There has been a lot of publicity about Measure 2 in anticipation of North Dakota’s upcoming June election. Both sides are very passionate about the issue, and it is important to have a good understanding of the Measure and its potential long-term impacts. Measure 2 is a proposed amendment to the state constitution that would prohibit political subdivisions from levying property taxes.
On the highest level, the opportunity to eliminate property taxes sounds very inviting to constituents. After all, who wouldn’t want to pay less in property taxes? Shifting the burden of paying for local municipal services to the state level also sounds reasonable, until you stop to consider that local policy makers will have little input in the decision making process as to how the funds are allocated. Everything that is currently paid for with property tax revenue would be at the mercy of a funding formula that would be developed by the state’s legislative assembly. Once the additional revenue is raised, the state would determine how funds would be allocated to each entity.
Measure 2 will not necessarily reduce the total taxes constituents will pay. It is anticipated that the state will need to generate more revenue to cover the additional distribution to local communities to pay for their schools, parks, streets, and public safety. Lawmakers would likely be forced to raise sales taxes, personal income taxes, and corporate income taxes to make up an estimated $800 million annual loss of property tax revenue.
If passed, Measure 2 would require counties, cities, school districts, townships, park districts, and water districts, among other entities, to rely on state resources for funding. Under the current property tax structure, the decision to raise taxes and pay for projects and services is determined at the local level. Currently, there is local accountability, which provides a healthy balance between generating funds and maintaining reasonable tax rates. This local control and accountability will be lost under the proposed structure.
Measure 2 would also impact the debt capacity of municipalities in the state. Currently, municipalities borrow money against projected property tax receipts. This is common practice, and it allows cities to use the property tax revenue stream to leverage funding needed for capital improvements. Taking away the property tax revenue stream will leave them in debt, without a clear way of paying back loans or funding critical projects, and would limit their ability to bond for future projects.
Keeping local control of property tax revenue makes good fiscal sense for communities. It allows local decision makers to decide when taxes need to be increased to benefit local projects and improve services, and provides for leveraging of funding for capital improvements.
It’s important that leaders understand the potential ramifications of Measure 2 so they can pass the information on to voters, before they head to the polls on June 12.