Elimination: The Property Tax Solution

Eliminating property taxes is a serious proposal

Many people ask whether the North Dakota Policy Council supports eliminating property taxes. My gut response is that eliminating any tax is a good idea, especially a tax as unfair and regressive as property taxes. Every tax takes away a little bit of everyone's economic liberty.

Property taxes are causing seniors to sell their homes when they don't want to. Many businesses get exemptions requiring all other property owners to pay for the services those businesses receive. It allows the use of tax increment financing which is being abused in Bismarck to the point where we sued the City. There are others, to be sure.

I often wonder how seriously government leaders and general citizens are taking a proposed measure that would eliminate property taxes. Everyone I talk to about the proposed measure has the same basic questions:

-How will local government services be funded?
-Will local governments lose control?
-How will the state make up the revenue needed to fund local governments?

According to the measure, the legally obligated services that local governments provide will be funded by the state. I suspect that the legislature would have to define what those services are and devise a formula to ensure they are properly funded.
When determining whether or not local governments will lose control, it is necessary to examine whether or not that local control currently exists. Between 1997 and 2009, the state increased its aid to political subdivisions by 46percent, attaching many strings to that aid, including a requirement that 70 percent of all new education money goes to teacher salaries. The legislature has the power to change how property is assessed and at which rate. Those are just two examples of how the state already takes away local control.
The proposed measure specifically states that all money given to political subdivisions is to be spent at the discretion of the local authorities. In other words, local governments get 100% control of how that money is spent. Furthermore, the measure does not prohibit local governments from raising additional revenue by other means, such as sales taxes and fees.
If the measure were to pass the state would have an enormous new expense. How would it get the additional revenue needed to make up the difference? It wouldn't. The North Dakota Policy Council released The North Dakota Pork Report in May that detailed waste in state spending. We identified $921 million in suspect spending for just the 2007-2009 biennium. If the measure passes, legislators would be put in the uncomfortable position of having to actually prioritize spending, instead of saying "yes" to everything. They might think twice about granting money to private businesses if it means cutting spending at the local government level.
In addition to cutting waste, state budget surpluses should provide plenty of resources for local services. According to a forthcoming study by the North Dakota Policy Council, the increased economic activity created by eliminating property taxes would increase state revenue about $60 million by 2015 because real disposable income per capita would increase by more than $1,400.
The study also shows that the number of private jobs in North Dakota would increase 13,000 and private investment would soar by more than $360 million above the baseline forecast, creating more and better opportunities for our young people. Furthermore, the cost of assessing and collecting taxes would be eliminated reducing local government expenses.
Eliminating property taxes has its problems. The centralization of tax collections is one. Other problems include the possibility that the legislature might see an opportunity to raise state taxes by using its need to fund local governments as an excuse.
Those problems notwithstanding, the idea of eliminating property taxes should be taken seriously. Everyone recognizes the need to reform the system, but very few concrete proposals have been put forth.
The North Dakota Policy Council will continue to study the issue and inform citizens about what might happen to North Dakota's economy if the measure gets on the ballot and passes.
(Brett Narloch, Bismarck, is executive director of the North Dakota Policy Council. Visit the NDPC at