Lawmakers mull property tax reforms; Ideas include more tax credits
GRAND FORKS -- A constitutional measure that would have made North Dakota the first state in the nation to abolish property taxes went down in flames Tuesday, with about 77 percent of the more than 172,000 primary voters soundly saying "No."
But Sen. Dwight Cook, R-Mandan, said the Legislature has worked to reform property taxes for years, an effort that will continue -- and lawmakers already have several plans that could lower tax bills -- despite what happened to Measure 2 in voting booths across the state.
"I don't think the defeat of Measure 2 is going to change or diminish the desire of those of us who are looking for continued reform in property tax," he said.
"I like to say that the road to perfection is under construction, and we started down that road in 2007," Cook said.
Sen. Ray Holmberg, R-Grand Forks, agreed and said the Legislature will continue to work on addressing residents' concerns about property taxes.
"But it's not going to be as draconian as Measure 2, which abolished it and passed the buck onto the Legislature and said, 'Handle it,'" he said.
Lawmakers have a slew of ideas that could change North Dakota's property tax system when the Legislature reconvenes in January for the next regular session.
"We're thinking out loud," said Cook, the chairman of the Senate Finance and Taxation Committee and a member of three interim committees that have discussed possible property tax reforms.
One proposal is to expand the state's Homestead Tax Credit, which provides state funding to pay a portion of property taxes for low-income, disabled and elderly residents who meet financial requirements.
Cook said an option is to grant that credit to all homeowners in the state, who could see the state pick up a significant chunk of their property tax bill for the first $75,000 or $100,000 of the value of their home.
Rep. Eliot Glassheim, D-Grand Forks, said that proposal seems to have gained the most support and he expects it to be "significantly discussed" when the full Legislature meets in Bismarck again next year.
"That method would retain local control, local budgeting and local expenditure control but it would diminish a percentage of your local property tax obligation," he said.
Holmberg said this tax credit already helps renters who have a clear financial need, and if it is expanded, the credit also could give renters a break from the property taxes they pay indirectly to their landlords each month.
"That's the beauty of looking at the Homestead Tax Credit program as the mechanism to move forward because it does also take into account renters," he said.
The Legislature has approved several reforms to the property tax system in recent sessions, boosting the state's share of funding to a point where the state government now covers an average of 70 percent of local K-12 education costs.
Cook said the current system has the state cover 75 mills of the local property tax burden for schools, which has lowered tax bills. But he said a new proposal could instead identify "core educational activities" that every school needs to do, with 100 percent of those expenses covered by the state.
That would "greatly reduce" the tax burden for most residents, he said, but it remains unclear if the idea will gain enough support to be passed or be revamped before being approved.
"The local school board would still have every opportunity to expand that to do other things, and they would have to fund those activities locally," he said. "So, it would still be a local decision."
Sen. Joe Miller, R-Park River, said Measure 2 raised a debate about state mandates that have sent expensive bills to local governments, which rely on property taxes to cover the costs. Even after the measure's defeat, he said legislators need to take a "good, hard look" at what the state dictates to local entities, including how they spend money and levy their property tax mills.
"I think we might need to do some relaxing of some of those mandates we have," he said.
Cook said one option is to move the burden of some programs, such as social services, to the state, which would take the cost away from local governments and instead have the state provide the funding.
Another important step, Cook said, will be finding a way to ensure property taxes will not jump back up after lawmakers reform the system to lower residents' bills. But he said all these ideas are something the Legislature has been working toward for years.
"We've been at the front of this since the interim of 2006, and we're not done yet," he said. "You've got to get the right ideas, you've got to make it work and then you've got to get a majority of legislators to embrace it."
Miller said the Legislature will need to deal with property tax reform in a comprehensive manner to get the system under control and address the concerns that got Measure 2 on the ballot.
"We need to take some big steps in the next session, that's for sure," he said. "If we don't, that will be a failure."