Property Tax Revolution

8/2/2019 Property Tax Revolution

1/83


2/83

to be secure in their persons,

houses, papers, and effects

from the Bill of Rights


3/83

Property Tax Revolution

Its our home, not theirs!

Abolishing Property Taxes in North Dakota

Robert HaleBrett Narloch

andCharlene Nelson

Foreword by Congressman Ron Paul (R-Texas)

Empower the TaxpayerMinot, North Dakota


4/83

Copyright 2012 by Empower the Taxpayer.All rights reserved.

Cover art by Adam Dyess of First Cable Advertising

First Edition

ISBN: 978-0-615-56966-6Library of Congress Control Number: 2011944946

Designed by the St. Martin de Porres Print ShopEbook conversion by Steven Douglas Lawrence

Empower The Taxpayer

1919 2nd St SEMinot, ND 58701

701-721-9782empowerthetaxpayer.com


5/83

Contents

Property Tax Revolution

Introduction

Acknowledgements

Foreword

Dedication

Chapter 1

Property Taxes Violate the Very Nature of a Free and Stable Society

by Brett Narloch

Whats more Important in a Free Society A Fiscally Stable Government or Fiscally Stable Families? The Property Tax System Violates the Very Essence of Personal Privacy

Property Taxes are Good for Government Property Taxes Put the Governments Budget Before Its Citizens Budgets Attempted Reforms Consistently Fail The Only Way to Fix Property Taxes is to Eliminate Them

Chapter 2

Elimination of Property Taxes:Everything You Want in Tax Reform

and More The Government Will No Longer be Your Landlord The Myth of Local Control Exposed

BeneitsfromAbolitionofPropertyTaxes Take Government Out of Picking Winners and Losers (because they only pick losers and make losers outof taxpayers)

Allowing our elderly to keep their homes Putting young families into homes Strengthen agriculture Personal economic development Is This Simply a Tax Shift? Real Estate Boom Economic Boom Keeping Our Children in North Dakota Making North Dakota an Economic Enterprise Zone

Satisfying the Left and the Right Local Control Better Roads, Stronger Towns The Shot Heard Around the World IntangibleBeneits Budgeting Government Conclusion


6/83

Chapter 3

How North Dakota Will Become aProperty Tax-Free State

by Robert L. Hale

What Measure 2 Says and What it Means

Article III: The Powers granted in the North Dakota Constitution Can the Legislature Overturn a Constitutional Measure? After Passage, What Guarantees Are There that the Legislature Will Follow It? Finally, Political Subdivisions Will Have

Real Local Control School District Tax Levies Collection, Seizures and Sales Townships Measure 2: Finally, Local control is constitutionally mandated and enforceable Measure2istheirststeptoempoweringSchoolBoards For all other political subdivisions all strings are cut FundingK-12&PoliticalSubdivisionscomeirst,beforeauthorizingspendingforthingsnotconstitution-

ally mandated The Legislatures Role What kind of a formula? STATE TAX LEGS Scenario A: Tax Shifting Scenario B: No Tax Shifting Fear of tax shifting and special interest manipulation of our tax system North Dakota Can Replace Property Tax Revenue

with Any One or a Combination of The Following And Not Raise Any Other Tax: How Do We Fund Local Spending for Things Other than Legally Imposed Obligations? How Measure 2 Will Affect the Way the Legislature and Other Governmental Bodies Function

Possible changes in how the legislature and other governmental bodies may function: There will be anecessary reordering of the understanding of the relationship between the State and its political subdivi-sions

Illustrating one of the fundamental mis-directions of central governmental institutions: What is theproper role of the state?

Measure2isamechanismtoallowallNDresidentstoinallyhavesecurityintheirhomes,andtohelpbetter order the relationship between the state and its political subdivisions

Notes

Chapter 1 Endnotes

Chapter 3 Endnotes

About the Authors

About the Publisher


7/83

Introduction

On June 12, 2012, the citizens of North Dakota will have an unprecedented opportunity. Thats thedate of the primary, but our interest and intense focus right now is on a very special referendum alsoon the ballot. Its called Constitutional Measure Number 2. The exact wording is in Chapter Three ofthis handbook. If passed, property taxes will be completely abolished. North Dakota already did away

with personal property taxes a few years ago, that is, taxes on movable property such as vehicles.What Measure 2 would do is to eliminate taxes on homes and buildings.

There are many reasons to do so. In Chapter One, Brett Narloch starts with the American Revolutionagainst taxes imposed by the British, which were much less oppressive than the taxes on our homes.He questions whether we should have such a tax in a free society and rightly concludes that the stateandlocalgovernmentsaremoreconcernedwiththeirownbudgetsthanwithiscallystablefamilies.

In Chapter Two, Charlene Nelson discusses the beneitstoabolitionofpropertytaxes,includingthefactthatitwouldallowtheelderlytostayintheirhomesandnotriskconiscationfortheinabilityto pay. If real estate taxes are done away with, there will be economic growth in North Dakota, moreyoung families will be able to buy homes, and more young people will stay in the state rather than

seek employment in other parts of the country. In fact, some major corporations may choose to movetheir headquarters to our state because of all of the economic incentives to be found here.

How could this work, you may be asking? With the help of the new organization, Empower theTaxpayer, we asked that same thing and found that all current projects and programs that receivefundingfrompropertytaxescouldbeinancedbyotherexistingrevenues.Thesealternativemoneystreams are discussed in great detail by Robert Hale in Chapter Three. North Dakota is blessed withan abundance of oil, gas, and natural resources that generate a tremendous amount of income for thestate. If such monies are properly used, North Dakota will experience an economic boom when thisMeasure is enacted. In fact, a Beacon Hill Institutes study, cited several times in this book, concludesthattheeconomicimpactofpassingMeasure2wouldbetremendouslybeneicialtothepointthatitwould pay for itself.

But Measure 2 goes beyond just doing away with real estate taxes. It directs the legislature tocome up with a formula to fully and properly fund all legally-imposed obligations, which includesstate government services bankrolled by these taxes. If there is enough money left over, the legislatorscanthendiscussdiscretionaryspendingandpetprojects.Measure2requiresthestatetobeiscally-responsible. It cannot engage in funding that has not been approved unless there is revenue available.

In other words, Measure 2 calls on the state government to become accountable and trustwor-thy stewards of taxpayer dollars. Details on this aspect, and the actual wording of the changes to theNorth Dakota Constitution if Measure 2 passes, can be found in Chapter 3.

While there are some states that operate without sales taxes and income taxes, there are no states

that are free of property taxes. If the citizens of North Dakota wisely vote Yes to passage of Measure2 on June 12, 2012, it will send shock waves not only through our state but throughout the nation.

We hope you will get involved to actively campaign for the passage of this vitally importantMeasure. Please get in touch with us to learn what you can do to help. In the meantime, this bookshould serve as a reference guide for everything you need to know about property taxes, and whycitizens and state will be better off without them.

Robert Hale, Brett Narloch and Charlene NelsonJanuary 1, 2012


8/83

Acknowledgements

Many people have been involved in putting together this comprehensive guide to Measure 2 andproperty taxes. We wish to thank Adam Dyees for the striking art on the cover, and Brent Bartsch forhisassistanceingatheringfactsandiguresthatweneeded.WearegratefultoNormanSingleton,atrue American patriot, for asking his boss, Congressman Ron Paul, to write the Foreword to the book.

RickDocksai,aWashington,D.C.-basededitorandwriter,createdtheindex,checkedfactsandigures,copy-editedtheentirebook,andmadeinvaluablecontributionstothetext.AndFranGrifinofGrifinCommunications oversaw the project from beginning to end, helping us to structure the book, stream-line the text, and provided invaluable advice. We very much appreciate her professional assistance.


9/83

Foreword

Individual liberty, limited government, and privateproperty these are the values that built America intothe greatest country the world has ever known. Yetalarmingly in the U.S. of the 21st century, they are onthe verge of extinction.

Overthepast70years,ournationhasbeenaflictedby an endless and ever-increasing assault from within.The perpetrator is not a terrorist network, or a crimering. It is our own government. Through stilingtax hikes, regulatory schemes, and wasteful publicspending binges, our government has been graduallyextinguishing those traits that made America the land

of the free and the home of the brave for independent-minded and innovative citizens the world over.

The property tax is the most complex, burdensome,costly, and unfair tax imposed by state and localgovernment. There cannot be true liberty when citizensare not secure in their own homes. As long as thegovernment can impose taxes on ones property andenforce that exaction by coniscationof the property,there is no real freedom or security.

One of the most egregious effects of this tax is that it punishes citizens who improve their property.

A person who upgrades his home and yard is often rewarded with a higher assessment and thus alarger tax to pay. This is far different from other taxes, which are based on income level or voluntaryconsumption of products.

