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Will local subdivisions lose control over their budgets?
Will local subdivisions be able to address unforeseen costs, and what will they do in emergency situations?
Property taxes aren’t for unforeseen or emergent costs. They are for a budget, planned very much in advance. For example, the massive snow removal needs last winter required more spending than anticipated, but trying to address that problem by increasing property tax would have been ridiculous, and would have come a year too late. Local subdivisions will completely retain the means they currently use to address unforeseen and emergent needs.
Will my town or county lose services, like police, water, road improvements?
No! Because no revenue to the city or county is lost, no services will need to be decreased.
Will this address out-of-control special assessments?
No, it won’t. That is a concern that should be addressed. Although this measure solves a major problem, it doesn’t solve ALL major problems. Assessments will still be done, but they cannot be tied to property tax, and no one should ever be forced out of their own house due to the inability to pay excessively high assessments. Additional legislation will be introduced in 2025 to make sure this never happens. While this does not solve all of the issues with special assessments, it is a hugely positive reform to special assessments.
Will this address existing bonds?
Because bonds are a legal contract between a local subdivision and the bond holders, this measure does not attempt to circumvent that. The bonds will need to be paid off, after which the tax obligated to that bond will go away.
Will this worsen the competition between urban and rural needs?
No. There have always been undercurrents of competition or tension in the legislature between east and west, urban and rural, etc. This measure in no way worsens this, because the legislature is not doing any budgeting for the local subdivisions. We have proof of this, because all of the attempted property tax buy downs, as well as of the homestead property tax credits have not shown to have increased competition or favoritism in any way.
Will this help those who rent apartments or houses, and what about the small businesses that rent their space?
At first glance, one might think this will not benefit anyone who rents their property, whether an apartment, a house, commercial space, or agriculture land, but that is easily shown to be false. A property owner must charge rent in an amount at least as much as their expenses. In a competitive market, the rental price is a relatively small amount over the expenses. In a less competitive market the price is more, however, if it is substantially more the landlord opens himself up to increased competition, because others will see that if they build, they will also be able to make a profit. When that happens, the original landlord is forced to lower rents, or lose tenants. Property tax is one of the landlord’s biggest expenses. If this expense is removed, one or more of four things will happen: 1) he will lower rents at the next contract renewal, 2) he will use the new cash flow to make property improvements, repairs, and renovations, 3) if things were tight to begin with, he will not be able to lower rent, but will be able to avoid raising rent in the future, 4) he will keep all the new profit, and not change anything. In the event of options one, two, or three, the renter obviously reaps the benefit. With option four, the renter does not immediately benefit, but as noted, the rent rate is now considered inflated, developers will see an opportunity to enter the market and immediately garner a good market share because of offering lower rent, and renters will eventually see the benefit.
Additionally, it is good to note that for small business-owners (renters of commercial space), rent is their biggest expense. Eliminating property tax will help lower their rent, thus lowering their overall expense. This, in turn, makes it more likely that they will be able to keep their doors open, and possibly even offer their products and services at a lower price.
It has been noted that previous attempts to provide property tax relief have not helped renters. This is true, because those attempts completely failed. Only by fully eliminating property tax will renters get their deserved benefit.
Does this help seniors, since many of them get some benefit from Homestead exemption credits?
It may not help to the same extent as for others as far as total dollars, but it still helps a great deal in terms of entirely removing the financial burden, as well as removing the threat of losing one’s home due to specials and increasing valuations.
Does it help out-of-state landowners?
It helps everyone who lives in ND, and everyone who owns property in ND. It has been found unconstitutional to tax out-of-state people but not in-state. Additionally, it would require that the entire property tax mechanism be left in place, which would lead to an eventual failure of the effort to provide meaningful, permanent tax relief. We need to resist the possibility of missing an opportunity to do something great for ourselves, only because we didn’t want someone else to also get the benefit.
Does it help rich property owners?
