement of the property tax statutes, the sales tax on food was repealed, West Virginia's tax system would become slightly more progressive (see next section), more of it would be exported to residents of other states and more of it would become eligible for deduction on federal income tax returns.
 EQUITY
Equity in property taxation is usually determined by using either horizontal or vertical measures.  Horizontal equity refers to the belief that taxpayers with equal ability to pay ought to have similar tax burdens.  Vertical equity refers to the belief that taxpayers with greater ability to pay ought face higher tax burdens than those with lesser ability.  Vertical equity assumes that a tax should be progressive (based on income or wealth) to be fair.  Ad valorem property tax systems are generally considered to be regressive because the tax levy for homeowners tends to decline as a percentage of income as income increases (Netzer 1966).
Since it is known that the property tax is somewhat regressive (less regressive than West Virginia's sales tax and more regressive than West Virginia's graduated income tax), this analysis focuses on inequities among classes and types of property, and among and within counties. Inequity pertaining to the homestead exemption is also discussed.
 Inequities Among Property Classes and Types
The upward escalation of property values over recent decades, together with the varying frequency of reappraisal among counties and among classes of property, has led inexorably to inequities in property taxes.  The Bowman Report revealed large differences in assessment-sale ratios among property classes in 1980 (Bowman 1984).  At that time, Class II property (residences and farms), was the most under-assessed property class, with an average assessment-sale ratio of only 19.4 percent, or 40 percent of the legal mandate.  In contrast, Class III and IV properties (primarily businesses) had average assessment-sale ratios of 34.9 percent and 26.3 percent respectively.
  As Table 8 demonstrates, this situation has not changed much over the past decade.  The mean overall assessment-sale ratio for all classes of property increased from 27.6 percent to only 29.85 percent, even though the minimum legal assessment-sale ratio rose from 50 to 60 percent during this period.
Although the 1980 and 1988 assessment-sale ratio studies are not directly comparable because the latter dealt with property type rather than class, the main conclusions are still the same:  there is a great deal of inequity in the assessment process when species of property are compared.
As was true in 1980, the assessment-sale ratios for business property (apartment, commercial, and industrial) are well above the overall assessment-sale ratio mean and timberland and farms are substantially below the overall mean.  This concurs with Judge Recht's finding in Pauley that large tracts of undeveloped property tend to be more underappraised than other types of property and are therefore underassessed.  This also concurs with nationwide studies that have found higher assessment-sale ratios for improved as compared to unimproved property (Back 1970).
It is important to note that neither the 1980 nor the 1988 study included mineral properties.  According to the Department of Tax and Revenue, there are not enough sales of mineral properties to provide sufficient data for an assessment-sale ratio study.  However, anecdotal evidence suggests that mineral lands may be as underappraised as any of the other types of property.  The reappraisal now taking place will be enlightening in this respect.
 Inequities Among Counties
Statewide equalization of assessments has been a difficult
problem for almost all states, and many have established state
  Table 8.

Mean and Median Assessment/Sale Ratios, By Property Type, West Virginia, 1988.
 

Property       Number       Mean A/S   Median
 Type  of Sales    Ratio   Ratio

Residential  17,734        29.63%   28.64%
Apartment        42        37.63   33.46
Commercial     773        31.29   30.44
Industrial      31        42.44   33.32
Timber      119        21.64   20.00
Farm         96        21.37   23.08

All    18,795        29.85   28.70

Source:  West Virginia Department of Taxation and Revenue. 1989.
West Virginia 1988 Assessment Ratio Study. Charleston, WV:
West Virginia Department of Taxation and Revenue.
 boards of equalization to control assessment ratio variances between counties or other assessing units.  In West Virginia, the Department of Tax and Revenue requires each county assessor to maintain total assessments in each property class at approximately 60 percent of total appraised value in that class (West Virginia Department of Tax and Revenue, 1990b).  However, since appraisal values are so outdated and so far below market value, the assessment-sale ratios are far below 60 percent.  In 1988, only seven of the 55 counties had a mean assessment-sale ratio in excess of 40 percent and 30 counties had a ratio less than 30 percent (see Table 9).
Inter-county differences in assessment ratios are great because of the large differences in time lapsed since the last appraisal, the size of the tax base in relation to public revenue demands, and the differing policies and practices of county assessors.  Landowners who hold unimproved land in adjacent
counties often see this problem vividly: parcels that are similar may be appraised at $20 per acre on one side of the line and $l00 per acre on the other.
 Inequities Within Counties
The principal tool used to judge the equality of assessments is the coefficient of dispersion about the median assessment-sale ratio, or COD.  The COD is the average deviation of a group of assessment ratios from the median, expressed as a percentage of the median.  A coefficient of 20 is generally thought to be acceptable and attainable.  In 1988, only two West Virginia
  Table 9.