I think that the organizers of the movement to abolish this tax are doing something quiterevolutionary in true keeping with what our forebearers did. As Brett Narloch points out inChapter One of this book, our ancestors rebelled against taxation from the British and fought a warover it. Americas citizens must take it upon ourselves to reclaim that spirit of freedom that madeour country great and allowed us to prosper and thrive. The passage of Measure 2, the North Dakotareferendum to abolish property taxes, would do just that.

The arguments presented in this book are compelling. Of particular interest to me is thedocumentation demonstrating that the state does not need property tax revenue to function. In otherwords,thereisnoreasontoholdontotheunstableandconiscatoryrealestatetax.

One feature I particularly like about Measure 2 is that it makes it mandatory for the state of NorthDakota to fully and properly fund all its legally-imposed obligations, and forbids additional spendingunless revenues are available. I hope this concept is adopted by other states and the U.S. Congress!

This is a very important moment, not only in North Dakota history, but in the future of the UnitedStates. If passed, Measure 2 will set an example of how citizens nationwide can retake control of theirgovernment.


10/83

Passage will show all citizens that they can have genuine security and sanctuary in their ownhomes. If the voters of North Dakota embrace Measure 2, it will ignite an already vital North Dakotaeconomy, and the state will become a role model for the rest of the nation to follow.

I urge the people of North Dakota to take the step to free each and every person in North Dakotafrom having to forever rent their home from the government by voting for passage of Measure 2. Sucharevolutionaryacttofreecitizensfromthisonerousandunnecessarytaxwillhaveramiicationsfor property owners nationwide.

I applaud Empower the Taxpayer and all who are working to make this a reality. It is truly a visionto reclaim America.

Congressman Ron Paul


11/83

Dedication

This book is dedicated to homeowners in North Dakota and throughout the U.S. and to RonAlmquist, who was one of the 25 sponsors who came forth to get Measure 2 on the North Dakotaballot. Ron was a tireless advocate for tax reform and small levelheaded government. At the time ofhis untimely death on November 8, 2011, Ron was the Chairman of Burlington Township, a position

he held for many years,and a key member of Empower the Taxpayer, the committee established toamend North Dakotas Constitution by abolishing property taxes.

The citizens of our state have lost a great man dedicated to unselishly giving histime to show how eficiently and effectively self-government can work. His accomplish-ments in the area of tax reform, exercising common sense, and working to promote bettergovernment will bear fruit fordecades to come.

Ron Almquist


12/83

Chapter 1

Property Taxes Violate the Very Nature of a Free andStable Society

by Brett Narloch

In the 1760s, when America was composed of thirteen colonies, the British Parliament thought itcould raise money by imposing a series of taxes. Starting with the Sugar Act and continuing with theCurrency Act and the Stamp Acts of 1764-65, the Parliament imposed tax after tax on the colonies.Our forefathers, even then, had the American dream of being free and not shackled by endless gov-ernment taxes and regulations. The result was the American Revolution, which liberated us from thewhims of King George III and the British Parliament and led to the formation of the greatest nationin the world. The governing documents for our country have guided us since that time. They are twoof the best-written documents to have ever been crafted: the Declaration of Independence and theU.S. Constitution.

But what has happened in the past 236 years since the signing of the Declaration of Independencein 1776? Do we have more freedom now than we did then?

Over the years, the states and the federal government have taken the lead of George III and theBritish Parliament and imposed many taxes on citizens of the United States. This book deals with oneof those taxes, one that the authors and many leaders nationwide have come to believe is not in keep-ing with the fundamental purpose of government in a free society: taxes on property.

Just as our forefathers rebelled and eventually went to war to free themselves from the onerousburdens placed on them by England, the citizens of North Dakota are leading the way in a secondAmerican Revolution to reassert their right of property ownership. In a free society, a familys homeis a place of refuge, a sanctuary free from trespass, assault and taxes. The fundamental purpose ofgovernment is to protect these freedoms. A home is a persons castle, and home ownership shouldmean that, once the domain is bought and paid for, that no one can take it away. Property taxes violatethis sacred and primary end of government. As long as we are not secure in our homes, we are nottruly free.

The cornerstone of a free country is the ability of citizens to own property. When a pre-conditionto possession of real estate is the payment of a tax, based solely on ones ownership, and when failuretopaythetaxresultsinconiscationandsale,nohomeownerhassecurityinhisorherownhouse.Such a tax means that not only are we less free, but we are not secure or safe, not even in houses thatwe have lived in and owned for many years.

Almost every other tax can be controlled by the payer. For example, when an individuals incomeis reduced through loss of employment or retirement, his income tax goes down. Likewise, when aperson purchases less, he or she pays fewer sales taxes.

On the other hand, a property owners economic circumstances play absolutely no role in his realestate tax bill. No matter if a homeowner is rich or poor, is able to pay or not able to pay, the prop-erty tax is based on what the local jurisdiction decides the property is worth, which is known as anassessment.Failuretomeetthetaxthatisassessedwillresultintheconiscationofthepropertybythe government.

Those defending the governments right to do this argue that the property owner always has theoption to sell the property rather than lose it in an embarrassing tax sale. Such reasoning illustrates

how and why property taxes in a free society run contrary to common sense and freedom. How can


13/83

one say that we have self-determination in this country when taxes determine our ability to buy, own,and keep our properties? Can we really be free in the true sense of the word if our right to own prop-erty is conditioned on paying a government toll every year?

But proponents of property taxes counter that property taxes are an important revenue source,one that government can always depend on. According to former North Dakota Lieutenant GovernorLloyd Omdahl, It is a stable form of revenue that protects schools, townships, counties and citiesfrom the vagaries of the economy.1 Omdahl also asserted that property taxes are good for govern-

ment because when the value of the real estate goes up, they can tax the appreciation of wealth.

Both arguments ignore fundamental economic principles. First, property taxes do not avoid thevagaries of the economy. There is no tax that does. The recent housing collapse put governing bod-ies across the country into economic collapse as the values of property tanked. The only way politicaljurisdictions can sustain stable revenue is to dramatically increase the tax rate on property.

It is easy to see the consequence. Take a look at the Rust Belt, those states in the Midwest andNortheast that rely on manufacturing. Rather than being a stable source of income, taxation of prop-erty has brought about scores of ghettos and abandoned houses. As property taxes went up, peoplehad less money to maintain their properties. More and more homeowners let their properties fallinto disrepair. Many homeowners simply moved. So much for the make-believe world of governmentinance.

Mr. Omdahl is correct that real estate taxes capture more revenue by taxing the appreciation in thevalue of property. However there is a major problem with this equation. The so-called increase inthe value of the property is theoretical. The homeowner has no way of capitalizing on what the statesays is a more valuable piece of land unless he or she attempts to sell the property. Thus assessingtaxesonthebasisofanartiicialvaluationratherthanearnedincomeisessentiallycountingnonexis-tent money. Governmental entities love this type of tax because it allows them to extract more income.However, the homeowner has not necessarily earned more income that year with which to pay thetax.

This is precisely why property taxes actually have the ability to tax people out of their homes. Eventhough the government may determine that the value has gone up, the homeowner himself often hasnot had a corresponding increase in his or her personal assets. This often results in a very disturbingscenario: In order to pay the piper, a homeowner is forced to sell the home.

Much like the genie in the bottle when controlled, government can bring about wonderfulthings. However, when it breaks loose and runs uncontrolled, it becomes a nightmare that destroyseverything in its path. Do you think that government always has the health and well being of its citi-zens as its top priority? You might be surprised to learn that this is not always the case. The preemi-nent concern of the bureaucrats who run most agencies is a well-funded government, and of course,the funds come not out of thin air but from the producers in society the taxpayers.

Most bureaucrats and proponents of taxation simply do not understand that when times get tough,there is only so much money to go around. Every dollar taken from families to stabilize governmentisonelessdollarforkeepingfamiliesinanciallysolvent.

Whats more Important in a Free Society A Fiscally Stable Government orFiscally Stable Families?

What follows from the mentality of government described above is an important subject to explore.If this book does nothing else, I hope it will help citizens understand the proper nature of government

in a free and democratic society. Families and their well-being must always trump the supposed well-


14/83

being of the government. The very thought that a community needs to subordinate its interests tothestateconlictswiththeverynatureofademocraticgovernment.Unfortunately,overthelast50years, the essential purpose of government in the United States has been distorted. A case in point isthat the current property tax system gives preeminence to the whims of government at the expense,literally, of our citizens.

For instance, suppose the economy experiences a downturn and thousands become unemployed.This is easy to imagine, as it has been the reality in our country in recent years. Or lets say that a

family is faced with an unpredictable loss in income or a huge unforeseen medical expense some-thing that happens to countless households every year. The property-tax man doesnt care. Every year,at the same time, the tax collector needs the money to stabilize local government budgets. Theimpact on the property owner doesnt matter. Pay or else.

Its one thing if someone loses his or her job and cannot continue to make the house payments.That is a private contract between the homeowner and the mortgage holder. If nothing can be workedout, the mortgage holders remedy is to foreclose on the property.

