Cash-flush North Dakota sure to see property tax relief, but how?
FARGO -- The tax North Dakota homeowners love to loathe is about to get another whack.
North Dakota voters spurned a chance last week to abolish the property tax in the primary, but the state Capitol is brimming with ideas to provide more tax relief and better fairness.
"It's going to be front and center in the coming session of the Legislature," along with meeting diverse infrastructure needs, said Rep. Wes Belter, R-Fargo. "Legislators are very aware of the property tax issue, so there will be a lot of bills on the issue."
In the hubbub before and after Measure 2, the ballot initiative aiming to eliminate property taxes, it's sometimes easy to forget North Dakota property owners already have seen three rounds of property tax relief.
The running tally of reduced property taxes since legislators began whittling in 2007 now approaches $700 million.
In the current budget biennium, that translates into reduced property tax bills of 15 to 20 percent for homeowners across the state.
But as state coffers overflow from booming oil development and general economic activity -- at current levels the biennium could end with almost $1 billion in unobligated surpluses -- the pressure is mounting to go deeper with property tax relief.
The discussion in an interim legislative taxation committee largely focuses on several avenues of possible property tax relief and reform:
- Going further in state support for K-12 education funding, the largest component of local property taxes. State support has increased in recent years to an average of 70
Sen. Dwight Cook, R-Mandan, who is chairman of the Senate Finance and Taxation Committee, would like state support to increase to 100 percent of what are considered core education costs, which would have to be defined.
By picking up the entire tab for core educational costs, the state would provide additional relief on local property taxes, which also help fund cities, counties, townships and water districts.
- Broadening the state's homestead tax credit, now limited to low-income elderly and disabled residents, also appears to have broad appeal among legislators.
The current homestead tax credit is available for elderly and disabled residents whose annual incomes do not exceed $26,000, applied to home values of up to $100,000.
The homestead tax credit, which applies only to a North Dakota taxpayer's primary residence, could be extended to all for 70 percent to 80 percent of the first $100,000 in home value, Cook said.
That way, the property tax would never reach zero. "Everybody would have some skin in the game," he said.
Sen. Ryan Taylor, D-Towner, the Democratic candidate for governor, favors another version of expanding the homestead tax credit.
Taylor's proposal calls for a reduction of $100,000 of a primary residence's home value, with the same reduction applied to farm property.
He also would provide relief to renters -- rents in North Dakota's Oil Patch have skyrocketed -- of 15 percent of annual rent, capped at $900 a year.
"That recognizes that renters, in particular, haven't actually seen property tax relief passed on to them," he said.
The estimated cost of Taylor's proposal, for both residential and farm property tax relief, is $254 million a year.
"We want to work within a balanced budget, obviously," Taylor said. "It's really taking care of our own."
Gov. Jack Dalrymple, the Republican incumbent who recommended a tax relief package of almost $500 million in the last session, has yet to embrace a specific property tax relief method for the upcoming session.
"Tax relief has always been a priority for Gov. Dalrymple," his spokesman, Jeff Zent, said in a statement. "He got the job done during the last legislative session and will work for even more cuts in the coming session."
- Legislators also are looking for mechanisms to restrain local property taxes. Many property taxpayers get hit with rising tax bills from rising property values, even if local mill levy rates don't increase.
Belter is interested in finding "a tool that the local taxpayers have to keep their local governments more responsive.
"It could be a referral, similar to what it is at the state level," Belter said. "If they want to control the property tax, they need to get involved at their local level."
A referral mechanism is difficult to implement, Cook said, because it applies to budgets already passed. School budgets, for instance, involve teacher contracts.
"I'm talking caps," Cook said, referring to some type of cap on the growth of local government budget increases.
"We haven't seen an effective way of doing that," he added.
Of course, local officials could reduce mill levy rates to soften or eliminate the burden of higher taxes resulting from rising property values.
"In practice, they almost never do," said Marcy Dickerson, property tax division director of the North Dakota Tax Department.
North Dakota legislators have been cautious in providing property tax relief, with an eye toward ensuring it is sustainable.
Neighboring Minnesota provides a cautionary example of what can happen when politicians return money to taxpayers when times are flush, but risk exacerbating budget woes when the economy weakens by diminishing reserves.
If voters become accustomed over time to paying lower property taxes, but the state is forced to roll back reductions, "It's something that could really create havoc in their lives," Dickerson said.