Number and Name of West Virginia Counties by Mean Assessment-Sale Ratio Range, 1988.

     Mean
Assessment-Sale   Counties
 Ratio Range  Number       Name

55.00 - 59.99%    l    Pocahontas
50.00 - 54.99    2    Mercer, Wetzel
45.00 - 49.99    3    Webster, Roane, Summers
40.00 - 44.99    4    Marion, Braxton, McDowell,
    Mineral
35.00 - 39.99    3    Clay, Preston, Putnam
30.00 - 34.99   12    Calhoun, Mingo, Tucker,
    Fayette, Wood, Ohio,
Marshall, Jackson,
    Raleigh, Kanawha, Lewis,
    Gilmer
25.00 - 29.99   14    Jefferson, Wirt, Cabell,
    Lincoln, Tyler, Brooke,
    Hancock, Taylor, Barbour,
    Ritchie, Hampshire, Nicholas,
    Mason, Harrison
20.00 - 24.99   12    Monongalia, Pleasants,
Monroe, Upshur, Hardy, Grant,
    Pendleton, Randolph, Morgan,
    Greenbrier, Berkeley, Wayne
15.00 - 19.99    4    Boone, Logan, Doddridge,
    Wyoming

Source: West Virginia Department of Tax and Revenue. 1989.
West Virginia 1988 Assessment Ratio Study. Charleston, WV:
West Virginia Department of Tax and Revenue.
 counties met that standard, Mercer and Pocahontas (West Virginia Department of Tax and Revenue 1989).  The range of ratios was from a low of 15.5 in Pocahontas County to high of 77.2 in Logan County.  Over half of the counties in West Virginia had a COD in excess of 40.  It is apparent that, with the exception of two counties, West Virginia's counties have a high degree of internal bias and inequity in appraisals and assessments.
 The Homestead Exemption
In spite of its low level of property taxation, West Virginia offers all three of the common forms of property tax relief.  In addition to classification, relief programs include a circuit breaker and homestead exemption.  The circuit breaker program provides property tax relief for elderly homeowners and renters who have gross household income of less than $5,000.  Because the income ceiling is so low, the program is little used and the total amount of relief is inconsequential.  The homestead exemption program, on the other hand, is intensively used by West Virginia homeowners (it is not available to renters) and is fast becoming a major factor in the state's property tax system.  The program provides a $20,000 exemption against the total assessed value of real property owned and occupied by any person who is 65 years of age or disabled.
Homestead exemption programs came into being in the late 1960s and early 1970s, and by 1975 there were 39 programs in 23 states.  Unlike West Virginia's program, most of the programs existing in 1975 incorporated household income ceilings which limited participation (Abt Associates 1975).  By 1986, the number of states with homestead exemptions dropped to 17 and only Kentucky among West Virginia's neighbors maintained a program.  In 1986, West Virginia's program removed 5.9 percent of the assessed value from the tax base, while Kentucky's program removed 3.7 percent from its tax base (U.S. Bureau of the Census 1987).
In 1989, West Virginia homestead exemptions exceeded $l.5 billion in assessed value, or 24.8 percent of gross assessed valuation in Class II and 6.7 percent of total gross assessed valuation (West Virginia Department of Tax and Revenue, 1990b).  Assuming an average levy rate for Class II of l.37 percent, West Virginia homeowners enjoyed about $20.5 million in exempt property taxes in 1989.
It should be noted that the homestead exemption was increased to $20,000 in 1982 under the assumption that levy increases were going to be increased as a result of the statewide reappraisal.  Although the increase in levies did not come about, eligible homeowners still received the increased exemption.
The rationale for a homestead exemption program is that the elderly generally have low incomes and spend a large proportion of their disposable income for housing.  Thus, the property tax is seen as imposing a special burden on them, entitling them to relief.  An unspoken, but obvious, further rationale is that the elderly now comprise a large and growing proportion of the population, are well organized and are more apt than other age groups to vote.
From a public policy standpoint, the central issue regarding homestead exemptions is the economic circumstances of the elderly as compared to other age groups (Chen 1967).  The relative position of the elderly has improved greatly since homestead exemptions came into being.  Census data indicate that many of the elderly are in the higher income brackets; when size of family is taken into account (per capita income rather than family income), the elderly are better off than other age groups; the mean net worth of the 65-74 age group is highest among all age groups; younger families (less than age 35) spend as high a percentage of their income for shelter as do the elderly; and  the elderly spend a lower proportion of their income for non-shelter items such as food, clothing, and automobiles (but more for medical expenses) (U.S. Bureau of the Census 1990).
The argument in favor of the homestead exemption for all homeowners over 65 is now tenuous.  Increasing the gross household income threshold for the state's circuit breaker program or imposing an income threshold on the homestead exemption would be a far more effective device to alleviate the regressive effects of the property tax.