It helps everyone, rich, poor, and in-between. What would it say about the people of ND, if we said we don’t want to make our own lives better, as well as the lives of our children, our neighbors, our friends, if it also meant that rich people would benefit, too?
Will this make the price of land go up for new farmers?
The property price may go up some, but the property cost will not. Firstly, the dramatic increase in the price of agriculture property has already priced out most new, young farmers, and has been occurring for many years. It is due to several factors, the greatest of which is likely the way the Federal farm bill and crop insurance programs are set up. This measure does not and cannot alter this. Secondly, we need to understand there is a balance between the value of property and the costs of owning the property. When property tax is eliminated, a significant expense of the property is eliminated. This increases the value of the property, such that the price may also increase. With a somewhat higher price to buy, but a significantly lower cost to maintain, the overall cost in the mid to long-term is decreased.
Will this make housing costs go up?
There is a balance between the value of property and the costs of owning the property. When property tax is eliminated, a significant expense of the property is eliminated. This may increase the value of the property. With a somewhat higher price to buy, but a significantly lower cost to maintain, the overall cost in the mid to long-term is decreased. Because the property tax is removed from escrow, it will decrease the monthly payment, which more than offsets any increased amount for the mortgage. Additionally, if housing tends to be higher priced, builders are incentivized to build more houses. That will bring the prices back to a normal level.
Will we see out-of-staters buy up all the land?
Although not having property tax is surely an incentive for anyone to own property, without the expense of property tax, the price of the land is also likely to increase somewhat. This is not going to create some kind of “golden ticket” for out-of-staters. ND residents currently compete with out-of-staters to purchase property. In no way does this measure make it more difficult for ND residents to compete.
Isn't it unfair to the local subdivisions that have been more cautious in their spending?
While it is true that it is impossible to be 100% fair to all subdivisions and all people, all the time, this measure gets very close. The cities and counties that have been bigger spenders have more commonly paid for their high spending with bonds. Those bonds are not covered by this measure. Nobody is paying for other people’s bonded debt. The high-spenders will be required to pay down their own bonded debt.
I don't mind paying property taxes to have police and fire, and streets, etc.
It makes sense and is reasonable to think, “it’s worth it to pay these taxes for the services I receive, because these services are important.” But what if, at a restaurant, you prepaid for your meal at the time of ordering, and then were given a bill at the end, which you also paid. Being advised that you don’t need to pay again at the end, isn’t the same as being advised not to have the meal. You are being advised that you don’t need to pay twice. The amount North Dakotans are paying in income tax, sales tax, and fees are more than enough to pay for state services and programs, AND for the local services currently covered by property tax. Remember, the legislature is already paying for about 40% of your property tax burden with it’s buydowns, and it’s using the money it gets from taxing you elsewhere to pay for it. Additionally, when local subdivisions need to raise more revenue to provide services you desire, they can do so by other means (fees and taxes).
Is it possible to have everything in place for the January 2025 effective date?
Yes – easily! This measure will be well-known to be going on the ballot early in 2024. The legislature and Governor have the entire legislative session to hold hearings on drafted bills, amend them, and pass them. If absolutely necessary, they can have interim committees followed by a short special session during the remainder of 2025. Property taxes levied in December 2024 will be paid February and March 2025. The first year in which property tax replacement will occur will be for the taxes that would have been due in February and March of 2026. The legislative session of 2025 will be budgeting for the biennium of July 2025-June 2027. Payments to the local subdivisions can be made quarterly in January 2026, July 2026, Jan 2027, and July 2027. New or additional revenue on the local side could start July of 2025 or 2026, for example. This provides seamless revenue to the local subdivisions, and allows the state to generate revenue in the new biennium before the first installment is due to the local subdivisions.
How does the legislature determine how much each local subdivision gets?
The legislature has no say in this. The measure states “The state shall provide annual property tax revenue replacement payments to political subdivisions in an amount equal to no less than the amount of tax levied on real property by the political subdivisions..” What they last levied is what they will get from the state. End of story. No legislative involvement at all.
