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BHI
P
olicy
S
tudy
April 2012
 
EXECUTIVE SUMMARY
Eliminating Property Taxes inNorth Dakota
 
David Tuerck, PhDPaul Bachman, MSIEMichael Head, MSEP
with
 Brett Narloch
North Dakota Policy Council
T
HE
B
EACON
H
ILL
I
NSTITUTE AT
S
UFFOLK
U
NIVERSITY
 
8 Ashburton PlaceBoston, MA 02108Tel 617-573-8750, Fax 617-994-4279E-mail:  bhi@beaconhill.org
 
 ,Web: www.beaconhill.org 
 
   B   e   a  c   o  n   H   i   l   l   I  n  s   t   i   t   u   t   e
 
 
BHI/ Eliminating Property Taxes in North Dakota Page 2
Introduction
Property tax revenue provides funding for some of the most visible services on which citizensare most dependent, including: public safety, education and recreation. For local governments,the property tax evolved as a dependable way to raise revenue. Since it is hard to evade, theproperty tax is easy to collect and thus a stable source of revenue barring events such as thecurrent housing crisis, natural disaster and out-migration. In North Dakota, property taxescomprised 24.6% of state and local revenue in 2010.
1
However, recent developments suggestthat local government reliance on property taxes is problematic.The property tax remains one of the most unpopular taxes, in part, because it is a regressive tax.Property taxes bear no relationship to income or the ability to pay and, as a result, they can be ahard burden on the retired and elderly citizens on fixed incomes. In addition they burden thosefacing medical and economic setbacks. Moreover, a good part of the public believes thatproperty taxes, which rely heavily on assessments, are inherently unfair.
2
In response,taxpayers since the late 1970s have placed constitutional or legislative limits on the ability of
local municipalities to collect or increase property taxes. With North Dakota’s commodity
-driven economy booming, and the values of real estate escalating
–
the debate over propertytaxes is now center stage.
3
Fast growth can create supply shortages forcing property values toincrease, generally faster than a
homeowner’s earning power
 , especially those on a fixedincome. Thus, property taxes can give government entities with property taxing authority awindfall at the expense of homeowners.Measure #2 will be on the June 12, 2012 election ballot to abolish property taxes in NorthDakota, except for special assessments. If approved by the voters, the ballot measure wouldamend the state constitution and prohibit imposition of property taxes on all real property inthe state. Without a doubt, this measure would greatly change the nature of public finance inNorth Dakota. State government would be constitutionally required to meet all the legalobligations of local government identifying state revenue sources and other state resources tofill the gap.At a time when many states in the nation suffer elevated unemployment rates and persistent
 budget deficits, North Dakota’s position is exceptional. In
December 2011, the unemployment
1
 
State of North Dakota Office of State Tax Commissioner
 , “
2010 Property Tax Statistical Report
 ,” (
 June 2011):77;http://www.nd.gov/tax/property/pubs/stat-rep-10.pdf (accessed March 2012) and U.S. Census Bureau, State andLocal Government Finances, http://www.census.gov/govs/estimate/ (accessed April 2012).
2
 
David Brunori,
Local Tax Policy: A Federalist Perspective
(Washington, DC: Urban Institute Press, 2003): 57-70.
 
3
 
Dale Wetzel, “Tax commissioner candidate wants property tax study,”
Bismarck Tribune
 , May 25, 2010http://www.bismarcktribune.com/news/article_c47b8546-6828-11df-b9fa-001cc4c002e0.html (accessed June 2010).
 
 
BHI/ Eliminating Property Taxes in North Dakota Page 3
rate fell to 3.1%, the lowest in the nation.
4
The strong employment picture is one reason whyNorth Dakota is in the rare position of maintaining a string of greatly expanding budgetsurpluses. The North Dakota Office of Management and Budget recently forecast budgetsurpluses of over $102 million for the fiscal 2011-13 Biennium.
5
 The pattern of tax revenues far exceeding budget forecasts has been in place for the better partof a decade. Figure 1 shows the amount that revenues exceeded the budget forecast for the lastfour Bienniums. In the 2005-07 Biennium and 2007-09 Biennium actual collections exceeded theforecast by over $350 million, or 18.3%, and $400 million, or by an astounding 20.3%respectfully. Over the past three Bienniums, actual revenues have exceeded budget forecasts byalmost $300 million, with sales tax and income tax revenues exceeding the forecast on average by $100 million each.The trend continues in the current 2011
–
13 Biennium that is shaping up as a real gusher.Through March 2012, general fund revenues are $430 million or 31.4% more than the stateforecasted in April, 2011. The Biennium still has 15 months of tax revenue collections left totally.
Figure 1: The Amount Actual Tax Revenues Exceeded Budget Forecast
 
Figure 1 also breaks-out the amount of sales tax and income tax revenues that have exceedforecasts. Sales tax has exceeded forecasts by well over $100 million per Biennium and nearly
4
 
The U.S. Department of Labor, The Bureau of Labor Statistics, Local Area Unemployment Statistics, Internet,http://www.bls.gov/lau/
 
(accessed March 6, 2012).
5
 
The North Dakota Office of Management and Budget, Revised Revenue Forecast, February 14, 2012,
 
http://www.nd.gov/omb/docs/revised-revenue-forecast-2-14-11.pdf
 
(accessed March 2012).
 
 
0501001502002503003504004505002003-2005 2005 - 2007 2007 - 2009 2009 - 2011 2011 - 2013
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