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Patrick Springer, Published June 07 2012

Measure 2 is $1.6 billion question

FARGO – Measure 2, which would eliminate the North Dakota property tax if approved, could be called the $1.6 billion question.

That’s the amount of money in a two-year budget that state legislators would have to replace to help fund public schools, cities, counties, townships – in all, 2,100 units of local governments.

The proposal comes as the state is awash in revenues from the oil boom and a vibrant economy statewide. But officials caution that many reserve funds are restricted.

Abolishing the property tax would mean amending the North Dakota Constitution and eliminating a funding source that is at least as old as the state, which joined the union in 1889.

Passing Measure 2 would make North Dakota the first state to place a constitutional ban on the property tax, placing it in “uncharted and risky” fiscal territory, according to a study by the Center on Budget and Policy Priorities.

Proponents say property taxes are an especially burdensome form of taxation and should be eliminated.

“As long as you’re paying a property tax, you never truly own your home,” said Del Ruff of West Fargo, a member of Empower the Taxpayer, the group pushing Measure 2.

But opponents – including associations representing cities, counties, schools and major business groups – say eliminating property taxes would shift power from local governments to the state Capitol.

Measure 2 would require the Legislature to “fully and properly” fund obligations, leaving it to lawmakers to fill in the blanks.

Critics say the term is vague and would leave legislators with the task of deciding what it means and what the legal obligations are for every local government in the state, large and small, urban and rural.

“People like their locally elected people to be in their communities,” said Jon Martinson, executive director of the North Dakota School Boards Association.

Actually, the state already exerts a high degree of control in the way property taxes are allocated, said Charlene Nelson of rural Casselton, chairwoman of Empower the People.

“We have said from the very beginning – local control is a myth,” she said.

Under Measure 2, however, local governments would have discretion to spend the money that would replace the property tax, similar to block grants, she said.

“It’s a blank check,” she said of the money that would go to local governments.

Robert Hale, a lawyer and entrepreneur in Minot and Measure 2 advocate, said the state constitution and statutes spell out in great detail – running 558 pages – how the money should be allocated.

Also, he said, lawmakers could use a process similar to the formula the state uses to distribute education aid to local schools.

“It’s frankly a pretty simple process and yes, I think they’re up to doing it,” Hale said.

Actually, it’s not so simple, according to an analyst for the North Dakota Legislative Council, who said legislation to implement Measure 2 would require 400 or more pages to mesh with state laws.

Cory Fong, the state tax commissioner, said legislators would struggle to determine the appropriate funding level for every school board, city, county and other unit of government.

By law, legislators have 80 days in a biennium to address its ordinary duties, plus the funding responsibilities Measure 2 would add.

“Without a doubt, the legislative responsibilities would increase,” Fong said, adding that annual legislative sessions could be required.

Fong’s office has estimated that the state would have to come up with $812.2 million this year to replace the property tax if Measure 2 passes, or $1.6 billion per biennium at current levels.

Measure 2 proponents contend that the state’s surplus sales tax and oil and gas revenues could replace the property tax. The state is taking in a surplus of

$2 billion a year, Hale said, with reserves totaling

$5 billion.

But many of those reserve funds have strings attached, Fong said. Also, because the state already is providing $342 million in property tax relief, the annual replacement cost actually could exceed

$1.1 billion.

Also, Fong and others say it would be risky for North Dakota to become too reliant on oil and gas revenues, which have a history of fluctuating. Property taxes are a much more stable revenue source, Fong said.

“I think a lot of people are not assuming that oil will always be there, and they don’t want to throw the baby out with the bath water,” said Jeff Eslinger, communications manager for the North Dakota Association of Counties, a Measure 2 opponent.

“It’s not like taxes are taxes are taxes,” he said. “When you pay the property tax, you’re funding your local services.”

State and petroleum industry forecasts for the future productivity of the booming Bakken and Three Forks formations span decades and perhaps even more than a century, Hale said.

“Where the money is coming from – it’s already here,” he said. “That’s why we don’t have to raise taxes to pay for it.”

North Dakota’s property tax is divided among schools, who receive 45 percent of the revenue pie, with almost 30 percent going to counties, 20 percent to cities, with most of the rest allocated to miscellaneous districts.

Readers can reach Forum reporter Patrick Springer at (701) 241-5522