Will the legislature need to become full-time, to do all the budgeting of every subdivision?
This is an old argument that doesn’t apply to this measure. Beyond passing legislation to implement the constitutional change, this will not require any more from the legislature than they currently do. People often are under the impression that this will require the involvement of the legislature in creating the budgets of every city, county, township, and park board, but that is a complete misunderstanding. The legislature will simply be sending the same amount that every city and county raised in 2024 – that’s it! No decisions, no budgeting, no state interference with local budgets!
Consider the following; 1) The legislature has bought down 40% of all property tax burden without even a hint of involvement in the budgets of any local subdivisions. This is because the state simply passes that money to the local subdivisions, rather than having the people directly pay it to the local subdivisions. Either way, the local governments have all of the control of what to do with the money. 2) The state has gone from paying 25% of the costs of k-12 education, to 50%, to about 80%, and yet the state continues to have no involvement in the budgets of the school districts, nor have the school districts lost any control as the state has taken over the majority of the cost. 3) The state is already sending about $2.5 billion per year to the local subdivisions as it is now, and the locals have no issue with control or interference from the state. Simply put, this measure merely changes the amount from $2.5B to $3.5B.
Will the locals will need to come to Bismarck to beg for money?
This will not occur, because the state is not individually determining amounts to give subdivisions. The amount each local subdivision gets is the amount they levied in 2024, (without any say from the legislature). All of the money is block granted, meaning the state simply send that chunk of money without any strings attached. The state has already done buy-downs amounting to 40% of property taxes without involving themselves in the budgeting process. This measure is simply a 100% buy-down of the old system, and the start of a new system where the local subdivisions have 100% control.
Will rural areas suffer, because urban areas are more powerful, and will urban areas get priority in funding? Will the western part of the state suffer, because the east is more powerful and will the east get priority in funding?
No! While it is true that there are power struggles between east vs west, and urban vs rural (and there have been for over a hundred years), this measure will not add to that. The reason is that there is no subjectivity to the property tax replacement, because there is no aspect of state legislators being involved with local budgets, or the needs and wants of the local subdivisions. This measure effectively pays down 100% of property tax, and then changes the system to one that actually gives the local subdivisions more control. This measure is blind to the individual wishlists of local subdivisions.
Because the legislature only meets every two years, will they be able to address the needs of local subdivisions in a timely manner?
The local subdivisions will retain full control to address their ever-changing needs. The property tax replacement is effectively a 100% buy-down of the old system, and conversion to a new system of generating revenue needed for new, growing needs. The local subdivisions will have 100% control of generating the revenue to meet their growing needs.
Would it be better to just start with the state paying for 100% of k-12 education?
By itself, this would be a good thing, but would not address the issues North Dakotans have with property tax. It would be the best kind of buydown the legislature could do, but it would still be just another partial buydown. This has proven to have a negative net effect to the taxpayer, and leaves in place the entire system of property tax with its inherent problems of unfair valuation increases, and kicking people out of their own homes if they can’t pay their tax bill.
Would it be better to just eliminate property tax for primary residences?
Eliminating primary residence would be great, however, it leaves local budgeting in place, still reliant on the property tax payers remaining; commercial and agriculture. These areas would absorb the burden. There would be no benefit to people who rent apartments or homes, no benefit to small businesses, and far less positive impact on the overall economy. The benefit to every person in the state if property tax is entirely eliminated is far better than if it is eliminated for a primary residence alone. If primary residence tax is eliminated, it is not the first step; it is the only step. There will never again be the ability to eliminate the rest by popular vote.
The legislature will need to make statutory changes to make this effective in a manner that is good for all subdivisions. Can we count on them to do that?
