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A proposal before voters would eliminate a key source of revenue for the state’s local governments and end a tax on people’s cars.
Republican lawmakers in West Virginia are asking the state’s voters next Tuesday to pass property tax cuts for businesses they say could attract more companies to the state.
The taxes on business property like machinery and inventory though are a significant source of funding for local governments in the state. And the proposal is alarming West Virginia county and local officials who say it would put about a third of their revenue in jeopardy.
“We just are very, very nervous about it,” Jonathan Adler, executive director of the West Virginia Association of Counties, said in an interview.
The proposal called Amendment 2 on next week’s ballot would amend the state’s constitution to exempt certain business holdings like machinery and inventory from property taxes in the state. Giving a boost to the measure’s chances of passing at a time when voters are concerned about inflation, it would also open the doors to ending a property tax all state residents pay twice a year on their personal vehicles.
The taxes would not immediately end should the measure pass but removing them from the constitution would allow state lawmakers to eliminate them. And they have pledged to do.
What’s worrying local government leaders is that 27.2% of the $515 million that was collected from the taxes last year went to counties, while 65.3% went to school districts and 7.1% to municipal governments, according to a study by the West Virginia Center on Budget and Policy.
The state’s 55 counties received $138 million from the taxes that would be eliminated, according to the study. Adler said the taxes that could be eliminated make up between 20% to 35% of the revenue for counties in the state because property taxes are their main source of revenue.
“We're kind of in a straitjacket as far as what our revenue sources are,” he said.
State lawmakers vowed to make up for any revenue local governments lose with money from the state’s general fund but have yet to release a plan.
“The main problem is we have the cart before the horse,” Adler said.
So far state lawmakers have responded to the concerns of local officials with “two words,” Monongalia County Commissioner Tom Bloom said in an interview. “‘Trust us.’”
Reimbursing local government through the state’s annual budget process “is a non-starter for us,” Adler said. Rather than being guaranteed the revenue through the taxes, “that just lumps us in with state agencies and others in having to compete for those dollars” each year, he said.
“The idea of tax reform is great,” agreed Tammy Tincher, a Greenbrier County commissioner, in an interview. “But the lack of a solid plan and committed revenue to protect our county funds is just too much of a risk as far as I'm concerned.”
The measure is one of 133 measures on statewide ballots this year, according to a National Conference of State Legislatures database. Twenty-three involve taxes, including a proposal in Massachusetts that would raise taxes on higher-income people to increase transit and education funding and a measure in Arizona that would make it harder to approve ballot proposals that would raise taxes.
The West Virginia measure’s proponents, however, have been stressing another aspect of the proposal that could be politically popular at a time when national polls show that inflation and the economy is the top issue on voters’ minds leading up to next week’s elections. The measure would allow lawmakers to repeal the property tax on vehicles the state’s residents pay twice a year.
“It's time to cut taxes in West Virginia,'' said a television ad being run by a group called Make West Virginia First, pushing the measure. “A yes vote means we can end the car tax in West Virginia,” it said. “Inflation is killing all of us. We need a tax cut.”
The proposal, though, is facing opposition from the state’s Republican governor, Jim Justice. “If you do not have control of your county, you'll be in real trouble. Real, real trouble,” Justice told the Kanawha County Commission in Charleston, West Virginia, last month with his bulldog, Baby Dog, at his side.
Stopping the measure “is the biggest moment of my governorship,” he said, “because this can tear us all to pieces.”
The commissioners thanked Justice at the meeting, passing a resolution honoring Baby Dog for being “‘paws down’” on the ballot measure.
To proponents like Senate Finance Chairman Eric Tarr, however, the business property taxes impede the state’s ability to attract businesses.
According to a study commissioned by the West Virginia Manufacturers Association, the states it competes with for businesses like Kentucky, Tennessee, North Carolina, Ohio, Pennsylvania, and Virginia do not have similar taxes or do not enshrine them in the state’s constitution. That allows lawmakers to waive them for the industries they want to attract.
The taxes are “detrimental to the growth of West Virginia and for our economy,” Tarr said during a televised debate last month with Kanawha County Commissioner Kent Carper. He pointed to West Virginia’s budget surplus as evidence that state budget writers could find the money to fund local governments. Justice last month announced the state has a $427 million surplus.
The state has a “once in a generation opportunity to come in and change our tax structure,” Tarr said. Tarr did not respond to inquiries by Route Fifty.
Pressed during the debate about what guarantees he could provide that the state will provide enough funding to local governments into “perpetuity,” Tarr said state lawmakers have no reason to want to see local governments struggle nor do Republican lawmakers interested in “defunding the police” by causing local governments to lose revenue.
“Every legislator comes from a county. We all come from municipalities. We all come from areas where we're served by police,” Tarr said during the debate.
Tarr also noted that revenue from the business taxes has been declining and argued the state could provide more money than the local governments and school districts would receive from the taxes.
Justice, however, told the Kanawha County commissioners that the businesses he has tried to recruit to the state have not raised the taxes as a concern.
“Nobody, nobody has asked Jim Justice, ‘You know if you would get rid of that machinery and inventory tax, we'd come to West Virginia,’” he said.
Justice also attacked proponents for highlighting the car tax, saying that’s not what he believes is driving proponents to push the measure.
“Why are we doing it? The answer is one word, ‘swamp,’” Justice said, who accused lawmakers of pushing the proposal to appease business lobbyists.
“It’s absolutely wrong to couch this and say vote for this because you'll get rid of your car tax when that didn't really have doodly to do with it,” he told the commissioners.
Despite the assurances from lawmakers, local officials said they are not convinced future legislatures will adequately fund local governments.
Bloom said without the dedicated funding stream, county revenues will become at the whim of the state.
“Now all the counties will have to go down every year, asking for funds,” he said. “We do our budget in February. Well, now we’d have to wait and see what the 60-day session does and see if we get the money.”
Adler also said it’s impossible to know what the future holds despite the assurances. “That can always change certainly with the change of the economic fortunes,” he said, noting the state’s uncertain economic future as the nation turns toward clean energy and away from coal and natural gas.
“It's just a big risk and counties are already pinching pennies and trying to come up with new ways to make up for losses in order to be able to continue,” Tincher said. “It's hard to put that trust into our legislature.”
Kery Murakami is a senior reporter for Route Fifty.
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