However,considerthescenariowhereaseniorcitizenonixed-incomecannotpayhispropertytaxbill.Ahusbandandawifespent30yearspayingtheirmortgage.Theyrejoicewhentheinalmortgagepaymentisinallymade.Naturally,theybelievethattheynowowntheirhome,andcanliveouttheirsenior years without the worry of a monthly house payment. They have maintained the property andneed to worry only about utility bills and standard repairs. This would be a correct assumption exceptfor one major factor: real estate taxes. If they live in an area where home values are not declining, theywill be in for a big surprise as they continue to see the assessment on their home go up every year.

Whiletheycouldseethemarketpriceoftheirhomeincreaseive-fold,seven-fold,orevenmore,thevalueoftheirhometothemhasnotincreased.Itprovidesthesameinancialworthandusabilityit did on the day they purchased it.

Yet, now their property tax bill is higher than their mortgage payment was. While their home mayhaveappreciatedinvalue,theyhavenotgainedanyproitfromit.Theirincomeasretireestopayon

this unrealized value increase isnt there. They can no longer sustain their standard of living andmake their property tax payments. They are forced to either sell their property or have it taken fromthem by force.

This example illustrates the unfairness of property taxes. It is blatantly wrong that such a couplecould no longer afford to live in the neighborhood they helped build. No one should be faced with sucha grievous dilemma, least of all one created by nothing other than a complex, unfair, and dysfunctionaltax.

Everyyear,peoplewhoareonixedincomesfacesigniicantincreasesintheirpropertytaxassess -ments even though their incomes have not changed and their properties have not changed. Thegovernment, which is supposed to guard their well-being, instead is threatening it. Is it legitimate for

government to operate in this fashion?County tax assessors and legislators will tell you that they understand taxpayers hardships and

will grant exceptions to those in need. This is not good enough: The problem is that this situationoccursintheirstplace.Theexceptionsrequirethatthepropertyownerpetitionthegovernmentin order to remain in his or her home, and the conditions of the exception require proof of need.Further, it is not a forgiveness of the property tax. The homeowner must agree that the taxes willaccumulateagainsttheproperty,andthatwhenthepropertyissold,thegovernmentwillthenbeirstin line to receive the proceeds of the sale to cover the forgiven tax together with interest. This situ-ation is humiliating and absurd. Its time this nonsense ends.


15/83

The Property Tax System Violates the Very Essence of Personal Privacy

Compounding the above problems is the method of determining the tax imposed. Home and busi-ness owners have no control over the amount of property tax that they will be assessed and requiredto pay.

The very nature of property taxes forces a property owner to open his or her property to invasionby strangers who will poke and probe every square inch of the home, business, and land. After all,

property taxes are based in part on the value of the property, which means an appraisal by a govern-ment bureaucrat.

When a property owner challenges the assessors valuation he/she must allow the assessor or hisdesignee to enter the property to inspect. A perfect stranger must be permitted to go through everyroom, every closet, and every cupboard to determine the value of what the owner has invested in his/her home. In short, property taxes require that a property owner give up right to privacy and permita search of his home.

The assessor will forego the search if the property owner insists. However, the same assessor willwarn the property owner that absent a search, the assessor has no alternative but to assess the high-est possible value on the property a de facto government blackmail.

Property Taxes are Good for Government

The concept that property taxes are a good system of raising funds to support government istrue. Those who depend on government revenues for their income are, of course, highly favorable tothe idea of real estate taxes. From the citizens point of view, however, property taxes are the worst,least fair, and most un-American tax one can imagine. They punish people who work hard, save, andimprove their property. These taxpayers are the bedrock of society and the most stable element intheir communities.

Its argued that property taxes are locally imposed and controlled, thus, we should cherish thembecause they are so close to home. The facts tell otherwise: Property taxes are neither locally con-trolled nor close to home. Property taxes in North Dakota are controlled in virtually all respects bythe state legislature. The only local thing about property taxes is the location of the property beingtaxed.

In fact, it is the most subjective of all tax methods. This is one of the reasons governmental bodiesand the professional politicians are so attached to it. Its complexity makes it easy for its supporters todelectcriticism,talkarounditsproblems,andexcuseitsobviousinequities.

Because of property taxes complexity, a government is able to provide tax relief to some whileimposing tax increases on others, without any of this being obvious. When the assessor lowers one

persons tax bill, the difference is directly placed on all other property taxpayers, without their everunderstanding what has happened or realizing why their property tax liability has gone up. In short,propertytaxesbeneitpoliticiansthatseektoincreaserevenuesthroughstealth.

Those favoring property taxes argue they are good because they are locally imposed. They suggestthis tax is somehow more democratic and controllable than other tax methods. Ask yourself whetheror not you actually have any control. Ask yourself whether you or your neighbor knew that propertytax relief for one resulted in an automatic tax increase for everyone else.

The only winner with property taxes is government. The loser is always the property owner. Nomatter how the balloon gets squeezed, government always gets 100% of what it wants. When oneproperty owner obtains relief, everyone else pays more.


16/83

Property Taxes Put the Governments Budget Before Its Citizens Budgets

Perhaps the biggest reason why North Dakotans have put up with an immoral property tax systemis that so few of them truly understand the system or how backwards it really is. How these (consid-erable) revenues are raised is complex, but the basic process is as follows. First, the [local] governingbody sets its budget. Then it calculates how many mills it will need to assess to each property to gen-erate revenue to meet the budget.2

Local mill rates the amount of property tax owed per thousand units of property value areequal to the revenue the political district needs, divided by the total taxable value of all propertywithin the district (taxable value as decreed by the districts assessor).3

The property tax itself, for any given property in that district, will be derived by multiplying thepropertys taxable value (as determined by the local government) by the local mill rate. Each taxingdistrict prepares a proposed budget to determine the money needed to provide services. 4

Afterpublichearings,theelectedgoverningbodiesadoptinal budgets and certify tax levies (totalproperty taxes) to the county auditor. The government does act within some constraints: The taxlevy may not exceed the legal maximum, and the only increases allowed without voter or legislativeapproval are for property added to the tax rolls.

Nevertheless, the entire process is driven by how much money each local government wants tospend, rather than by any set tax rate. Property taxes are directly related to how much each localgovernment spends. This is an amazing fact. Unlike the taxpaying families, who see how much moneythey have coming in and then decide how much to spend, the local government decides how muchit wants to spend and then raises that amount of money! If spending goes up, property taxes go up.5

Even lowering the mills assigned to each property does not mean taxes go down no matterwhat a politician tells you because if the value of your property increases, your taxes will, too. Thiscreatesarathergoodexcuseforlocaloficials.Theycanbringinmorerevenuewhileleavingthemillsat the previous level simply by raising property valuations. Then when pressed by citizens about their

increasing tax bill, they simply say, The mills are the same. We didnt raise taxes.

6

Thus, the path of least resistance to raising additional property tax revenue is to keep mill rateslargely the same and rely instead on rising property values whenever possible. The question ofwhether there will be a hike in taxable property value is ultimately in the hands of the local assessors,county boards of tax equalization, and the State Board of Equalization.

Between 2000 and 2010 the average assessed valuation of property in North Dakota grew 100%.During the same period, the average mill rate dropped 20%.7

Virtually all the mill-rate decrease was caused by the states agreement to double state general-fund contributions to K-12 education.8 The state now funds approximately 70% of the total cost ofK-12 education. Prior to 2009, state funding to K-12 was approximately 35% of the total cost. This

upward swing in state education funding took place for two reasons:

1. A dramatic expansion in state general fund revenues, due to many years of bumper crops;combined with a statewide oil and natural-gas boom that generated huge increases in state revenuefrom oil and gas tax and royalty payments.

2. Taxpayer unrest over the combination of high tax bills and a 25% boost in state spending.Taxpayers were seeing dramatic increases in state revenue and an alarming mushrooming in statespending while their taxes continued to go up and up. Legislators realized that the status quo mightspark a citizens tax revolt.

It is clear that while the states population grew only by 4.7% during the 2000s and the average

mill rate remained fairly constant, property tax revenues edged steadily higher due to the assess-


17/83

ment of higher and higher property values.9 Indeed, before the latest legislative reform took effectbeginning in 2009, property tax revenues had enlarged by over 52% in the years between 2000 and2008, while the average mill rate in the state had actually fallen by almost 0.5% during that same timeperiod.

Further complicating the property tax system are the numerous exemptions from the tax, pro-vided by both the state and virtually all city and county governments. Although many require city orcounty approval, the state allowed for over 30 different types of exemptions as of 2010.10 Personal

property that is, a movable possession, such as a vehicle is immune in North Dakota, but manyotherexemptionsaremorespeciicintheircriteriaandallowformoreleewayonthepartofcityandcountygovernmentsastowhetheraparticularpropertyqualiies.