Regular laws dealing with the numerous details of taxing should not be part of the constitution, so we must keep the measure simple, and expect the legislature will fulfill their most basic obligation. We can be 100% confident that the legislature will do what is necessary, because it will be in their own big-spending interest to do so. Allowing local subdivisions to retain 100% control by more easily raising revenue isn’t just common sense, it takes pressure off the legislature to be more careful in their own spending. So, for better or for worse, the legislature will do what is necessary.
Why is this necessary?
Property tax is the number one complaint North Dakotans have had for many years, and with good reason. People naturally feel resentful or frustrated that they must continue to pay sky-rocketing taxes on their house or property, or the government will take it away from them. It’s as if they don’t actually own their own property. Another frustrating point is that the amount of tax owed is determined by what some assessor says your house or property is worth. If they say your property value is up, then you must pay more tax, whether it is up or not. Then they have the gall to say they didn’t increase your property tax, despite the fact your property tax is more.
How does this measure work?
The current amount of property taxes paid will be replaced to the cities and counties from existing state revenue, and property taxes based on valuations will no longer be allowed. Cities and counties keep total control, because they can meet future additional budget needs with local taxes and fees, which are more transparent and a more easily scrutinized way to generate revenue. In other words, it’s more honest and fair to taxpayers. Individual taxpayers actually have MORE control with this measure!
Can't the legislature address this?
This measure was introduced to the legislature in 2021 and 2023, and failed both times. Many bills that would have reformed property tax, and given substantial relief were killed by the legislature just this year. Both the legislature and the governor have very little interest in providing substantial long-term property tax relief.
Why didn't the past legislative reforms and buy downs work?
Previously the legislature did “buy-downs”, meaning that they paid the cities and counties a small percent of the total property taxes, with the idea that people’s taxes would go down by that amount. The problem is that the whole property tax system was left in place, and the cities and counties found that they could increase their spending even more than they would have. The end result is that people are still paying more in property tax, plus the state is taking their income taxes and sales taxes to pay for even more property tax.
Doesn't his make us too reliant on oil tax revenue? What if oil prices crash again?
No. North Dakota state revenue is so high, that it’s spending has far surpassed other states. Our increase in spending over the last decade or so is about double the average for all other states. In June, 2023 the state had almost $3 billion left over, but the legislature only saw fit to use a small percentage of that to give us tax relief. Because the property tax replacement is a known amount that doesn’t increase, it is easily budgeted for, and easily covered by existing revenue. We can be confident we will withstand a drop in oil prices, because a review of the last 10 years shows we would have been fine during the oil price crashes of 2015 and 2020 if this measure had been in place.
Why didn't the property tax measure in 2012 pass?
In 2012, this was a new concept to most people. The measure was a grass-roots effort with very little funding. The opposition had a well-funded campaign of fear, convincing people they would lose services, and all local control would be gone. They also convinced people that “they got the message”, and the legislature would provide all the property tax relief we were seeking; we just needed to give them the chance. Well, we gave them many chances, and they failed. As is commonly said, “Fool me once, shame on you. Fool me twice, shame on me.” We cannot let ourselves be fooled a second time.
What is all this debt language in the bill, why does this cut the amount of debt cities and counties can take on in half.
This is important to know, because the opposition will try to use it to confuse people. This measure changes nothing as far as the indebtedness of cities and counties. Because we are no longer going to tax property based on the “assessed” value, property value will go back to the standard “full and true” value. By ND law, “assessed” value is one half of “full and true” value. These are only technical changes in the measure for the sole purpose of keeping everything pertaining to indebtedness the same.
Are our property taxes really that bad?
We should first point out, ALL property taxes are inherently bad. We never truly own our property if the government can take it away for not paying a tax we have no control over. But compared to other states, yes, ND property taxes are bad. In 2011, we were the 16th highest property tax state in the nation. After all of the state buy-downs, elected officials will tell you your property taxes are so much lower than they would have been. But if you include the buy-downs that the state pays using sales tax, income tax, and fees that you pay, we have unfortunately moved well into the top few highest property tax states in the nation.