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, 1990. It was the intent of the state 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 pasttwo decades have been atime of upheaval over property taxes in many of the 50 states. By the 1970s, the so-called baby boomers of the post-World War 11 era had created pressures on school finance and a demand for rapid expansion of state and local government services. The needfor more local government revenue, togetherwith 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 oftheircounty's property taxes (Tug Valley Recovery Center, Inc. v. Mingo County

David E. White is a Professor of Forestry Economics and Policy at the College of Agriculture and Forestry, West Virginia University.

This article is the result of research supported in large part by the West Virginia Agricultural and Forestry Experiment Station and is published with the approval of the Director of the Experiment Station as Scientific Paper Number 2275.

Theauthorwishes tothankthe personnel of the WestVirginia Department of Tax and Revenue who have been helpful in the course of this study, especially Robert Hoffman, Jerry Knight, and Don Hebb. Conclusions and recommendations expressed in this article are those of the author and do not necessarily reflect the views of the Agricultural and Forestry Experiment Station, the institute for Public Affairs, West Virginia University, or the Department of Tax and Revenue.

Commission, 261 S.E. 2d 165 (W.Va. 1979)). Ultimately, the litigation led to several other important lawsuits and judicial decisions, some landmark legislation, a constitutional amendment, expenditure of some $35 million for a statewide reappraisal whose usewas laterforbidden bythe state 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 article 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. Whateverthe 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 confidenceinit. 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 adaptto 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 f ailed 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, 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 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.

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The problems of property tax administration cannot 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 intheearly 1970s found that two-thirds of themrated 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 diff icult 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 fairand appropriate that the property owner share in their cost. It can also be argued that the property owner's share of thecost 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. Due to space limitations, this article focuses on two of these criteria: adequacy of property tax revenue and equity.'

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 hadto assume a relatively large share of the costof 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. Although most states have reduced their reliance on the property tax as a revenue source, West Virginia consistently has been well below the national average. As Table 2, column 1, indicates, only Kentucky among the adjoining states ranks lowerthan West Virginia in properlytax levies as a percentage of state and local government own-source 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 percapita 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 halt 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) arethe highest amongthe adjoining statesandare higherthan 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 meettheir 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 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 twothirds 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 was 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 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). How-
 ever, 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 100% of a school district in West Virginia is still dependent on the
wealth of the people in the district, but not necessarily the 100 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 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 tax limitation amendment of 1933 established a tax structure which divided all taxable property into fourclasses 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 bythe 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 11 Property owned, used and occupied by the owner for residential purposes; farms occupied and cultivated by owners orbonafide tenants. (Maximum current rate: $1.00 per $100 of assessed value. Statewide 1989 average combined rate: $1.37.)

Class III Real and personal property situated outside of municipalities, exclusive of Classes I and 11. (Maximum current rate: $1.50 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 [I. (Maximum current rate: $2.00 per $100 of as sessed 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 ensuring 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-f rom $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 properly than against nonbusiness properly. 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 11 properties) have grown more slowly than other property classes. Tax levies on Class 11 properties

grew 182 percent overthe 13 -year period compared to 201 percent for Class I properties, 188 percent for Class III properties and 190 percent for Class IV properlies (West Virginia Department of Tax and Revenue 1990a).

The relatively large property tax burden placed on businesses is partly a reflection of the classification system and partly a reflection of county assessment practices. The Bowman Report revealed large diff erences in assessmentsale ratios among property classes in 1980 (Bowman 1984). At that time, Class 11 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 assessmentsale ratios of 34.9 percent and 26.3 percent, respectively.

This situation has not changed much over the past decade. The mean overall assessmentsale ratio for all classes of property increased from 27.6 percent to only 29.8 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 latterdealt 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 still well above the overall assessment-sale ratio mean and timberland and farms are substantially below the overall mean.

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 suff icient 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.

Inequities Among Counties

Statewide equalization of assessments has been a diff icult problem for almost all states, and many have established state 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 8).

Inter-county differences in assessment ratios are great because of the largediff erences intime lapsed sincethe 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 $100 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 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.

Property Tax Relief

In spite of its low level of property taxation, West Virginia offers all three of the common forms of property tax relief: classification (discussed earlier), circuit breaker and homestead exemption.

The Circuit Breaker Program

West Virginia's 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

West Virginia's homestead exemption program 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 at least 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 $1.5 billion in assessed value, or 24.8 percent of gross assessed valuation in Class 11 and 6.7 percentof totalgross assessed valuation (West Virginia Department of Tax and Revenue 1990b). Assuming an average levy rate for Class 11 of 1.37 percent, West Virginia homeowners enjoyed about $20.5 million in exempt property taxes in 1989.

It should be noted that the increase in the homestead exemption to $20,000 in 1982 was approved by the state legislature under the assumption that levy increases would occur as a result of the statewide reappraisal. When the levy increases did not occur, eligible homeowners still received the increased homestead 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 infavorof the homestead exemption forall 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 amongthe publicwhich can be exploited bythose 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 propertyowners 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 clearlegal mandate and requisite political support', and of a state legislature often disabled by confusion or pettyconcerns, although generally responsiveto competent leadership.

Only time will tell it the Appraisal Act will prove to be a solution to the State's property tax problems. But it 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 ap

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praisals up to date, it calls for valuation of property in threeyear 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 neverbefore 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 raisedto market value andthe 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 hearingsto increase propertytaxes and school boards will be forced to appeal to the state 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. It even this much is accomplished and no more, 1994 will f ind 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. Theprospects 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 the regulations that had been 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 allthe 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 s a utes.

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 eff orts 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 improving the performance of 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 payforthe reappraisal, the costs eventuallyto be covered by allowing assessors to keep 2 percent of the regular levy for the first three years and 1 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 f unction f rom 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 1 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 1 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 state legislature will be directly responsible for levy rate increases. Assessors will no longerbe required to make difficult and highlytechnical 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 profes

sionalism commensurate with assessors' duties is a very largequestion. 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 considerthe 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 purelytechnical 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 fora regressive salestax on food, itwill 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 does nothingto modifythe 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. Both actions 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 appraisalof 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 amounl;of future net income thatcan be generated by an existing resource. This income discounting techniquewill be usedforfarms (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 nominaldiscount rate rather than areal 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 concentrating property tax authority and responsibility at the state level, a step that is desirable and even necessary 4 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 IVto Class 11. 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

10

on and, ultimately, the

figures in property tax administrati be an effective
question of whether the Appraisal Act will

law, arid whether West Virginia will have a respectable property tax system, will depend on the policies and determination of those who hold these two off ices.

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Colyer, Dale. 1983. Tax Structure in West Virginia with Emphasis on the Property Tax. Morgantown, WV: Staff Paper 83-2, Division of Resource Management, West Virginia Agricultural and Forestry Experiment Station.

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