Dakota Beacon

An Idea Whose Time is Now…Abolish Property Taxes in North Dakota

By Lynn Bergman

An initiated measure to eliminate the property tax is being circulated throughout the state. Why should your “home” be state government’s ATM machine? Check out their website at:

http://www.empowerthetaxpayer.com/

What was the original intent of property taxes?

Proponents of the general property tax believed that uniform and universal taxation of property would tend to limit taxes. Everybody would have to pay their share and the political game of taxing somebody else for one’s favorite program would be impossible.

The Deliberate March of Property Taxes Following World War II

Local governments took advantage of rising property value to increase tax collections and expand local government programs. For over a quarter of a century, assessments rose, tax rates rose, and homeowners, particularly those in “progressive” California, began ultimately to be forced to sell their homes because of rising taxes.

The National Tax Revolt and California’s Proposition 13

Within a few years the country was swept by a wave of tax protests, often called the Tax Revolt. Almost every state imposed some kind of limitation on the property tax, but the most widely publicized was Proposition 13, a constitutional amendment passed by popular vote in California in 1978. This proved to be the most successful attack on the property tax in American history.

This amendment proved to be extremely difficult to administer. It resulted in hundreds of court cases, scores of new statutes, many attorney generals’ opinions and several additional amendments to the California constitution.

The Inevitable Rise of Political Favoritism

Several other states adopted overall limitations or tax freezes modeled on Proposition 13 and in addition have adopted a large number of provisions to provide relief to particular classes of individuals or to serve as economic incentives. These include provisions favoring agricultural land, exemption or reduced taxation of owner-occupied homes, provisions benefiting the poor, veterans, disabled individuals, and the aged. Economic incentives incorporated in property tax laws include exemptions or lower rates on particular business or certain types of business, exemption of the property of newly established business, tax breaks in development zones, and earmarking of taxes for expenditures that benefit a particular business (enterprise zones).

The Present Situation

Increases in state school aid, stemming in part from court decisions requiring equal school quality, have increased the pressure for statewide uniformity in assessment. Still, anomalies abound as taxpayers figure out ways to make the complicated system work in their favor. The many exemptions fuel the demand for other exemptions. As the tax base shrinks, the property taxation rate rises and taxpayers become aware of the exemption benefits enjoyed by their neighbors or competitors. This has lead to further demands for overall tax limitations or to the quest for additional exemptions and special provisions.

How are Property Taxes Determined?

• A local board receives its annual total taxable valuation update from their assessor.
• The local board applies the previous year’s mil levy to reach their allowable budget amount. If the local board thinks the revenues are not enough…
• The local board raises the mil levy, raises the local option sales tax, solicits more state revenue from their friends in the legislature, or in some cases, does all three!

The “Curse” of the Property Tax

Property taxes essentially mean you never own your home. Even after paying off your mortgage you must continue "renting from the government" or face losing your home. You can never pay off your property taxes and they keep going up. Perhaps worst of all…

When the economy goes bad, property taxes go up so local government can continue their spending. Taxpayers have to tighten their belts but government refuses to tighten its belt!

What is the Importance of the Property Tax as Compared to Other Taxation?

The property tax as a percentage of local-sourced general revenue rose from 1902 until 1932 when it provided 85.2 percent of local government sourced general revenue. Since that time there has been a significant gradual decline in the importance of local property taxes.

The decline in the revenue importance of the property tax is more dramatic when the increase in federal and state aid is considered. In fiscal year 1999, local governments received $228 billion in property tax revenue (44.6%) and $328 billion in aid from state and federal governments (55.4%). If current trends continue, the property tax will decline in importance and states and the federal government will take over more local functions, or expand the system of grants to local governments. Either way, government revenue procurement will become more centralized. Current North Dakota property tax revenues (year 2010) represent 54% of local government revenue resources and the percentage is projected to be reduced in the near term future at a rate of 1% per year.

The Truth Concerning the Elimination of Property Taxes!

