October 4, 2024
Property

As mayors line up against ND property tax proposal, proponent says change can be ‘very uncomfortable’ – Grand Forks Herald


GRAND FORKS – The mayors of North Dakota’s largest cities are lining up against a proposal that would effectively shift the burden of property taxes to the state, rather than being shouldered by property owners.

The chairman of the organization behind the measure doesn’t quite understand why the city leaders are so strongly against it.

“This is a very big change. And as you know, change is a very uncomfortable thing for people,” said Rick Becker, of End Unfair Property Tax, a group that’s pushing passage of the proposal. “For me, if I was an elected official, I would be excited about this. … I would take the opportunity to say ‘this is a golden opportunity. We are actually in charge here. We can do things that are the best fit for our people.’ I think general human nature is to be very uncomfortable to change and be susceptible to claims of various risks and alarm bells sounding, so it’s much easier to say ‘no, we don’t like this.’ ”

Earlier this summer, Becker’s group submitted enough petitions with valid signatures — more than 31,000 — to get Measure 4 on the November ballot. The proposal calls to end property tax payments as they currently exist, leaving the state to cover the current rate going forward. Ultimately, the Legislature would be tasked with determining where the replacement funds would come from.

Any increases that come in the future would be funded by the taxing entities through various methods, possibly including various fees or even sales taxes, although Becker disagrees that sales taxes would be a likely target.

If North Dakotans approve the idea, it means the state will be expected to pay approximately $1 billion to $1.3 billion annually – according to various sources – to fill the void, beginning next year. Becker said some of that could be paid via earnings from the Legacy Fund, a state account set up in 2010 that has since grown to exceed $10 billion. By collecting taxes on the state’s oil industry, the Legacy Fund generates nearly a half-billion dollars in earnings each year.

“If the opposition wants to hear a plan, I can give them a really simple plan,” Becker said.

For instance, he notes that in the current year, oil production is coming in higher than the state anticipated, which will add unexpected revenue to the state’s coffers. Other revenue streams – such as sales tax collections – also are up, he said.

“The bottom line is it appears we will have $1.2 billion to $1.3 billion of excess revenue in the various funds … at the end of the biennium. You spread that out over two years and that’s $600 million per year that can be applied to property tax replacement,” he said. “The second place you look is the Legacy Fund earnings … which come to about $500 million per biennium.”

He suggests taking $200 million per year from Legacy earnings – not the principle. That $200 million plus the $600 million in excess revenue per year ($1.2 billion in unanticipated revenue, divided by 2, since it’s over a two-year span) comes to $800 million per year.

“And the next step: I suggest the Legislature stop spending so much money on corporate welfare and special interests and private-business handouts. Take $200 million out of what they spent per year in this last biennium and now we’re up to a billion dollars,” Becker said.

But that particular strategy is based only on current conditions.

No matter, Becker says. “Regardless of what is going on, the state does a forecast and budgets accordingly. They know that a topline item for the biennium is going to be this (roughly $1 billion property tax replacement). … It’s a matter of the Legislature looking at the forecast and knowing what its obligations are and appropriating accordingly.”

Becker, a surgeon from Bismarck, has been involved in North Dakota politics for more than a decade. He served as a Republican in the Legislature from 2013 to 2022 and ran for U.S. Senate in 2022 and U.S. House earlier this year.

According to the End Unfair Property Tax website, the group believes nixing property taxes will provide “substantial tax reform by prohibiting taxing property based on valuations.” The group’s literature says that means “no more trying to understand why your value went up (and) no more trying to understand mill levies.” Further, the group believes, “future tax increases will be more transparent and have more public input.”

Convincing everybody about the supposed merits, however, hasn’t been easy.

The hindrance, Becker said, is due mostly to a “very well-organized campaign of fear-mongering that has been directed specifically to elected officials and school organizations.” Special interest groups are working against the plan, he said, and local leaders are hearing, “with great redundancy, the sky is falling.”

In early August, Becker said he has challenged opponents to meet him in forums or debates on the issue, but said they “just won’t do it, and it’s because it is a campaign of fear.” However, he later

turned down an invitation

by Forum Communications columnist Rob Port to debate the issue — on a podcast run by Port — with a Measure 4 opponent.

The mayors of the state’s four largest cities – Fargo, Bismarck, Grand Forks and Minot – all are strongly against Measure 4. Concerns about local control, being tasked with finding replacement dollars, planning for future projects and the potential of money leaving the state have swayed them to believe Becker’s proposal is bad for North Dakota and its residents.

“I will be voting against it and coming out against it. I believe this will be the biggest transfer in state wealth to rich people in the history of the state,” said Grand Forks Mayor Brandon Bochenski. “I’m also concerned that if it isn’t able to be funded and the Legacy Fund runs out, you will have to find those funds from somewhere – be it income tax, franchise taxes. This will impact families and the working class, and you’ll be setting up a situation where you will squeeze retirees, and particularly families.”