For residential property, exemptions include partial or complete property tax relief for the blindor disabled, elderly, persons living below certain income thresholds, and disabled veterans. 11 Thereare also exemptions for new houses and for old homes in Renaissance Zones. For commercial prop-erty, exceptions can include new or expanding businesses, as well as those which remodel or rehabili-tate their properties, build public parking structures, provide day care or adult care services, installgeothermal, solar, or wind energy systems, make pollution control improvements, or are located (orchoose to relocate) in Renaissance Zones. For agricultural property, the list is almost as lengthy, but

the major exemptions include such things as farm structures and farm residences, as well as holdingssuch as wetlands.12

Many of these exemptions, particularly the ones for commercial property, are overtly advertisedas economic development tools by the state and the local governments.13 There are also special pro-grams, such as Tax Increment Financing (TIF) districts, which allow city governments to capture por-tions of the property tax owed by particular businesses and divert the funds into redevelopmentprojectsthatbeneitthosebusinesses. 14 It is obvious that programs such as these lead to an uneven,andsometimesunbalanced,applicationofthepropertytax.Ownersofdifferentclassiicationsofrealestate,andsometimesevenholdersofsimilarpropertiesofthesameclassiication,arehitwithdis -paraterates.Thesetaxesarelat-outunequalandunfair.

Taxing different properties at different rates is not only unjust. It is also impractical in that itretards economic growth and development. Moreover, it lends itself to all sorts of abuses of publictrust. Favoritism and, more often than not, outright corruption inevitably result from such authoritybeingplacedinthehandsofcityandcountyoficials.Thesearesomeofthewaysthatproperty-taxregimens harm everyone in the community.

When local government grants a $50,000 property-tax exemption to a favored property, does itreduce its budget by $50,000? No, it doesnt. It forces the rest of property taxpayers to pick up the tabby increasing their tax burden.

The state and local governments know full well that property taxes impede family stability andeconomicgrowth.Wecanverifythisbytheexemptionsandabatementsthatoficialsallowtofavored

categories of homeowners, as well as the economic development programs that grant property-taxrelief to chosen winners and deny them to everyone else.

The system itself is very complicated and intentionally so. The obtuseness facilitates favoritismand corruption and discourages public inquiry into the mess. And even when citizens understandhowthesystemworks,unlesstheycanlobbythemselvesintoafavoredclassiication,theyhavenocontrol over the outcome of the tax burden they are required to carry. Few working people have timeto become involved in the system, and fewer still have the clout to keep it fair and honest.

Each townships board of equalization meets on the second Monday of each April, and each citysboard of equalization meets on the second Tuesday of each April. These local boards certify theirrespective communities assessments and then pass them to the county board of equalization, which


18/83

meets in early June of each year. Finally, the state board of equalization meets in August of each yeartocertifythecertiicationsofthe counties, cities, and townships. Property owners disputing theirassessments have the opportunity to appear before the local boards to protest. Even a minimal under-standing of this system makes it clear, however, that the ultimate decision over any property tax deter-mination falls ultimately in the hands of the state.

Each fall, local governing bodies (cities, towns, townships, school districts, etc.) create preliminarybudgets where they decide how much money they need to satisfy their insatiable desire for spending.

Then, after public hearings, which could be a property owners fourth appearance before a governingboard,theinalbudgetsareapproved.Oncethishasbeendonethegoverningbodiesdeterminehowmany mills must be charged against the assessed property valuations in order to raise the amount ofmoneytheyvebudgetedtospendduringtheirnextiscalyear.

This isa constant,year-round process.To ightthe ever-increasing size of localbudgets,(andtherefore, the property tax bill) a citizen must battle effectively on a full-time basis. Unfortunately, fewof us have the time.

This is why government and special interests love the property-tax system. It is a costly, complex,unfair, and time-consuming process that allows them practically unlimited access to your income.Furthermore, collection of the tax is easy, thanks to the penalty for failure to pay ones property taxbeing so draconian. Even the people who truly understand the system have little motivation to par-ticipate.

Attempted Reforms Consistently Fail

Over past 12 years, North Dakotas booming economy has dramatically increased the revenueslowingannuallyintothestatetreasury. 15Taxandroyaltyproitsfromoilandnatural-gassalessoaredautomatically due to increased drilling and tapping. With the consequent job creation and economicgrowth, income from sales taxes and income taxes grew as well. This windfall took place withoutany increases in the tax rates. The state legislature was therefore able to dramatically increase statespending squarely on the back of private-sector economic growth.16

The same has not held true for local governments, however, which consistently have had fewerrevenue sources. The state legislature did not share its windfall with them. Instead, it spent the newwealth on growing the state government and lavishly funding special interests. To pay their own bills,local governments have had no recourse except to increase property taxes.

Thepropertytaxisuniqueamongthemanyformsoftaxation.Itallowstaxingoficialstoincreasean individuals or businesss tax bill:

withoutanincreaseinthetaxrate(milllevy);

withoutanychangeinthetaxpayersproperty;and

withoutanyincreaseinthetaxpayersabilitytopay.

Thus property tax revenue is expanded simply by assessing property at a higher value. In effect,realestatepriceinlationresultsinhigherpropertytaxbillsforeveryoneexceptfortheselectedfew, discussed above.17Whenpropertyvaluesgoupduetoinlationandunrealizedappreciation,theproperty owner is squeezed. He or she is required to pay a tax based on the assumption the propertyowner actually has more money to pay the bill. Of course, this isnt true. While the home or businessisnotprovidingtheowneranyadditionalbeneit,heorsheisbeingtaxedasifitis.Thisisonemorereason property taxes are so abusive.

Almost everyone agrees that property taxes are a serious problem and out of control. Weve seen

over 130attemptstoixtheproblem.Nonehaveworked.Today,theproperty-taxburdenhasrisento


19/83

a level of political awareness not seen in North Dakota since the tax referral initiated measures passedby voters in the late 1980s.18

In response to escalating property taxes and the unrest among property owners, the statelegislature has become involved. However, this involvement has not come about because ofconcern about the tax burden on property owners. Instead, it has resulted because lawmak-ers fear that property owners are beginning to notice governments escalating growth attheir expense. In an attempt to defuse the unrest, the state legislature has opted to share

a fraction of its burgeoning income with the county and municipal governments and schooldistricts.19

Property tax increases have become a statewide political issue in large part due to increases in localspending on public education. Legislators took action in an attempt to defuse anger over rapidly escalat-ing property taxes by allocating more state funds to local school districts.20

State sales tax, income tax, and gas and oil revenues have grown dramatically over the last 10 years.They have added billions to the state treasury. Rather than reducing tax rates, however, the legislaturehaschosentosigniicantlyincreasespendingbyenlargingthegovernmentandlavishinghundredsofmillions on special interests. Taxpayers are punished with a higher and higher overall tax burden.

The surge in monies available has made it possible for the North Dakota legislature to spend reck-lessly, and it has. It has spent at more than twice the rate of taxpayers increase in income.

By2009,taxpayerunrestandembarrassmentoverrevenueandspendingbythelegislatureinal-ly compelled the legislators to return some of the state treasurys largess to the citizens. Only some,however: The legislature agreed to a miniscule reduction in income tax levels and coupled it with anagreement to fund 70% of the K-12 budget. Hitherto, most K-12 funding had come from the local gov-ernments that is to say, from property taxes. The state legislature had hoped that if it committed toa larger share of school expenses, it could reduce the escalating property tax burden. It miscalculated.Instead of reducing property tax bills as hoped, local governmental bodies kept property taxes high. Thefunds that previously went to local schools are now being used to produce larger local governments. The

taxpayer is only worse off.North Dakota, like other energy-producing states, is experiencing an economic boom amidst a

national recession. Tax revenues have exploded and are predicted to continue doing so into the foresee-able future. We see dramatic increases in sales and income tax revenue, owing in large part to the surgein economic activity in the western portion of the state. These, together with oil and gas tax revenue androyalty payments to the state, have added billions to our state treasury.21

This has enabled the state government to provide steep increases in state funding to K-12 publiceducation in an effort to mitigate the escalation of property tax increases. In addition to a revenuetransferprogramaimedatdirectpropertytaxrelief,thestatehasalsoincreasedotherinancingforpublic schools through grants. In other words, local school boards can now spend money and send

the bills to the state.Yet, property taxes continue to escalate in North Dakota. Politicians pretend to be concerned and to

resolve the public dissatisfaction over property taxes, but when push comes to shove, they allocate onlyminiscule portions of the budget to address the problem and never get to the source of the frustration:ataxmethodandsystemthatisbrokenandunixable.

North Dakota will not have a healthy, functional tax system as long as it has a government that ignorestaxpayers, has explosive and unchecked growth, and creates special interests with insatiable appetitesfor other peoples money. North Dakotas state treasury is growing by billions. But instead of dispensingthat wealth to its rightful owners the peopleby reducing the tax burdens, streamlining govern-ment, and cutting off special-interest spending, the state legislature and local governmental bodies are

usingthecashinlowtosteadilyexpandgovernmentbureaucracyateverylevel.