West Virginia's property tax system violates the rules of fairness no matter what criteria are used.  There are inequities among classes, among types of property, among counties, among parcels within counties, and among age classes in the population.  All except the latter are in breach of the law.  Perhaps the worst thing about inequities is that they breed a distrust and skepticism for the property tax among the public which can be exploited by those who wish to stifle any efforts toward reform.
 THE APPRAISAL ACT AND PROSPECTS FOR REFORM
The Appraisal Act of 1990 is the culmination of a number of situations and events that have occurred over recent decades: of parents dissatisfied with their children's quality of education; of disgruntled property owners seeking redress; of findings and rulings of the state and federal judiciary, some of which have been contradictory; of state and local tax officials who have been sometimes timid, sometimes persistent, occasionally exploitative, and almost always lacking a clear legal mandate and requisite political support; and of a Legislature often disabled by confusion or petty concerns, although generally responsive to competent leadership.
Only time will tell if the Appraisal Act will prove to be a solution to the State's property tax problems.  But if fully enforced, and if technical and procedural problems are dealt with competently as they arise, it should move West Virginia toward a more sound and equitable property tax system.
The Act provides potential solutions to many of the more serious problems. To resolve the problem of keeping appraisals up to date, it calls for valuation of property in three-year cycles, with annual adjustments.  The first cycle is to begin in 1991 and proceed according to plans now being prepared for approval by the Department of Tax and Revenue.  On the matter of fractional assessment, it requires that each individual parcel must be assessed at 60 percent of appraised value by 1994.  The State has never before had such clarity and specificity in the statutes concerning the assessment ratio.  The period from now until 1994 will be a busy one on the property tax scene, assuming appraisals are actually raised to market value and the assessment ratio is maintained at 60 percent.  Either levy rates will come down to meet the tax increase limitations imposed by the law, or counties and municipalities will be forced to advertise and hold hearings to increase property taxes and school boards will be forced to appeal to the Legislature for increases.  However cumbersome the process might be for moving from higher assessments to higher levies, there is a good prospect that the first and necessary steps, the raising and equalizing of assessments, will be taken.  If even this much is accomplished and no more, 1994 will find West Virginia with a vastly improved property tax system.
On the problem of clarification of responsibility and authority, the Appraisal Act reaffirms and strengthens the Secretary of Tax and Revenue's oversight of assessors and assigns to the Secretary the responsibility for the appraisal of industrial and natural resource property.  This concentration of authority and responsibility for appraisal of natural resources should result in improved administration of the tax in this sector and in more equitable (and in many cases higher) property taxes on natural resources.  The prospects for accomplishing this are enhanced by the state-of-the-art appraisal techniques developed as part of the earlier statewide reappraisal.
  The Appraisal Act attempts to remove the onus of association with the statewide reappraisal of 1983-85 by directing the Secretary to develop new regulations rather than adopting regulations written as part of that reappraisal. At the same time, it permits the Secretary to make use of the complicated methodologies developed as part of the reappraisal for the assessment of industrial and natural resource properties.
The Appraisal Act represents a much needed step toward centralizing property tax administration, made all the more necessary and significant because of the state's high proportion of property in industrial, utility, and natural resources parcels.  On the other hand, the Act preserves a significant degree of local responsibility by leaving to county assessors the appraisal of most property and to county commissions the responsibility for equalization and review.
The Secretary and the Property Valuation Training and Procedures Commission now have the responsibility for improving the quality of the assessors' work.  The existence of the Commission, with members representing county government, the state Legislature and the Governor, should reduce the political vulnerability of all parties on property tax issues and may lead to more aggressive enforcement of the statutes.
Intra-county and inter-county bias in assessments may be reduced and held at an acceptable level if a satisfactory degree of competence can be achieved among assessors through the combined efforts of the assessors themselves, the Secretary of Tax and Revenue, and the Training and Procedures Commission.  The assessors will be aided in the process of professionalizing their offices by the computerization of record-keeping and analysis, a process that began in the statewide reappraisal of 1983-85 and is essential for assessment analysis and the maintenance of a modern cadaster.
