Tax agency estimates show two bills passed last week in the state House could cost West Virginia counties and schools $21.3 million.
The former would result in less predictable income streams for local governments, while the latter would lower the appraised values of oil and gas wells and resulting tax collections, according to Tax Department fiscal notes accompanying the bills.
House Bill 2493 would remove use of a three-year average for valuing coal properties, instead providing that annual production and average coal price used for valuation would be based on the preceding calendar year.
That would make local government revenue streams from coal property taxes more subject to fluctuations in the coal market. A weak market in the past year would have resulted in reduced property tax revenues of $12.2 million for tax year 2022, according to Tax Department estimates circulated among House delegates before they passed the bill.
“So there is a policy decision here regarding who should be paying these taxes,” Delegate Evan Hansen, D-Monongalia, said on the House floor before the bill’s passage. “Who this bill will help will be out-of-state corporations and large landholding and mineral-holding corporations that are paying these taxes now. But if this bill passes, it will hurt the people in your county whose local tax rates will have to be increased to make up the shortfall.”
Delegate Vernon Criss, R-Wood, lead sponsor of the bill, argued it would yield a fairer taxation scheme for coal property owners.
County school boards and commissions would absorb most of a projected revenue loss of $9 million stemming from additional expenses allowed by House Bill 2581 should it be enacted, according to the Tax Department.
Some of the loss to county school boards would be offset by a requirement of additional state general revenue appropriations through West Virginia’s state school aid formula at an estimated cost of $1.1 million under the Public School Support Program.
County boards of education also would face an estimated loss of $5.2 million because of lower tax collections that increased state aid funding would not cover, according to the Tax Department. Actual revenue loss might vary greatly depending on the price of gas or expenses in future fiscal years.
The Tax Department noted many local jurisdictions can adjust property tax rates to offset at least some of the revenue loss, but delegates in the counties projected to initially lose the most took no solace.
Wetzel County alone would lose an estimated $713,933 in the first full year, according to Tax Department estimates. Delegate Dave Pethtel, D-Wetzel, called it the most important bill he had spoken on in 15 terms in the House.
“We have, I believe, a fundamental decision here,” he said. “These large companies, are they going to continue to pay the tax, or is the school board and the county commission going to have to raise the levy rate [and] put that back on individual property owners?”
HB 2493 has been referred to the Senate Finance Committee. HB 2581 is now pending before the Senate Judiciary Committee. The bills passed with 64 and 66 votes in favor, respectively, showing limited Republican opposition in a chamber where the party holds a 77-23 advantage.
The counties that would sustain the biggest financial losses from HB 2493 for tax year 2022 are Marshall ($1.75 million), Logan ($1.35 million), Wyoming ($1.28 million), Boone ($1.06 million), Raleigh ($952,547) and West Virginia’s poorest county, McDowell ($781,846), according to Tax Department estimates. Kanawha County is projected to lose $593,531.
The counties the Tax Department projected would lose the most from HB 2581 during its first full year are Tyler ($1.94 million), Doddridge ($1.36 million), Marshall ($1.32 million), Wetzel ($886,454), Ritchie ($860,939) and Ohio ($765,766). Kanawha County is estimated to lose $76,906.
Delegate Terri Sypolt, R-Preston, contended the Tax Department’s fiscal impact estimate for HB 2493 was inflated. Criss agreed.
Five of the bill’s 10 sponsors, including Criss, represent counties the Tax Department projected would lose no money in tax year 2022 should HB 2493 become law.
“Not a single dime comes out of their county, but it sure does [from] mine,” Delegate Ed Evans, D-McDowell, said.
Tuesday wasn’t the first time HB 2493 came up for a vote in the House this session.
The bill was first scheduled for a vote March 16 but was recommitted to the House Finance Committee that day after delegates objected to voting on the legislation without knowing how much it might cost.
The Tax Department’s fiscal note had not yet been produced. Criss acknowledged he didn’t know the bill’s revenues impact.
HB 2493 stems from a House resolution from last year’s session requesting that a joint committee study the Tax Department’s methodology for valuing coal properties.
“This Tax Department’s working outside the Constitution and working outside the legislation that’s provided [to] them to do the job,” Criss alleged on the House floor before HB 2493’s passage.
The resolution cites a 2019 state Supreme Court decision that upheld a Marshall County Circuit Court order affirming a Board of Equalization and Review determination that coal interests of Murray Energy Corporation and Consolidation Coal Company were properly valued and assessed.
The high court noted Tax Department witness testimony that using a historical rolling average serves to even out coal price highs and lows, which the companies argued did not reflect the “true and actual” value of their properties, causing them to be overvalued for taxation purposes.
The court found state code does not prescribe a methodology for determining “true and actual” value, and the tax assessment approach the coal companies challenged was “rationally conceived.”
“The stabilizing effect of the rolling historical average brings predictability to both the taxpayer and the State,” the court noted.
The court also highlighted evidence the Consolidation Coal Company was extensively involved in the rule-making process it was challenging.
Criss could not be reached for comment.
HB 2493 follows a long line of tax-focused state legislation designed to benefit the coal industry despite Tax Department estimates that warned of financial consequences for governments and the industry.
In 2019, the Legislature approved reducing the severance tax rate on the gross value of steam coal from 5% to 3%, brushing aside a Tax Department estimate that projected a $58.6 million loss to the state’s general revenue in fiscal year 2020 and a $64.1 million annual loss starting in fiscal year 2021.
The Legislature also established a coal tax rebate to be allowed for capital investment in new machinery and equipment used in severing coal. The Tax Department said that move would create a “highly generous” tax credit. The department concluded that net employment loss for tax rebate beneficiaries and industry consolidation was more likely to occur with the bill.
Delegate Dianna Graves, R-Kanawha, argued on the floor that HB 2581 was necessary to allow for true tax valuations. She said counties would still be hauling in tens of millions of dollars from oil and gas operations.
“These oil and natural gas-producing entities are in your counties as well,” Graves said. “There are jobs dependent on it. We have chilled production that we could have seen.”
Delegate David Kelly, R-Tyler, assistant majority whip, had already decided where he stood on the bill. He noted that about a third of the financial losses the Tax Department estimated would initially result from the bill would come in the counties of Tyler and Doddridge that comprise his district.
“Today, I’m speaking for county commissioners who aren’t here to plead their case before you,” Kelly said. “I’m speaking for boards of education who clearly are not here today to plead their case ... We’re going to have to ask ourselves, are the people we’re representing, do they feel represented by us? Or do they feel like they’re losing their voice?”