20/83

The Only Way to Fix Property Taxes is to Eliminate Them

Atleast130attemptshavebeentriedtolegislativelyixpropertytaxesoverthelast30years.Nonehave come close to working. The time has come to do the only thing that will work: We must abolishproperty taxes.

During the 2009 legislative session, the idea of expunging property taxes and creating a new fundingmechanism for local government services was raised. However, too few lawmakers lent it their support.

The legislature not only rejected the property tax repeal, but even an effort to study how repeal mightwork.

Since then, political leaders have continued to write the idea off as foolish, ill conceived, unrealis-tic, and simply unworkable. The opposite is true. Numerous studies have analyzed the impact of elimi-nation of property taxes, and all have arrived at the same conclusion: Abolishing property taxes wouldleadtosigniicanteconomicgrowth,increasedjobcreation,andmorerevenuebywayofincreasedeco-nomicactivity.Allstudiesconcludethatintheinalsum,thegovernmentthatabolishespropertytaxesgains much more revenue than it loses.

North Dakotas political establishment, like all monopoly entities, fears any change in the status quo.This unease is not based on economic reality, but on shortsightedness and worry of losing the power toeasilyconiscaterevenuefromtaxpayers.

Following years of working to involve politicians in eliminating property taxes, Empower theTaxpayer gathered almost 29,000 signatures to put the question on the ballot so the people coulddecide.22 Constitutional Measure No. 2 (hereafter, referred to as just Measure 2),23 if adopted, willmakeacleanbreakfromthestatusquoinpublicinancebymakingNorthDakotatheirststateinthenation to completely eliminate the property tax.24

AccordingtotheOficeofStateTaxCommissioner,thereweremorethan130signiicantchangesin the property-tax laws between 1981 and 2009.25 Prior to the 2007 legislative session, there was aparticularly intense debate on the issue that led to two failed pieces of legislation to provide direct relief

to taxpayers from escalating property tax bills. The bottom line remains: Every one of the 130-plusattemptsbythelegislaturetoixpropertytaxescametonothing.

In 2007, the legislature provided an income-tax credit for a portion of property tax levied. This taxcredit reimbursed each owner of residential or agricultural property for 10% of his or her property-taxbill,withalimitofupto$500foranindividualand$1,000foranyonemarriedandilingjointly.Similarlysized reimbursements applied to holders of commercial property.26 The legislature budgeted an esti-mated $115 million in state income tax credits for 2007 and 2008. Generous as it sounds, however, thistax credit only applied to those two years.

Moreover, like all government programs, the tax credit was so complex that it frustrated propertyowners more than it helped them. In fact, during debate on the bill, proponents conceded that many

taxpayers would not know how to redeem their tax credit and would give up out of frustration becauseof the elaborate process required to obtain it.

As they expected, the 2007 tax-credit plan caused much confusion. For instance, if taxpayers incometaxcreditexceededtheirstateincometaxliability,theywouldbeissuedacertiicatefromtheOficeofStateTaxCommissioner,whichtheythenhadtobringtotheircountytreasurersoficeforredemptionin the form of receiving a check or a reduction in their next years property tax liability. 27

The tax-credit plan received further criticism for being unfair to renters, since they were unable toget a tax credit from the indirect property taxes they pay through their rent. This criticism was some-what unfair since all apartment building owners, as recipients of the tax credit, would theoretically havederived a cost savings and, in order to be competitive with other landlords, would have lowered rents to


21/83

their tenants. Nonetheless, the argument still resonated with renters, because they were not seeing anytax relief while their landlords were.

In the end, what happened was that the tax-credit plan gave local governing bodies a little extraroom to raise property taxes; and they did. In short, no one received real tax relief, and almost everyonesaw their overall taxes increase.

Thus the 2007 income tax credit program failed in all respects. It caused confusion, failed to reduce

property taxes, and was fraught with red tape. Realizing their ill-conceived program was an utter failureandunwillingtoconsideractuallyixingtheproblem,thepoliticiansbeganlookingforanewproperty-tax-relief plan.

It is ironic that many of the same politicians who were involved in the 2007 debacle have criti-cized Measure 2 as being foolish, ill-conceived, unrealistic, and simply unworkable. More study,thought, and consideration has gone into Measure 2 and how North Dakota can successfully abolishproperty taxes than state legislators have invested in any attempt to reduce North Dakota citizens taxburden. The reality is that these legislators who oppose abolishing property taxes simply have no inter-est in changing anything that generates tax revenue.

With the debate still festering over property taxes, the governor and the legislature promised the

public that they would take action again during the 2009 legislative session. They played the usual polit-ical game of shifting the blame away from themselves to local governmental bodies that they said hadfailed to reduce the amount of the levies they assessed against property.28

As the debate raged, the legislature decided to essentially double the states contribution to K-12funding. The state would now fund 70% of the cost of our primary and secondary education budget.

The 2009 property tax relief plan passed by the legislature was even more complex than the 2007plan. It was a temporary plan and amounted to a buy down program, whereby the legislature set aside$295 million for the 2009-2011 biennium and an additional $295 million for the 2011-2013 bienniumto pay local school districts to reduce their mill rate, dollar for dollar, by an average of 75 mills. 29

The plan put a statewide cap on the school mill levy, but not the amount of tax revenue school dis-tricts could generate, by mandating that most school districts could not increase their total mill rateabove 110 mills.30 In addition, $100 million was allocated to school districts above and beyond the $295million, increasing the total state aid to school districts to approximately $895 million for the 2009-2011 biennium.

Like the 2007 plan, the 2009 one was enacted but, perhaps because of its authors failure to study oreven consider whether this would actually result in lowering property taxes, it failed to reduce propertytaxes. It foundered for the same reason that its 2007 predecessor had. Other local governmental bodiesrefused to reduce property taxes and instead simply grew their budgets.

Fortunately for taxpayers, because of dramatically increased state revenue, as discussed above, it

was not necessary to increase sales or income tax rates to accomplish this. In fact, since state revenuesare now so high, and are projected to remain so for decades, North Dakota can totally abolish propertytaxes and replace them with revenue already coming into the state treasury without increasing any taxrates or instituting any new tax. It must do so, or otherwise that revenue will be squandered on moregovernment boondoggles and thereby fueling further increases in our tax burden down the road.

This plans mandate that the state directly provide 70% of K-12 funding was universally praised bytheK-12establishment.Ironically,thissamegroupoficiallyopposesMeasure2onthegroundsthatitwill eliminate local control of K-12 schools. Their opposition to Measure 2 is fueled by fear the statetreasury may not have future funding for K-12 education. Yet they support the 2009 plan, which isscheduled to expire at the end of 2013.

Like the failed 2007 plan, local governmental bodies have found this 2009 plan even more to their


22/83

liking than the old income tax credit plan. While local school districts would indeed have to reduce theirmill rates and theoretically the property tax burden, there is no prohibition on local governmental bod-ies increasing property mill levies for other purposes.

This is exactly what has happened. While property taxes that had gone to support K-12 educationhave been replaced with revenue from the state general fund, the property tax burden has not gonedown it has gone up.

For instance, historically, K-12 funding accounted for an average of approximately 55.5% of theproperty tax burden. Under the 2009 plan, the school districts portion of the property tax levy shouldhave been reduced by 27.8%. It was expected that the overall property tax burden should have declinedbyapproximately15.3%.However,theirstyeartheprogramtookeffect,thetotalpropertytaxburdendeclined by only 12.1%. In 2010, property taxes actually increased by 5.9%.

The current North Dakota governor, who supports tinkering with property taxes and opposes abol-ishing them, perhaps stated it accurately when he described the 2011 legislative session as outstand-ing. He conceded, property taxes will increase over time. It should be evident by now that constantmaneuvering of property taxes has not worked and will never work.

Not only is the current program failing to relieve the property-tax burden, it has also enabled rapid

growth in local government budgets. Property owners are now worse off, not better off. Unless prop-erty taxes are abolished, well see the next legislature implementing the 131stixofpropertytaxes.Itshouldbecleartoanyrationalpersonpropertytaxescannotbeixed.Itstimetoputthesetaxeswherethey belong on the ash heap of history. North Dakota voters will have the opportunity to make thishappen by supporting Measure 2.


23/83

Chapter 2

Elimination of Property Taxes:Everything You Want in Tax Reform

and More

by Charlene Nelson

Measure 2 addresses virtually every concern that a freedom-seeking American might have aboutabolishing the archaic and oppressive property tax. It ensures that in the taxs absence, all essentialgovernment services will continue to be fully and properly funded, and that their funding will occurbefore any special interests or pet causes get funded.

The Government Will No Longer be Your Landlord

Not a single person in the United States has experienced life without property taxes. We havelargely come to accept them as a simple fact of life. We shouldnt. Property taxes deny every person ofthe security of real homeownership: Either you pay the tax, or the government takes your propertyand sells it, even if you have already paid your mortgage off in full.