The Appraisal Act establishes a revolving valuation fund to pay for the reappraisal, the costs eventually to be covered by allowing assessors to keep two percent of the regular levy for the first three years and one percent each year thereafter.
The Appraisal Act is an interesting example of incremental politics in the constraint it imposes on tax levy increases and the way it uncouples the appraisal function from the levy function.  It was the opinion of legislative leaders and the Secretary that any reappraisal bill would fail in the 1990 legislature if it resulted in automatic and large tax increases.  In a tribute to the old maxim that politics is the art of the possible, the law was crafted so as to make it "revenue neutral" by limiting to one percent annually automatic tax increases resulting from higher assessments.  This was accomplished by requiring levy rates to be reduced in proportion to assessment increases above one percent.  This applies to counties, municipalities, and school districts.  Counties and municipalities may increase taxes up to 10 percent if it is deemed necessary, but only after holding public hearings and explaining the need for the increase in the county newspapers.  In tax parlance this is called the "death notice," which may say something about how often increases might be proposed.  Tax levies for schools are to be uniform throughout the state and increases over 1 percent can be levied only by the state legislature.
The Appraisal Act should reduce, if not totally eliminate, the misdirection of responsibility which has always plagued property tax administration in West Virginia.  Authority, responsibility, and accountability for various functions are now more clear and direct.  County assessors no longer feel compelled to depress assessments as a matter of their own political survival.  Instead, the county commissions, school boards, and the Legislature will be directly responsible for levy rate increases.  Assessors will no longer be required to make difficult and highly technical appraisals on industrial properties and on natural resource properties such as coal, oil, gas and timber, and they will no longer suffer the disadvantage of inferior technical expertise in negotiating assessments with owners of these properties.
Over the long term, the Appraisal Act should provide an opportunity for local revenue in West Virginia to assume a greater share of the funding for schools, and thereby permit state government to better meet its other responsibilities or to consider reductions in other taxes.
 Unsolved Problems
Potentials for reform notwithstanding, the administration of the Act should be monitored closely by all concerned, for the state's history in this matter shows quite clearly that dejure solutions do not automatically become defacto solutions.  For example, the question of whether the Department of Tax and Revenue and the Training and Procedures Commission will achieve sufficient cooperation and oversight of county assessors to establish a level of professionalism commensurate with assessors' duties is a very large question.  Equally large is the question of whether the mandate for reappraisal on a three-year cycle will be carried out.  These are questions without answers at this time.  But in any event, the Appraisal Act should be considered only a start toward reforming the State's property tax system. Many problems are left unsolved and unforeseeable situations will arise for which the law will prove inadequate.  A few of the unsolved problems are worth mentioning.
The Appraisal Act does not remove what arguably has been the most serious flaw in the system: there will be continued reliance on elected local officials to perform property appraisals, a practice which both history and common sense suggest is unworkable.  If training and close oversight of assessors' performance does not prove to be effective, the alternative of a state property valuation authority or agency under the Secretary of Tax and Revenue may have to be considered (Bowman 1984).  The responsibility of such an agency would be to perform professional valuations on a regular basis for all property in the state.  Valuations are now conducted this way in a number of places, including New Zealand (Valuation New Zealand undated), Australia (Woodruff and Ecker-Racz 1969), and British Columbia (Bowman 1984).
The appraisal process has come to be a complex and technical undertaking calling for a high degree of education and skill.  Computers have virtually revolutionized the process, making possible data collection and analysis with great potential for improvement of accuracy and dependability. But to take advantage of this potential, assessors must have a higher level of preparation and freedom from political influence.
There are those who would object to a centralized appraisal agency on the grounds that such a system means curtailment of home rule.  But the very fact that some citizens consider the appraisal function to be an act of ruling is indicative of the state's problem: property appraisal has nothing to do with ruling; it is, or should be, a purely technical function.  The ruling part of the taxation process comes when the tax laws are written and the levy rates are set.