Bochenski, whose other job is in real estate, also worries that approving the measure in November will disproportionately benefit property owners who live out of state. Worse, he believes, property values likely will rise, meaning multi-family property owners – apartment complexes, for instance – will not necessarily be interested in reducing rent because of lower taxes but actually could increase rent to accommodate the higher prices they’ll conceivably be paying for the building.

“You will see an increase in value in investment properties, but you will also need to see higher returns,” Bochenski said.

And as Becker discusses reducing state spending on “special interests and corporate welfare,” that could result in a case of robbing Peter to pay Paul, Bochenski suggested.

“You’d be taking money that we’re already getting and giving it back to us,” he said.

In Grand Forks, property taxes generate roughly $19 million, which is funneled into the city’s general fund. That pot pays for the operating expenses of the city, including public safety and wages and benefits for city employees.

Bismarck’s mayor is equally concerned.

“If property taxes go away, the reality is that you still have to fund certain operations. That means fees or sales taxes,” said Bismarck Mayor Michael Schmitz. “It’s a major issue for all communities, as far as I’m concerned. But for our two communities here, our property taxes fund essential services – streets, fire and police.”

09xx23construction.jpg

This file photo from the Grand Forks Herald shows street construction underway in 2023. Some mayors in the state say street projects could be in jeopardy if a property tax proposal is passed in November 2024, although an organizer of the measure says such claims are untrue.

Eric Hylden / Grand Forks Herald

Schmitz discussed the issue earlier this year during a meeting with Prairie Business, a monthly magazine that covers business trends in the Dakotas and western Minnesota.

At the same meeting, Tim Helbing, who recently left his position as mayor of Mandan after deciding against reelection, said he believes passage of Measure 4 could lead to “a huge influx of out-of-state people buying up land left and right.” That would increase rates for housing and rentals, he predicts.

Further, “if you take the property tax equation out, it doesn’t give the community, no matter where you are at, the ability to look forward and invest in the things you want,” Helbing said.

“The short-term benefit could be great, but in the long term, it will be a disaster.”

Most arguments are simple misconceptions, counters Becker, ticking off claims he has heard but which he believes are false – things like local leaders losing power, leaders having to come to Bismarck “begging for money” and that the Legislature will have to be involved in the local budget process.

“Another one is that locals won’t be able to hire teachers, policemen or buy a new fire truck – again, fully untrue,” Becker said. “The state is holding every political subdivision whole up through their 2025 levels and the locals have the ability to raise the money they need above that. There is no lack of funding. What changes is the method of funding … (and the funds) that the state is going to provide is going to be done in a different manner.”

As an example, Becker provides some quick back-of-an-envelope math.

“If someone has $4,000 in property tax, let’s say their property tax goes up 5%. So the next year, if (Measure 4) doesn’t pass, that’s $4,200,” he said. “If this passes, that property owner then would have the $4,000 paid by the state. The $200 (that remains), that property owner might see something more in the order of a municipal operations fee that would take care of general government, health and safety. … That property owner may also see a tax or fee associated with infrastructure maintenance. The beauty is the city or county can tailor it to what is best for their community.”

Becker believes passage of the measure in November would lead to a “much better way” of taxing property owners.

“It is a reforming of how we tax that is more fair and transparent,” he said. “And then the last thing is (the claim that) locals won’t have enough money – fully untrue, as I have explained.”

But for the mayors of the state’s large cities, great concerns remain, especially worries that future funding will be hard to come by.

“I don’t want decisions on Minot’s budget to be based out of Bismarck,” Minot Mayor Tom Ross said. “Speaking on behalf of the city of Minot … (people) here are capable of handling our day-to-day business. … To me, there are a lot of unanswered questions. It’s really, to me, not getting rid of property taxes. We still have the ability to special assess. It’s not really truthful and it takes local control away.

“It just doesn’t make any sense to me,” Ross said.

In June, Fargo Mayor Tim Mahoney told radio station 1100 AM The Flag that the city will “strongly advocate” against the property tax initiative.

And in August, he told the Grand Forks Herald his concern is what he believes will be a loss of local control.

“Property tax in the city of Fargo is only 30% of our budget, but it sustains our firefighters, police and public safety – all of the different things that people expect to have a city provide,” Mahoney said.

And who knows what kind of staffing might be needed in the future, Mahoney said.

“Now, if I want 200 officers or 190 officers, then I’ve got to argue against (other) cities in the state of North Dakota that this is what we think we need in our community,” he said. “Our city is bigger than any city in the state, so sometimes we may have needs that not everybody does. If they do a ratio or use per-capita numbers or whatever, you may not get to satisfy your (future) services.”

Mahoney was then reminded that Becker believes fees would cover that kind of contingency.

Mahoney’s response: “You can only fee people so much. I’d ask you to look at our neighbors in Minnesota, where fees have gone up and up and up. … The people won’t tolerate that.”





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