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Published June 18 2012

Forum editorial: Tax relief, yes, but be careful

In the wake of the staggering defeat of North Dakota Measure 2, to abolish property taxes, the discussion has shifted to property tax reform. That translates into finding a way to reduce the level of the state’s allegedly high property taxes.

High? The most recent national comparison finds North Dakota’s property tax level ranks 39th in the nation. It’s likely to go lower because of property tax reductions approved by the Legislature the past three sessions. So, comparatively speaking, North Dakota is a low-property-tax state.

Furthermore, the property tax is primarily a local government function in North Dakota, which means valuations, assessments and collections are functions of local governments. Local taxes can be affected by statewide legislation (the school tax cut mechanism passed a few sessions ago and the homestead tax credit, for example), but it does not happen often.

The “local” factor in levying property taxes and spending property tax revenues was the big reason Measure 2 was pummeled into the spring prairie. The last option thinking North Dakotans wanted was to shift local taxing and spending authority to Bismarck. It is imperative, therefore, that property tax reformers in the Legislature keep in mind what drove the June 12 vote against Measure 2.

In addition to the message from the voters, lawmakers know there is no simple and clean way for the state to reduce the property tax. The tax is pegged to property valuations that are determined by sometimes complex formulas involving mill levies, assessments and market values. That last factor complicates property tax levels because mill levies might stay static or even drop, but tax bills go up because property values escalate. There are two sides (at least) to the property tax coin: Lower values cause taxes to decline. But if one is in real estate or a homeowner selling a home, a high valuation (and higher taxes) is a better deal. Conversely, people seeking to buy a house want a lower valuation.

Enter the “free market” factor. Home, farmland and other property values are determined in large part by buying and selling, i.e., the marketplace. How much does North Dakota’s conservative, free-enterprise-friendly, tax-averse and regulation-resistant Legislature want to interfere in the marketplace by manipulating property valuations and mill levies?

Finally, because of unprecedented tax and other revenues from the booming Oil Patch, the temptation is high to mess with the generally balanced and fair state/local tax structure. The challenge confronting lawmakers and other state leaders is how to maintain the balance while providing tax relief that can be revisited if the oil boom goes bust, however remote that possibility seems today.

Forum editorials represent the opinion of Forum management and the newspaper’s Editorial Board.