Dakota Beacon

No More Bailouts Without REAL Reform!

The issue of property tax reform and relief will not go away. 

As we have seen since the Legislature first enacted this program in 2009, there are many problems associated with ensuring that property owners see the full benefit of the state's intentions.

During the 2009 Legislative Session, I testified on Senate Bill 2199 that the proposed property tax relief, without considerable reforms included, failed to address the root causes of the property tax problem.

In 2009, NDTA warned that SB 2199 would:

• Fail to address the real problem of no mill levy reductions to counteract property valuation increases,
• Fail to address local-level spending outside of education,
• Fail to prevent cities, counties, and parks from filling the property tax void left by the state-funded property tax relief, and
• Fail to limit future spending increases as a condition of receiving this new state money and thereby allow the defective status quo causing this situation to continue.

Since then, we have seen each of these predictions become codified realities.

On May 19, 2010, the Dickinson Press published State Representative George Nodland's letter stating that;

Statewide, school taxes decreased 28.3 percent due to the property tax relief bill (SB 2199) adopted in the 2009 legislative session.

 City property taxes increased 4.3 percent and county property taxes increased 8 percent for an overall state property tax decrease of 12.6 percent.

 (Note:  These figures represent only the first year of the program)

As predicted, additional state funding for school districts created a gap that was partially filled by cities, counties, and park districts - thereby diminishing state property tax program effectiveness.

The reason for this is simple:  State-funded tax relief without reform is merely a bailout of local government.

Legislators have two choices this Session:

1. Continue throwing state tax dollars into local school districts while other local officials do nothing to curb the spending that creates high property taxes, or

2. Create actual mechanisms to, at the very least, make it politically uncomfortable to endorse it.

This is the challenge North Dakota taxpayers expect legislators to overcome.

True Reform Is Needed

A group of independent North Dakotans unaffiliated with the Taxpayers' Association is currently collecting signatures to constitutionally eliminate the North Dakota property tax. 

When property values increase, local governments can ride on Automatic Tax Increases.

When taxes increase, elected officials need to be recorded as having voted for said increases.

When the Legislature needs more revenue than is projected, it must vote on the spending and the tax increase.  Local governments should be required to do the same.

This simple reform will not limit local control in any way.  It only requires local officials to go on the record as supporting higher tax rates for property owners. 

How would this reform work?

Every year, as part of the existing budget making process, the each North Dakota county auditor would inform all tax levying entities of the mill rate they may assess without a vote to increase.  This maximum rate would be determined by subtracting the percentage that aggregate property values increased (including new construction) from the previous year's mill levy rate.

This is just one suggested way to approach true reform.  One thing is certain:  The current program is unacceptable.

Accounting and Budget Transparency

Another problem with the current proposed continuation of the property tax program is the accounting process used to determine how it will be paid for.

In 2009, the Legislature set aside $600 million for the property tax stabilization fund intending to cover the program for two budget cycles.  The funding for this program came from the general fund and covered by a transfer from the Permanent Oil Trust Fund.

While this biennium's portion of the property tax program is mostly covered by what was already set aside, we are concerned that funding future budgets directly from the Permanent Oil Trust Fund is an attempt to hide this spending so the overall budget looks better on paper.

In the interest budget transparency, the property tax program accounting process should be applied same as it was last Session.  This will ensure proper apples-to-apples budget comparisons.

Conclusion

Absent real reform, the property tax program is simply destined to cost more and more each Session.  The Legislature must evaluate new ways of to make local governments more accountable and appreciative of what the Legislature does for them by shifting local government burdens onto the state's books.

Local government must make a good faith effort to reduce their own property tax property taxes as part of the state's efforts to do the same.