Five Reasons Why Dalrymple’s Property Tax Plan Is A Bad Idea

Governor Dalrymple’s property plan for property taxes was released yesterday, and as I wrote upon its release, it’s more of the same. After a statewide debate of a ballot initiative would have ended property taxes which made it clear that most North Dakotans view property taxes as a problem, Governor Dalrymple proposed…not really doing anything all that different.

What he’s proposing is more of the same property tax policy we’ve gotten since 2009, and here’s why doing more of the same is a bad idea:

1. It’s not really tax relief, and the media needs to stop calling it that. Dalrymple is proposing an dramatic increase in the state’s obligation for funding local schools (I called that earlier this year). But that’s not tax relief, that’s a tax shift. Moving some of the burden for funding schools from the local level to the state level is like taking money out of my left-hand pocket instead of my right-hand pocket. All property owners pay taxes to the state as well. We’d be better off if we cut the state sales tax, or the state income tax. That would be actual tax relief (though, to be fair, the governor’s plan does include $100 million in income tax reductions).

2. It’s not keeping it local. Backing during the debate over the measure which would have ended property taxes, politicians like Governor Jack Dalrymple and a group of special interests led by the ND Chamber of Commerce based their opposition on the idea that the measure would shift power from the local level to the state level. Now that the measure has disappeared (along with the Keep It Local ND coalition), we have Governor Dalrymple, standing side-by-side with representatives from the ND Chamber of Commerce, calling for a transfer of school funding from the locals to the state. Voters shot down Measure 2 based on the “keep it local” argument, and now we’re not keeping it local?

3. The plan creates a moral hazard in school administration and funding. The state taking on more school funding leaves local officials free to spend money they have no obligation to raise. Education funding is always an emotional issue, and it’s hard for politicians to say no to funding. Local officials are now in a position to demand ever larger budgets for the state, and then blame the state if not every one of their appropriation requests are met. That puts the legislature in a bad position. It’s a recipe for run-away, unaccountable spending.

4. Property taxes will probably keep going up anyway. As I already pointed out, this isn’t the first time the state has implemented a buy-down of local property taxes. We’ve been doing this since 2009, though on a biennium-by-biennium basis. What the governor is now proposing is permanent, but the new permanence isn’t likely to change anything. Despite caps on mill levies, local officials have been putting a lot of upward pressure on property valuations. Meaning, ultimately, that most property tax payers haven’t seen a reduction in their property taxes. And a lot of property owners (myself included) have seen significant increases.

5. What happens if state tax revenues falter? It may be hard to imagine right now, but there was a time when North Dakota’s statewide tax revenues weren’t spiking. What Governor Dalrymple is proposing is a permanent state obligation for local school funding. That’s an easy appropriation to make right now because the state has more tax revenues than they know what to do with. But eventually those revenues may plateau, or even decrease, and this obligation to local school funding would put upward pressure on tax rates. We’d almost certainly have to raise statewide taxes to keep it working.

Here’s the governor’s white paper on his tax proposal as released by his campaign: