THE PLAN PROVIDES A MORE COMPETITIVE PROPERTY TAX AND RE-ALLOCATED PUBLIC SCHOOL FUNDING AND MANAGEMENT REFORM.

The Fair 55 Tax Reform Plan’s© proposed repeal of the property tax on motor vehicles, and the multi-year phase-out of the tax on all other types of tangible personal property (TPP), will greatly improve West Virginia’s economic competitiveness by removing its unusually heavy tax burden on job-creating capital investment. At the same time, because local governments (counties particularly) heavily depend on property tax revenues for funding their operations, it is essential that those entities (counties and municipalities) be given the entire regular levying authority over real estate (RE) and public utility (PU) property to make up for the loss of the TPP tax revenues.

Then, to replace taxes on RE and PU property as a source of public schools’ regular levy funding of their current expense budgets, the Legislature would be required to appropriate sufficient revenues to, effectively, fund 100% of those budgets to the “thorough and efficient” standard in the Constitution. While this represents a significant sum of money, in relative fiscal budgeting process terms, it simply represents a one-third increase (from 75%) of the present state aid structure supporting public education.

What should also change, however, is that all such state appropriations for public education should take the form of block grants to local schools, thus assuring equal per student funding of programs designed and implemented by local educators, while promoting improved outcomes due to the benefits of local control, choice, competition and flexibility. Those involved in that endeavor would ideally include individual school level players such as principals, teachers and students’ parents. Indeed, vouchers to students’ families would promote school choice and the improved results which such competition has proven to foster. As long as statewide funding is equalized, achievement, though measured by high statewide standards, can be best attained when local educators and students’ families have the discretion as to how to use that funding. That conclusion flows from the fact that, based on long experience, detailed mandates, about educational methods from a bloated, top-heavy central bureaucracy in Charleston, do not fit all (or, maybe, any) local educational settings. For the same reasons, Section J, infra of the Fair 55 Tax Reform Plan©, also calls for significant reforms to provide greater flexibility and decision-making at the local government and local voter level.

To avoid any potential dislocation of local government funding capacity, resulting from elimination of the tax on TPP, the Legislature should be constitutionally required to underwrite the revenue capacity of any county or municipality in the highly unlikely, but theoretically conceivable, circumstances that the expansion of their levying authority, with respect to both RE and PU property, is not fully sufficient to make them whole. This theoretical possibility could only occur where, in a given county, the taxable value of its tangible personal property is greater than the taxable values of both RE located there and of PU property allocated to that county by the Board of Public Works.

That conclusion is based on the simple logic which would tell us that, due to the current statutory allocation of levying authority among the levying bodies (the Boards of Education having well more than half of it), if the assessed value of TPP in any given county is less than one-half of the total assessed value of all property in that county (i.e. TPP, RE and PU property), then, the proposed elimination of the ad valorem tax on TPP for all levying bodies, combined with the reallocation to the County Commissions and Municipal Councils of the Board of Education’s/Legislature’s large majority regular/current expense levying authority as to RE and PU property, will not result in a net reduction of the base of the former bodies’ taxing capacity in terms of assessed values.

However, due to limits of the published data, the portion of the taxes levied on the sub-category of TPP, consisting of “chattels real” (i.e leasehold interests in mineral estates) but arbitrarily classified as TPP for assessment purposes per WV Code §11-3-7a, could not be ascertained and eliminated from the computation. Thus, without eliminating such chattels real, though they are intended to remain fully taxable, the assessed value for FY 2016, of the TPP (including such fully taxable chattels real) in the counties of Brooke, Doddridge, Marshall, Roane, Tyler and Wetzel, does, on the face of it, exceed more than 50% of all assessed values. However, given the extraordinary recent escalation of the value of active mineral leasehold estates in each of those six counties, it is virtually certain that, if the assessed value of TPP in those counties excluded the value of those leaseholds, the value of the remaining TPP, to be exempted in each of those counties (after excluding the still-to-be-taxed leaseholds), would, also, be well below the assumed 50% threshold for triggering such a tax base subsidy. Moreover, the other aspects of the Fair 55 Tax Reform Plan©, reallocating the State’s share of the remaining property tax on RE and PU property to the counties and the municipalities, and encumbering the State’s share of the property transfer tax, to cover even the theoretical shortfall in those six counties, does so by more than tenfold.

Nevertheless, to expect them to responsibly support repeal of the constitutionally-imposed tax on all other TPP (while still taxing the chattels real/mineral leaseholds aforesaid), county and municipal authorities can readily be given a binding legal assurance that their overall tax bases will not decline. That is because their greatly expanded authority to tax RE and PU property, as further underwritten by the mandatory encumbrance of the State’s share of the property transfer tax, is fully sufficient to offset the revenue lost due to that repeal. In addition to a mandatory property tax base subsidy to insure against such a loss, other steps, which will not only preclude it but will significantly expand revenue-generating capacity for local governments, are discussed in Section I. infra.

Finally, as a part of this major reform, it will be necessary to permanently retain local school boards’ current levying authority over RE to the extent it is legally bound to support payment of their existing bond and excess levy commitments. In addition, under the constitutional amendment discussed in Section J. infra, all levying bodies’ authority, to tax RE in connection with any local voter-approved bond or special levies, would be preserved. Thus, in such circumstances, if still in effect, the current constitutional caps on combined levy rates would be lifted when the local voters agree to impose greater taxes on themselves for such purposes.

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Contact Michael Caryl for further questions or assistance.

The Fair 55 Tax Reform Plan (Part 1)

The Fair 55 Tax Reform Plan (Part 2)

The Fair 55 Tax Reform Plan (Part 3)

The Fair 55 Tax Reform Plan (Part 4)