Taxation                     1999-2001                   1999-2001                   2009-2011

Source                                    Biennium                    (2010 dollars)             Biennium

ND Sales Tax              $ 722,181,606             $ 902,727,007             $ 1,109,974,800

Individual Inc. Tax     $ 409,331,437             $ 511,664,296             $    665,508,000

Corporate Inc. Tax      $   99,134,868             $ 123,918,585             $    239,110,000

Oil & Gas Taxes          $   75,179,298             $   93,974,122             $    394,100,000

Other Taxes                 $ 303,972,969             $ 379,966,211             $    882,210,322

JIM’S TRUCKS

 

 

Total ND Taxes       $ 1,609,800,268                        $ 2,012,250,221          $ 3,290,903,122

Local Property Tax     $ 465,203,396             $  581,504,245            $    775,000,000

                                    (1999)                          (1999, inflated 25%)               (2009)

Local Property Tax     $ 486,194,264             $  607,742,830            $    835,000,000

                                    (2000)                          (2000, inflated 25%)               (2010)

Total Property Tax   $ 951,397,660            $1,189,247,075           $ 1,610,000,000

Total ND Taxes &

Local Property Tax $ 2,561,197,928            $ 3,201,497,296          $ 4,900,903,122         

Eliminate Estimated Property Tax Revenues for 2009 and 2010       $-1,610,000,000

Net Comparison        $ 2,561,197,928          $ 3,201,497,296          $ 3,290,903,122

Net Revenue Excess in 2010 dollars (1999-2001 to 2009-2010)     $    +89,405,826

Estimated net tax revenues (remaining taxes) from $1.61B (6%)      $    +96,600,000

Estimated savings, 50% of $921,426,944 in wasteful spending*      $  +460,713,472

Set aside 30% of Oil & Gas revenue for future generations**          $  - 158,280,000

Budget stabilization fund requirement (10% of General Fund***)   $  - 407,197,400

Total excess revenues estimated                                                       $    +81,241,898

* $921,426,944 in wasteful spending outlined in NDPC’s North Dakota Pork Report.

See the full report at http://www.policynd.org/index.php?/site/PorkReport/

** Oil & Gas Revenues estimated at $293.6 Million collected through May 2010 plus $234 Million ($18 Million per month based on oil price of $30 per barrel) to be collected, totaling $527.6 Million. Actual Oil & Gas revenues could reach $855 Million or more!

*** General Fund would include $2.46 Billion (2009-2011 Biennium General Fund legislative appropriation) plus $1.61 Billion (local entity appropriation to replace property taxes) = $4.072 Billion.

What about Local Control?

The state of North Dakota deeply interferes with local government, telling schools, cities, counties, park districts and others how many mills they may levy, which properties must be exempt and which taxes must be deferred or reduced. Currently the state mandates and controls exactly what schools can and cannot do and enforces its dictates by directing how schools and local governments spend the money they have. For the first time, with this measure local governing bodies would have constitutionally protected local control concerning how the revenues are spent.

How does North Dakota Property Taxation Compare with Other Oil Rich States?

Oil Production Rank   Property Tax as % of Local Revenues

1 Texas                                    48%

2 Alaska                                  41%

3 California                             35%

5 Louisiana                              48%

6 Oklahoma                             42%

Average                                  42.8%

North Dakota’s projected property tax revenues for the years 2009 and 2010, are $775 Million and $835 Million or $1.610 Billion. Were North Dakota’s property taxation (54% of local revenues) equivalent to the average of the five other top oil producing states (42.8% of local revenues) the projection would be $1.276 Billion. Clearly, North Dakota Property taxes are 26.2% or $334 Million higher than they should be, as compared to other oil rich states.

Summary:

Local officials have not treated public funds with the discretion they use in their personal finances. They ask “How much is there?” and decide “Let’s spend it!”. Its time to end the property tax assessment spiral that threatens North Dakota’s economic future.

Eliminating property taxes would remove a completely unproductive (no goods or services of value) element of local government, the property tax assessment & collection bureaucracy. The savings could be applied to schools in small communities that suffer.

Local officials would remain “attached to the hip” of their legislators…and could brag about the “pork” they brought home…so nothing would change from the last session except that half the pork would be gone and all would benefit, especially renters.

Perhaps most importantly, the abolishment of the property tax would return us to the spending levels of year 2000 as adjusted for inflation. That kind of fiscal discipline would unleash the biggest boom in North Dakota’s history with virtually no end in sight. The next decade would see most of our youth staying right here in North Dakota to enjoy the prosperity created by their parents and grandparents.

© 2010 Lynn A. Bergman