It is a tragedy when no American can be free from government as their landlord. The only way toget rid of this all-powerful landlord is to simply abolish this method of taxation. Its high time that wedemand freedom from government control of our homes and businesses. Its long overdue that gov-ernment ceases to be our landlord. Citizens are ready for a future in which we are no longer requiredto pay the government as a condition of remaining in our own homes. Its time for all Americans to besecure in our homes, and to never again worry about having to pay the government for the privilege

of living in our homes, much less losing those homes because we cant afford to pay the governmentstax.

The Myth of Local Control Exposed

Those promoting and attempting to justify property taxes argue property taxes provide localcontrol. The question is: local control of what? Property taxes do not provide local control of any-thing. In North Dakota:

Thestate legislaturemandateshowmanymills localpolitical subdivisions can assess, andtheir use.

TheState Board of Equalization controls how properties are assessed.

Thestatemandateshowmoneyisspentonitemssuchasroadsandschools.

Cities and countiesthatbalkatthestatemandatesmayindotherfundingoptionscutoff.

Theequalizationboardroutinelyorderscitiesandcounties to increase valuations even whentheir budgets do not call for additional revenues.

Beneits from Abolition of Property TaxesWewillenjoymanybeneitsifweabolishpropertytaxes.Foronething,wewillridourselvesofa

number of property-tax-based government entitlements, such as:


24/83

TaxIncrementFinancing(TIF).Everyonewillhavethebeneitsnowgivenonlytoaspecialfew.

Property Tax Abatements. Every home owner will have the ultimate property tax abatement:no property taxes at all, ever.

Renaissance Zones. Every propertyownerwill beneit, resulting in an explosion of privateproperty improvement.

Under the guise of taxpayer-funded economic development, local and state governments

acrossthecountryinstitutetax-incrementinancing,property-taxabatement,andestablishmentofRenaissance or economic enterprise zones. The recipients of these special treatments get to paylower property taxes than anyone else, or possibly no property tax at all. For them, it is a win: Theyget to keep their own money to invest in their properties.

Unfortunately, only a special few have either the clout or the connections to receive these specialtreatments. And usually, they are the only oneswhobeneit.Allothertaxpayersarehitwithproperty-tax hikes in order to replace the lost revenue. Those lucky few who receive the governments specialtreatments get to keep their money while everyone else is hit with a hidden tax increase.

But ask yourself: If eliminating the property tax on a lucky fewi.e., designating their propertieseconomic enterprise zonesis a good economic development tool, then how much better would it be

for North Dakota if we eliminated the property tax for everybody? We could make the entire state ofNorth Dakota an economic enterprise zone.

Every economist and economic development director understands that property taxes impedecommerce and prosperity. They know that repealing these taxes (even if temporarily) stimulateseconomic growth and job creation, and thus increases everyones standard of living. Indeed, it isdificult to overstate how much abolishing property taxes will stimulate economic growth andacross-the-board prosperity.

The Beacon Hill Institute (BHI), a Boston-based research irm that the North Dakota StateCommerce Department often consults when developing economic policy, released a recent study onthe impacts that abolition of property taxes would have in North Dakota. The study concludes that in

justtheirstyearfollowingelimination,morethan11,000newjobswillbecreated,anddisposableincome will increase 3.24 %, or nearly $900 per capita.

Anincomeriseof$900percapitathatsanadditional$4,000-$5,000forafamilyofive.Moreimportantly, think of what it would mean to add 11,000 new jobs in the private economy. And mindyou, these are not government jobs, so they will not require taxes to support them.

Thestudyalsopredictsahugesurgeinbusinessinvestments.Intheirstyear,commercialinvest-ments will increase by nearly $700 million. Five years later, the investments will expand by more than$1 billion annually, a 34.6% increase over what we are currently experiencing. This is investment innew private-sector businesses, new jobs, and better wages.

Withtheredoublingofbusinessactivityandeconomicproductivity,wecanalsoexpectasignii -cant ripple effect on sales tax collection. Revenue from sales taxes will swell markedly, along with arise in revenue resulting from accelerated economic activity. This will more than offset what statecoffers had lost in abolishing property taxes, according to BHI. In short, abolishing property taxes inNorth Dakota will:

directlycreateofthousandsofprivatesectorjobs;

boostdisposableincomeforeveryoneinthestate;and

increasetaxrevenues.

Everyonebeneitsthebusinesscommunity,government,wageearners,andfamilies.


25/83

Take Government Out of Picking Winners and Losers (because they only picklosers and make losers out of taxpayers)

North Dakotas governmentally directed economic-development programs operate on the assump-tion that business wont locate in our state unless we bribe them. Established businesses and all wageearners already here are taxed to fund the bribes in other words, the state government taxes usand our states businesses so that it can bring new business competitors in at our expense. What is

governments job regarding private sector business? Isittomanagetheeconomy?

Ensurethatonebusinessthrives,evenifitisattheexpenseofanother?

Decidewhataretherightbusinessestohaveinthestate?

Attempttopickwhowinsandlosesintheprivatesector?

Ideally,agovernmentwillworktocreatealevelplayingieldforalleconomicplayers.NotNorthDakotas government. Its current economic development practices, at both the state and local level,have a track record of picking losers or entities that shouldnt need taxpayer money and subsidiz-ing them. Government-provided economic-development dollars are taken from other businesses andNorth Dakota taxpayers and given away to those businesses with the political clout to dip into thepublic treasury.

Our states government seems to operate on the belief that government should try to decide whichbusinesses receive tax dollars.

Unfortunately, the majority of the recipients of taxpayer-funded economic development dollarsgo out of business. The reason is simple. The money at risk isnt theirs its yours. Businesses thatreceive public economic-development dollars whether they get them in the form of property-taxabatements given or in the form of cash allotments are nothing more than welfare recipients. It issimply corporate welfare, and it was doomed to fail from the beginning. And the outcome is exactly

like our public welfare programs: It creates continued dependence, it destroys incentive, and it doesntwork to improve peoples lives.

This government-orchestrated use of taxpayer money to fund or support private business has noplace in a free country, let alone a healthy economy. As noted above, economic development directorsunderstand that property taxes are an impediment to business. Thus, providing property-tax abate-mentisoftentheirstthingthatgovernmentusestoattempttoattractnewbusinessortoencourageestablished businesses to expand.

These government economic-development programs are themselves one of the factors thatbusinesseslookatwhendecidingwheretolocate.Competitive,self-suficientbusinessesavoidthosestates that have many of these programs. They know that if they are successful, they will be taxed to

subsidize those that arent.Meanwhile,businessesthatplaythegovernmentssubsidygamelocktotheseprogramsandprof -

it at the expense of taxpayers. Often, once the subsidies or incentives end, these businesses will justmove to the next political subdivision that offers them taxpayer-provided subsidies and incentives.

TheirsteconomicdevelopmentfundinthestateofNorthDakotastartedinMinot.Itappropriate-ly called itself Minots Magic Fund. In its more than 20 years of existence, it has doled out tens of mil-lionsofdollarstoonefailedcompanyafteranother.Thenetresulthasbeennomeasurablebeneitstoanyoneexceptthosereceivingthebeneits.Themajorityofthosereceivingtaxpayermoneyhavelopped.Likemostgovernmentprograms,MinotsMagicFundhadnoguidelinesthatwerefollowed,did not hold the recipients of taxpayer money accountable, and apparently did not care whether tax-

payersreceivedanybeneitsornot.


26/83

While this section is titled picking winners and losers, the truth is the majority of those pickedto receive funds turn out to be losers. But all of we taxpayers are losers, too: The money that thosecompanies lost was ours, not theirs, to begin with. We are forced into a lower standard of living sothat government economic-development entities can tax us and give our money away to ventures thatlop.Howcanthisbe?

The North Dakota Department of Commerce, according to its Web site, distributes economicdevelopment money to companies who cant obtain investments in the usual ways (i.e. from business

loans from banks or investors) because either those traditional investors do not deem them viableborrowers, or because the companies products are not ones in which private-equity investors arewilling to invest.

In essence, our government is insisting that it gamble our money on companies that any bank orother traditional investor would reject as too unstable or risky to be given a loan. Indeed, accordingto the Commerce Departments 2010 annual report, the State Economic Development Fund wrote off,for just one year, $1.129 million in bad loans that it had made.

With this track record, if the government were a bank or equity investment company, it would beout of business in short order. Instead, the government gets a free pass to continue to gamble withtaxpayers hard-earned money, funding the most risky investments one after another, all under thefaade of growing business with these giveaway programs.

Businesses not receiving property tax abatement arent the only ones disadvantaged by capriciousandonerouspropertytaxes.Theelderlyanddisabledlivingonaixedincomes,aswellasfarmerswhofacedownturnsincropproduction,alsohavedificultieswithpropertytaxes.Sodoallthosefamilies whose property taxes are increased to subsidize those with the clout to have their propertytaxes abated.

