Looking at the possible passage of a constitutional amendment abolishing the property tax, legislators have already started considering methods for getting around the consequences of such precipitous action. The proposed amendment will appear on the June ballot in 2012.
One proposal discussed by legislators was the creation of special assessment districts by local governments to replace the general property tax. A careful look at the language of the proposed amendment suggests that alternative fundraising may not be an option.
The measure mandates the Legislature to replace the lost local government revenue by increasing taxes on sales, corporate and personal income, oil, gas, coal extraction, insurance premiums, alcohol, lottery and financial institutions. Then it must develop a formula to "fully and properly fund the legally imposed obligations" of local government with the receipts from these taxes.
The implication here is that local governments will be repaid in full for lost property tax revenue. If that is the case, then this is not a tax reduction proposal. Instead, it is a mechanism to shift the tax burden for local government to different taxpayers.
The term "legally imposed obligations" is problematic because there is no explanation of the phrase. Let's look at counties to dissect the need for a definition.
According to Marcy Dickerson, Director of the Property Tax Division in the North Dakota Tax Department, county governments have been given 68 mill levy authorizations by the Legislature. (A mill levy authorization is permission to levy a number of mills for some specific county function.)
Among these authorizations are levies for county roads, fairs, veterans services, human services, weed control, library, parks, and on up to the total of 68 options. Through the years, different counties have put together their own variety of services, many in response to citizen demands.
Forty-five counties levy for correctional centers; eight do not. Forty-six counties levy for historical activities; seven do not. Twenty-eight counties levy for fairs; 25 do not. Twenty counties levy for emergency medical services; 33 do not. These examples underscore options now being used for most services. Even in counties levying for similar purposes, the mill rates will vary for that function.
Because counties have tailored their services to meet local needs, the mill rates from county to county vary considerably. Last year, three counties levied less than 75 mills; 13 levied between 76 and 100 mills; 12 levied between 101 and 125 mills; 21 levied between 126 and 150, and four levied over 150 mills. So the tax burden varies widely from county to county, partly due to the unique programming in each county.
Since the proposed constitutional measure orders the Legislature to repay counties in full for the loss of their property taxes, state-collected taxes will be paying for services in some counties that will not be available in other counties. To further complicate the situation, levies are changed, added or cancelled with each annual budget. The varying mill rates indicate that some counties will be well-rewarded while others will get short shrift in the change.
These variations are the result of local decisions made by county voters and/or county commissions. Since these levies are optional, will any or all of these optional county expenditures be considered "legally imposed" obligations as directed by the proposed amendment?
Changing the tax structure from one of local options to one controlled by the state will limit local flexibility and create new inequities among counties in the provision of services.