Although the Appraisal Act presents an opportunity to increase local revenue to the point where it is feasible to reduce the need for a regressive sales tax on food, it will not be sufficient, in and of itself, to bring about a more equitable balance in state and local revenue sources. That will probably not occur until property tax rate limitations are removed from the state constitution.
The Appraisal Act addresses the problem of misclassification of parcels by providing new and more detailed definitions of farms and timberland, but satisfactory implementation of the regulations by assessors remains a question.  This may prove to be one of the most troublesome aspects of reform, both for assessors and in terms of the Secretary's oversight function.
The Appraisal Act does nothing to modify the homestead exemption. Revision of the state's circuit breaker program would require legislative action and the imposition of an income test in the homestead exemption program would require an amendment to the state constitution.  Either change would probably be fought rigorously by the senior citizens' lobby.  However, the Appraisal Act may eventually result in the taxation of some properties owned by the elderly or disabled that are now exempt by raising assessments above $20,000.
The statute also leaves the appeals process somewhat unclear because it retains the county commissions as boards of equalization and review.  In the past, this has contributed to local government's grip on property tax administration which has been criticized because of the local commissioners' lack of expertise in exercising this function (Pops 1984; Moran 1983).
Some of the procedural techniques to be used in the appraisal of natural resource properties are new and untested in terms of operational practicability, equity, and legality.  These appraisal techniques involve the determination of value by means of discounting the amount of future net income that can be generated by an existing resource.  This income discounting technique will be used for farms (Ferrise and Colyer 1984) as well as timber (White 1987) and mineral properties (West Virginia Department of Tax and Revenue 1990c).  Difficulties must be overcome in determining not only the quantity and quality of the resource, but the potential net income and appropriate capitalization rate to use in estimating present value.  Disagreements about these techniques may lead to litigation, attempts to amend the legislation or revise regulations, or all three.
As assessments are increased to the level of 60 percent of market value, and assuming inflation continues at a significant pace, a new form of bias will become evident.  Properties that are appraised according to market value as evidenced by sale of comparable property (residences and most commercial enterprises) will be subject to assessment increases that keep pace with inflation.  Properties assessed according to the discounted value of future earnings (natural resource properties), will be protected against inflation because the capitalization rate used to determine their present value will probably use a nominal discount rate rather than a real rate.  At present, only timberland valuation calls for the use of a real discount rate.  Thus, unless a real discounted rate is employed, inflation will gradually increase the relative tax burden on residences and most commercial enterprises.
Finally, as the ratio of assessed value to market value increases, the disincentive that ad valorem taxation presents to long-term economic development could become a more important factor.  Other things being equal, ad valorem taxes tend to discourage investment in property because the tax is a direct cost.  This disincentive can be avoided by using a site value tax, where the assessment is independent of any investment in the structures on the property.  The Appraisal Act mandates that an assessment procedure similar to this is to be used for the appraisal of timberland to prevent the exploitation of the state's timber merely to avoid the property tax.
 Conclusion
The Appraisal Act is a major step toward concentration of property tax authority and responsibility at the state level, a step that is desirable and even necessary if the property tax is to be made workable and equitable statewide.  But the further centralization of administration may intensify interest group pressures on the Secretary and the legislature.  The old practice of property owners negotiating with the county assessor is likely to give way to expanded lobbying efforts in Charleston.  Specifically, there are likely to be increasing demands to have some types of property reclassified from Class III or IV to Class II.  As far as administration of the property tax is concerned, the politics of the county courthouse will give way to the politics of the Statehouse and the Legislature.  The statute establishes the Governor and the Secretary of Tax and Revenue as the dominant figures in property tax administration, and ultimately, the question of whether the Appraisal Act will be an effective law, and whether West Virginia will have a respectable property tax system, will depend on the policies and determination of those who hold these two offices.
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