Unlike income taxes and sales taxes, which decrease when one faces a personal economic down-turn, the property tax has no connection to economic reality. Inability to pay means loss of propertyand the security that owning your property should provide.

Governments answer to economic development has been to lower the property tax for a limitedfew at the expense of everyone else. While farmers and some elderly may qualify for homestead cred-its, thus relieving the pressure (at least temporarily), they do so at the loss of their dignity. They aremadebeneiciariesofananythingbutbenevolentgovernment.Butthistoocomesattheexpenseofthe rest of the property taxpayers. Its like squeezing a balloon when one group pays less, the otherpays more.

Its time to take the states political subdivisions out of the business of picking winners and losersand playing monopoly games with property taxes. Lets make everyone a winner and abolish propertytaxes. Its time to turn the entire state of North Dakota into an economic enterprise zone. The onlylosers will be those bureaucrats that were employed to sustain the harmful and counterproductive

property-tax system. Their services will no longer be needed.Eventhosebureaucratsmayprosperintheend,however:Theycanindnewjobsintheresurg-

ing private sector. Most of those jobs will be better-paying and more satisfying than their prior statejunkets. And taxpayers will no longer have to support them, a change that brings governments costsfurther downward.

Allowing our elderly to keep their homes

North Dakota has 91,000 citizens 15% of its population over the age of 65. Theyve spentdecades working hard, building up their neighborhoods, and making their communities strong. These

are people who have spent their lives investing in their communities, raising families and improving


27/83

their neighborhoods. Sadly, they are also the most obvious victims of our out-of-control property taxsystem.

Atretirement,aftertheyhaveworkedfordecadestopayofftheirhomes,theyoftenindthattheirproperty-tax payments are more than their house payments were. They quickly realize that in ordertoremainintheirhomes,theymustrentthemfromtheirowngovernmentorlosethem.Manyindthey have to return to work just to keep their homes. Others, unable to earn enough income to stayon top of the payments, sell their homes and move into smaller homes or apartments. What a terrible

way for us to treat the people who have spent all their lives building our communities.

The numbers are compelling: In 2008, the median home value in North Dakota was $112,500. Theaverage real estate tax on a home in North Dakota is $1,598 a year i.e., $133.17 a month. Accordingto the Social Security Administration, the average Social Security check for a retired person is $1,177per month. Think about that: 11% of an already meager income goes to paying property taxes, ormore accurately, renting ones home from the government.

During the petitioning process to get the Abolish Property Tax Measure on the ballot, the Empowerthe Taxpayer Committee received dozens of phone calls from elderly, retired, and disabled citizensfrantic to save their homes from property tax foreclosure. One woman in her seventies informed usthat her husband had to get a job at a grocery store just so they could pay their property taxes andremain in their own home.

Another caller, a retired and disabled Vietnam veteran, was unable to make his property-tax pay-ments and had been able to keep his property only by paying the last years taxes. This worked until2007, according to Gina Hillestad, the Treasurer of Sargent County, who reported (see her statement at:https://mylocalgov.com/sargentcountynd/WebDept.asp?key=14) that when the government decidedthat its delinquency period prior to property-tax foreclosure was too generous. Up until that point, apropertyownerhadtobedelinquentiveyearsinthepropertytaxpaymentsbeforehisorherprop-erty could be foreclosed by a property tax sale. The legislature, at the behest of counties, reduced thedelinquencyperiodthatyearfromiveyearstothree.

Just as this retired and disabled veteran was trying to make payment arrangements to save hishouse,thestatecutthetimehehadtoresolvetheproblembytwoyears.Heeventuallyqualiiedforahomestead credit that would lessen his property tax, but it was too late to save his home. This is thekind of reward our legislature gives veterans who have been willing lay their lives on the line for ourcountry.

Peoplewhohavebeenanintegralpartofbuildingupourcommunitiesindthemselvesrentingfrom a landlord (their own government) that continually increases the rent, with an endlessly higherand higher property tax bill. Our government is essentially telling the most vulnerable segment ofour society the elderly, the disabled, and the unemployed: If you dont like the tax, sell your home orwell take it from you. Abolishing the grossly hostile and harmful property tax system is the only wayto remedy wrongs such as these.

Putting young families into homes

Young families are another vulnerable segment of our community. They generally have lowerearnings, as they are just beginning careers. Meanwhile, they have to scrimp and save what they doearn to raise the next generation. And as we all know, raising children is an expensive task. Add prop-erty taxes to the equation, and homeownership becomes impossible for many of these families, par-ticularly in a state like North Dakota, which has one of the highest property tax burdens in the nation.

When property taxes are abolished, new options will open up for young families in our state. They

willatlastbeabletoaffordbetterhousing.Forexample,theycouldbuyolderhomesandixthemup


28/83

without risking a tax hike for every renovation.

It is impossible to overstate the value of homeownership to young families and the connectednessthat homeownership creates between families and their community. As homeowners, these youngfamilies become more fully invested in their neighborhoods and schools. They create the foundationsforlourishingneighborhoods,successfulschools,andabettercommunity.

Strengthen agriculture

Agriculture is the biggest contributor to North Dakotas economy, and it has been so for genera-tions. It is challenged, however, by the heavy costs today of seeds, equipment, fertilizers, pesticides, andthe overall process of food production. The added burden of property taxes which cull $164 millionannually from farms across the state can wreak havoc on our agricultural sectors long-term healthand viability.

Stategovernmentrecognizesthataluctuatingmarket,combinedwithever-increasingpropertytaxes, cripple our agricultural economy. For that reason, it calculates property taxes for agriculturalproperties based on a 10-year average productivity. This tax-level formula, nonetheless, is wholly

inadequate.Itfailstotakeintoaccountyearlyluctuationsorunforeseendisasters,suchasloods,hail, and tornados.

It is no secret that it takes only two or three consecutive years of poor weather and weak marketsto put todays farm or ranch out of business. Property taxes are not simply a nuisance in the farm andranch budget. In bad times, they bring about the end of far too many farms. If we are serious aboutprotecting our farmers, the most effective step that we can take is to abolish the property taxes.

Without property taxes, the only taxes that a farmer will have to pay are those based on income andspending. A bad year would still mean less income, but it would not put the ownership of the farm atrisk.

Personal economic development

If property tax abatement for businesses is the backbone of economic development, imagine theboost in the standard of living of every citizen in North Dakota when property taxes are abolished. Itwillgeneratealmost$1,200annuallyforeveryindividualinNorthDakota.Forafamilyofive,thats$6,000 a year!

It actually makes homeownership more affordable. No longer will we be punished with higherproperty taxes when we improve our homes and neighborhoods.

Furthermore, well be better able to care for our families get the braces or pay for the dance

lessons that we couldnt afford otherwise. Or maybe well choose to save the money, to invest it innew enterprises or help fund our childrens education. Abolition of property taxes helps each personin North Dakota create his or her own personal economic development program. We get a stronger,more vibrant economy for our state and for every man, woman, boy, and girl living in it.

Bear in mind that every dollar that is spent in the private economy gets spent again and again on average, seven times in a year and that each time that dollar is spent, a sales tax is paid.Private sector spending thus leads to ever-increasing revenue to the state treasury without a jumpin the sales tax rate. Money that families get to keep instead of using it to pay taxes enriches thecommunity as a whole.


29/83

Is This Simply a Tax Shift?

Some argue that abolishing property taxes will simply result in a tax shift and that there will beno tax relief at all. That is, the government will replace the property tax with a corresponding, equallylarge rise in other taxes, such as taxes on sales or income.

This will happen only if the state legislature continues on the spending spree it has engaged inoverthelast12years.Inthattimeperiod,wehaveseenunprecedentedincreasesinrevenuelowing

into the state treasury, and virtually every dime of it has been spent to grow government and fund thewish lists of special interests.

Over the last 10 years, state spending has outpaced growth in personal income by a ratio of 2.5 to1 and exceeded the growth of the Consumer Price Index (CPI) 5.1 to 1. State spending went into hyperdrivebetweeniscalperiods2009-2011and2011-13:Itsgrowthsurpassedthegrowthofpersonalincome by a ratio of 8.7 to 1 and outdid the CPIs growth 5.4 to 1.

The past two legislative sessions have seen minimal and temporary tax relief efforts. Thesecrumbs thrown to taxpayers have been provided only because the legislature fears the backlashthatthepublicmightinlictifitrealizesthattheexpansionandexcessesofgovernmentandspecialinterests were paid for by our hard-earned tax dollars.

North Dakota has the good fortune of vast reserves of coal, oil, and natural gas. Tapping into them,which our state has just begun to do in earnest, is projected to add billions of dollars in annual rev-enue to the state treasury for many years into the future. In fact, it will generate more than enoughincome to fully and continuously replace property tax proceeds for decades to come.

Unfortunately, North Dakota has been squandering this wealth so far: Instead of using the new rev-enues to reduce taxes, it has been using them to keep taxes high and to grow government. Governmentgrowth, relative to personal income, has exploded.

