Written by: Andrea Domaskin
Voters across North Dakota will determine on June 12 whether property taxes are a needless violation of homeowners’ privacy or a critical means for local governments to help pay for services.
Measure 2 calls for a change to the State Constitution that would prohibit local governments such as cities, counties and school districts from levying property taxes. It would require the state to provide funding for local governments using a yet-to-be-determined formula.
Supporters of the measure say eliminating property taxes would create a strong business climate and give local governments more control over spending decisions.
Opponents say the measure would give the state too much control over the funding for local services. They also argue that the measure is worded too vaguely, opening the door to chaos while a formula for funding local governments is created.
With so much at stake, the state has become embroiled in a debate over property taxes and how the measure would affect people, businesses and governments. The ~Great Plains Examiner~ looked into claims by supporters and opponents to determine whether they are fact, fiction, or something in between.
The claim: Elderly North Dakota residents are losing their homes to property tax foreclosures.
Truth or Fiction: Mostly fiction.
Measure 2 supporters often cite the heavy tax burden on homeowners, particularly older North Dakotans, as a reason to pass the measure. But the claims are overblown, according to public records.
State law dictates that a homeowner’s property may be foreclosed upon to pay the tax debt after three years of tax delinquency. Counties administer the foreclosures when the tax debt goes unsatisfied.
The North Dakota Association of Counties surveyed county auditors about the frequency of property tax foreclosures in North Dakota. In 2010, counties foreclosed upon 637 residential homes due to delinquent property tax payments. Of those foreclosures, only eight homes were occupied (Measure 2 supporters dispute this figure), and none of the homeowners were elderly.
Elderly North Dakotans also may be eligible for certain tax credits to help them stay in their homes. The Homestead Tax Credit reduces property tax payments for people who are older than 65 or disabled and who have limited incomes and assets.
While the survey doesn’t account for homeowners who sell their properties rather than become delinquent on taxes, it provides an indication that few homeowners are being forced out of their homes due to property tax foreclosures.
The claim: Measure 2 will require other tax increases.
Fact or fiction: Mostly fiction (the key word is “require”).
Those who support the elimination of property taxes say Measure 2 does not require an increase in taxes. That’s true. There is no language in the measure that requires other types of taxes to go up.
Opponents have said other forms of tax revenue would be needed to make up for the loss of property tax revenue. That’s not exactly true. It’s mathematically possible to replace the loss of property tax revenue with surplus money from other revenue sources and by cutting state spending.
Take a look at the math:
The State Tax Commissioner’s Office, which is required by law to provide an estimated fiscal impact of the measure, has calculated that government agencies across the state would lose $812 million in 2012 (the opponents of Measure 2 dispute that figure).
Assuming the estimated impact is accurate, the Legislature would have to find $812 million per year to provide the same level of funding that currently comes from property taxes. Per biennium, that would equal more than $1.6 billion.
The most recent estimate from the state Office of Management and Budget shows the state will have an estimated $630 million in surplus revenue at the end of the next biennium, on June 30, 2013. That money is in addition to the amount of money that the state expects to spend.
Right now, the state budget includes allocations of about $5.3 billion per year and about $10.6 billion per biennium.
So, the state could use its $630 million surplus – a figure that continues to rise as sales tax and income tax collections increase due to new development, new jobs and increased business activity – and reduce ongoing spending by about $1 billion to cover the estimated losses from Measure 2.
Opponents of the measure often stop short of saying Measure 2 will require increases in other taxes, and instead they argue that other tax increases are likely. And that’s quite possible. After all, nobody knows how elected leaders will react if voters punch a $1.6 billion hole in the biennial budget.
There are a slew of possibilities that would lead to an increase in other taxes. City leaders, for instance, may create citywide special assessment districts (Measure 2 doesn’t eliminate specials). Or, state lawmakers may decide to raise sales taxes or income taxes instead of cutting spending.
But the state has plenty of options – and tax collections on sales and income have wildly outpaced expectations by legislative analysts every quarter during the past two years – so there are plenty of ways the state could replace the lost property tax revenue if Measure 2 passes.
The claim: The state has $5 billion in reserve that can cover the loss of property taxes.
Fact or fiction: Part fact, part fiction
North Dakota’s healthy budget reserves have been suggested as a potential source of funds to replace property taxes. Supporters of Measure 2 have said the state could simply dip into those reserves to cover the loss of property tax revenue.
The state does, indeed, have $5 billion stashed away in reserves, according to a June 30, 2011 budget report. So the figure that’s being tossed around is accurate. But the claim that the money can be used to cover the losses in property tax revenue is only partly true.
In fact, roughly half of that money is tied up in special funds that are untouchable for various reasons.
Reserves of about $2.5 billion are held in restricted funds that are constitutionally dedicated toward specific purposes. One example is the Common Schools Trust Fund, which holds about $1.7 billion and is under strict requirements that dictate how and when that money can be spent.
Reserves of about $1.9 billion have been committed or assigned to special funds that have specific purposes defined by law. Technically, lawmakers could vote to alter state statutes and reallocate that money to other purposes. A $326 million budget stabilization fund is an example of money that is restricted only because the Legislature decided to restrict it.
That leaves $630 million in unallocated surplus.
The bottom line is that North Dakota has money in the bank, but about half of it is untouchable by the Legislature and another large portion has been committed to uses other than as a replacement for property tax revenue.
The claim: Measure 2 will eliminate local control.
Fact or fiction: Mostly fact.
At the heart of the Measure 2 debate is which level of government should be in control of the money that pays for local services such as police, fire protection and infrastructure development. If the measure passes, cities, counties and schools would receive money from the state and then determine how it should be spent.
So, no matter the result of Measure 2, local governments would determine how to spend the money.
But, if Measure 2 passes, local governments would be at the mercy of the Legislature when it comes to how much money they would receive each year for the services they provide. Eliminating property taxes would wipe out local governments’ influence over the most significant revenue source at their disposal.
If Measure 2 passes, cities, counties and school districts would no longer be able to raise or lower the mill levy that is used in the equation to determine the property tax bill for homeowners and businesses. Right now, the mill levy is a gauge that local governments can adjust up or down to control the amount of money collected on the taxable value of property within their jurisdictions.
Measure 2 dictates that state lawmakers must create a formula to determine how the money would be distributed to local governments, though it doesn’t mandate a specific type of formula the Legislature must use. So, it would be up to state lawmakers to decide how much money each local government would receive. The measure says local governments must be “properly” funded, but there is no definition in state law that defines what that means.
Supporters of the measure argue that local control is a myth under the current system because county assessors must operate within state laws to determine property values and because there are limits on the formula that local governments use to raise or lower property taxes. They also point out that the state dictates in some cases how property tax revenue can be spent.
It’s true that local governments lack total control of the property tax balance sheet. But within the state’s guidelines, local governments still have a lot of influence over property tax revenue and how it’s spent. And there are exceptions in state law, such as the Home Rule Charter, that allow local governments to bypass some of the state’s limits on property tax collections.
-Great Plains Examiner Publisher contributed to this story.
This entry was posted in NEWS CATEGORIES, Slideshow, State Politics and tagged ballot measure, election, fact-check, foreclosures, June 12, local control, Measure 2, property taxes, state budget. Bookmark the permalink.
Reasonably accurate. Of course, the basic principle that you do not own your own home, that it is held hostage, and that PT is a regressive tax, unfair, and considered to be the worst tax of all (by knowledgeable people on both sides of the issue) is brushed over—but then we do live in a time when basic principles and virtues are ignored as an embarrassment.