North Dakotas fossil-fuel riches, and the economy that they stimulate, belong to the citizens ofNorth Dakota, not to the state or the legislature. Our state can and should invest in our people

by reducing our taxes so our standard of living increases. That is a far better proposition than feedingthe new wealth to an ever-expanding governmental bureaucracy and the appetites of special inter-ests.

Tax shifting will occur if our elected state representatives refuse to curb their unprecedented andunjustiiablespending.Butifwe,thepeople,prevailupontheNorthDakotalegislaturetobringitsspending into line with the rise of our personal income or hike in the CPI, we could not only abolishpropertytaxes,butincometaxesaswell.Furthermorewecouldstillbuildasigniicantrainy-dayfund and invest in infrastructure without any tax shift or tax increase.

Real Estate Boom

Housingconstructionandsalesaretheirstindicatorsofastrongorofafailingeconomy.Whenwehear on the evening news that fewer people want to buy homes or that fewer homes are being builtatall,wehearanominousstatementaboutthecommunitysoverallinancialhealthandprosperity.

On the other hand, when the housing market picks up, every corner of the economic landscapefeels the impact. Employment soars, wages for skilled labor rise, sales of durable goods pick up, andstress on public assistance programs diminishes.

Given that the housing markets well-being and the welfare of the entire monetary system are sointimately linked, it is easy to see that removing property taxes would not only boost home sales, but

invigorate the whole economy, as well. Conversely, it is only logical that keeping property taxes in


30/83

place would be an impediment to a healthy real estate market and, by extension, a vibrant community.

Economic studies show that elimination of property taxes attracts industry and investment inplants and equipment. More jobs and higher wages will result.

At the same time, property taxes elimination will also render homes across North Dakota moreaffordable. We can expect to see a statewide real-estate boom accelerations in the construction ofnew houses and the sales of existing homes. Those buying domiciles will be better able to afford the

residences of their choice.Of all tax methods, those on property have the greatest number of negatives. When property taxes

areremoved,everyonebeneitsimmensely.

Economic Boom

Real estate taxes are a major disincentive to capital-intensive businesses investments in plantsand equipment. Consider: Under our current property tax structure, an investment of $500 millionin a manufacturing facility in North Dakota would bring with it a property tax of approximately $7.1million per year. Over a 40-year time span, the business would pay a total of $284 million in real estate

taxes.

It is an undisputable fact that new businesses from throughout the nation and the world wouldtake a serious look at North Dakota if there were no property taxes. With that surge in new companiesrelocating, more jobs and investment would come to the state.

Better still, those businesses that locate here will be in a position to provide better wages. With nopropertytaxestopay,thecostofdoingbusinessherewouldbesigniicantlylower.Thisnotonlycre-atesslewsofnew,better-payingjobs;italsodiversiiesoureconomy.Amorediverseeconomymakesforamorestablecommunity,therebybeneitingeveryone.

Keeping Our Children in North Dakota

Although North Dakota taxpayers invest heavily in K-12 and highereducation,asigniicantnum-ber of our high-school and college graduates leave the state to seek employment opportunities notavailable to them here.

Between 2000 and 2008, more than 12,000 college graduates left North Dakota. The 25-64 agebracket in North Dakota is now the second smallest, as a percent of total population, of that of anystate in the United States.

Extended families are the bedrock of all stable societies and support the long-term growth andstability of a community. But the outward migration means that North Dakotas nuclear families

become fewer and smaller.

This results in a diminishing workforce population to support the states children, elderly, andretired. North Dakotas social and economic programs have fewer productive citizens to keep themsolvent.

In short, this outmigration is a terrible loss to the state socially and economically. But if we want itto abate, we will need new businesses and new industries to relocate within our borders.

Some people blame North Dakotas weather for inducing many of our youth to abandon their homestate. This is simply not credible. Other northern states have winters just as extreme as North Dakotas,yet they are growing. Neither Montana on our west nor Minnesota on our east have young people depart-

ing at the rates that ours are emigrating.


31/83

Anecdotal reports from our 20-somethings tell us that their main reason for their moving out isthelackoffulilling,well-payingjobs.Collegegraduatesnationwideaverage$20,000moreinannu -al earnings than those who only earned high-school degrees. The average North Dakota universitygraduate, meanwhile, earns a modest $10,000 more than someone who only earned a high-schooldiploma. This is hardly a robust return on the time spent and loan debt incurred to obtain a collegedegree. North Dakotas college alumni lag behind in earning capability because North Dakota lacks athriving and diverse economy.

North Dakotas economy is a monoculture, the lions share being based in agriculture, with anemerging oil industry. It needs to develop a more diverse economy. Until it does, the disparity betweenthe salaries that collegians demand and the salaries that they are actually paid will continue to driveyoung career-seekers out of the state.

North Dakota must jumpstart itself. It must attract new industry, and quickly. Abolishing propertytaxes will provide the jolt of energy necessary to attract new businesses and industry and to give thema substantive, long-term, and meaningful reason to come to North Dakota.

Putting an end to property taxes, it so happens, would be just the jumpstart that North Dakotaneeds. It will encourage new businesses to take a long and serious look at North Dakota. Corporationsthat never had thought of North Dakota before will begin to vie with each other to make our statetheir new home. They will be intrigued by our offering what no other state in the nation offers apolitical jurisdiction without a property tax.

More importantly, they will be the kinds of ventures that depend on a skilled and educated laborforce. New industries will emerge within our borders, our states economy will diversify, and ouryouthwillbeabletoindstimulating,well-payingjobshereinNorthDakota.Theyllhaveeveryrea -son they need to stay and raise their families here. Whats more, theyll be able to more easily affordhomes, safe in the knowledge that their homes are theirs and theyll never have to rent them fromtheir government or lose them.

In little time, the private economy that new business and industry stimulate will push spending

upwards, and in so doing will naturally increase sales tax and income tax revenues. The surge in taxrevenues alone will not only more than make up for the loss of property tax revenue, but also boostthe governmental services that a thriving economy needs to support growth. Terminating propertytaxes creates a net plus by every economic measure available.

Making North Dakota an Economic Enterprise Zone

Scrapping property taxes will free up funds that are now spent to impose and collect the tax itself(property taxes are the most expensive of all taxes to impose and collect). Additionally, it will elimi-nate the need to raise revenue by taxing citizens to fund public economic development agencies.

This redirection of how and for what economic development dollars are spent will release tax-payer money that is now being spent on programs. Tax dollars will go toward providing the infra-structure that facilitates private economic development. Businesses will voluntarily come to look atwhat North Dakota has to offer and will no longer only come because they are hunting for taxpayer-funded incentives.

Currently, small-population counties, towns, and cities linger in the shadow of larger counties andcities as, at best, bedroom communities. While the relatively strong Fargo and Grand Forks raise andexpend tax dollars to feed their public economic-development efforts, smaller counties and cities withfewer dollars cannot compete. They struggle to remain viable while confronting a slow and lingeringdeath.

But with property taxes gone, every community in North Dakota will have an equal opportunity to


32/83

thrive. As much as $750 million will be put to work immediately to create brand-new opportunitieswithin the private sector throughout North Dakota, in big cities and rural farmlands alike.

Small towns wont need to struggle to acquire Economic Development dollars, the kind that thebig cities raise through imposing taxes on their citizens and then dole those dollars out to their select-ed winners. Every part of our state will be equally as attractive to business and industry. All will beviable locations for new employers to locate.

North Dakota offers a unique pace and culture that are particularly attractive to families and allwho appreciate a true four-season environment. The type of individuals that North Dakotas cultureattracts is the same as that which business and industry seek. These are stable, responsible, and self-reliant individuals.

Todays property-tax abatements usually expire after 3-5 years. By contrast, Measure 2 will put inplaceaproperty-taxabatementthatispermanent.Withitspassage,NorthDakotawillinallybeinaposition to actively and actually dramatically diversify its economy.

The state will for once have the capacity to compete aggressively with any state in the nation fornew industries and capital-intensive businesses. The hard-working, well-educated, and self-reliantpeople of North Dakota will have employment opportunities that are nowhere in sight today.

Satisfying the Left and the Right

Politically,everyonebeneits.Eradicatingpropertytaxaddressessubstantiveandlegitimatecon-cerns of both conservatives andprogressives. Who wouldnt support a tax system that is more equi-table and compassionate? A system without property taxes would be just that!

Abolishing property taxes is the equitable thing to do. It puts an end to corporate welfare andother special treatments for the privileged and well-connected few. Everyone will be treated the sameeveryonewillbeneitdirectlybyhavingnopropertytax.

Its also the compassionate thing to do. Compassion need not mean spending more and moremoney on a growing welfare state that creates and perpetuates a needy class. Invalidating propertytaxes will allow all people, including thos

Property Tax Revolution

Documents

Transcript of Property Tax Revolution