to be secure in their persons, houses, papers, and effects from the Bill of Rights

Abolishing Property Taxes in North Dakota

Its our home, not theirs!

Robert Hale Brett Narloch and Charlene Nelson

Property Tax Revolution

Foreword by Congressman Ron Paul (R-Texas)

Empower the Taxpayer

Minot, North Dakota

Cover art by Adam Dyess of First Cable Advertising ISBN: 978-0-615-56966-6 Library of Congress Control Number: 2011944946 Designed by the St. Martin de Porres Print Shop Ebook conversion by Steven Douglas Lawrence 1919 2nd St SE Minot, ND 58701 701-721-9782 empowerthetaxpayer.com Empower The Taxpayer First Edition

Copyright 2012 by Empower the Taxpayer. All rights reserved.

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 Benefits from Abolition of Property Taxes Take Government Out of Picking Winners and Losers (because they only pick losers and make losers out of 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 Intangible Benefits Budgeting Government Conclusion

Chapter 3 How North Dakota Will Become a Property 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 Measure 2 is the first step to empowering School Boards For all other political subdivisions all strings are cut Funding K-12 & Political Subdivisions come first, before authorizing spending for things not constitutionally 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 a necessary reordering of the understanding of the relationship between the State and its political subdivisions Illustrating one of the fundamental mis-directions of central governmental institutions: What is the proper role of the state? Measure 2 is a mechanism to allow all ND residents to finally have security in their homes, and to help better order the relationship between the state and its political subdivisions Notes Chapter 1 Endnotes Chapter 3 Endnotes About the Authors About the Publisher

On June 12, 2012, the citizens of North Dakota will have an unprecedented opportunity. Thats the date of the primary, but our interest and intense focus right now is on a very special referendum also on the ballot. Its called Constitutional Measure Number 2. The exact wording is in Chapter Three of this 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.

Introduction

There are many reasons to do so. In Chapter One, Brett Narloch starts with the American Revolution against 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 state and local governments are more concerned with their own budgets than with fiscally stable families.

In Chapter Two, Charlene Nelson discusses the benefits to abolition of property taxes, including the fact that it would allow the elderly to stay in their homes and not risk confiscation for the inability to pay. If real estate taxes are done away with, there will be economic growth in North Dakota, more young 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 move their 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 the Taxpayer, we asked that same thing and found that all current projects and programs that receive funding from property taxes could be financed by other existing revenues. These alternative money streams are discussed in great detail by Robert Hale in Chapter Three. North Dakota is blessed with an abundance of oil, gas, and natural resources that generate a tremendous amount of income for the state. If such monies are properly used, North Dakota will experience an economic boom when this Measure is enacted. In fact, a Beacon Hill Institutes study, cited several times in this book, concludes that the economic impact of passing Measure 2 would be tremendously beneficial to the point that it would pay for itself. But Measure 2 goes beyond just doing away with real estate taxes. It directs the legislature to come up with a formula to fully and properly fund all legally-imposed obligations, which includes state government services bankrolled by these taxes. If there is enough money left over, the legislators can then discuss discretionary spending and pet projects. Measure 2 requires the state to be fiscallyresponsible. 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 trustworthy stewards of taxpayer dollars. Details on this aspect, and the actual wording of the changes to the North 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 Measure 2 on June 12, 2012, it will send shock waves not only through our state but throughout the nation. Robert Hale, Brett Narloch and Charlene Nelson January 1, 2012 We hope you will get involved to actively campaign for the passage of this vitally important Measure. Please get in touch with us to learn what you can do to help. In the meantime, this book should serve as a reference guide for everything you need to know about property taxes, and why citizens and state will be better off without them.

Many people have been involved in putting together this comprehensive guide to Measure 2 and property taxes. We wish to thank Adam Dyees for the striking art on the cover, and Brent Bartsch for his assistance in gathering facts and figures that we needed. We are grateful to Norman Singleton, a true American patriot, for asking his boss, Congressman Ron Paul, to write the Foreword to the book. Rick Docksai, a Washington, D.C.-based editor and writer, created the index, checked facts and figures, copy-edited the entire book, and made invaluable contributions to the text. And Fran Griffin of Griffin Communications oversaw the project from beginning to end, helping us to structure the book, streamline the text, and provided invaluable advice. We very much appreciate her professional assistance.

Acknowledgements

Foreword
Individual liberty, limited government, and private property these are the values that built America into the greatest country the world has ever known. Yet alarmingly in the U.S. of the 21st century, they are on the verge of extinction.

Over the past 70 years, our nation has been afflicted by an endless and ever-increasing assault from within. The perpetrator is not a terrorist network, or a crime ring. It is our own government. Through stifling tax hikes, regulatory schemes, and wasteful public spending binges, our government has been gradually extinguishing those traits that made America the land of the free and the home of the brave for independentminded and innovative citizens the world over. The property tax is the most complex, burdensome, costly, and unfair tax imposed by state and local government. There cannot be true liberty when citizens are not secure in their own homes. As long as the government can impose taxes on ones property and enforce that exaction by confiscation of 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 a larger tax to pay. This is far different from other taxes, which are based on income level or voluntary consumption of products.

I think that the organizers of the movement to abolish this tax are doing something quite revolutionary in true keeping with what our forebearers did. As Brett Narloch points out in Chapter One of this book, our ancestors rebelled against taxation from the British and fought a war over it. Americas citizens must take it upon ourselves to reclaim that spirit of freedom that made our country great and allowed us to prosper and thrive. The passage of Measure 2, the North Dakota referendum to abolish property taxes, would do just that. One feature I particularly like about Measure 2 is that it makes it mandatory for the state of North Dakota to fully and properly fund all its legally-imposed obligations, and forbids additional spending unless revenues are available. I hope this concept is adopted by other states and the U.S. Congress!

The arguments presented in this book are compelling. Of particular interest to me is the documentation demonstrating that the state does not need property tax revenue to function. In other words, there is no reason to hold on to the unstable and confiscatory real estate tax. This is a very important moment, not only in North Dakota history, but in the future of the United States. If passed, Measure 2 will set an example of how citizens nationwide can retake control of their government.

Passage will show all citizens that they can have genuine security and sanctuary in their own homes. If the voters of North Dakota embrace Measure 2, it will ignite an already vital North Dakota economy, 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 Dakota from having to forever rent their home from the government by voting for passage of Measure 2. Such a revolutionary act to free citizens from this onerous and unnecessary tax will have ramifications for property owners nationwide. I applaud Empower the Taxpayer and all who are working to make this a reality. It is truly a vision to reclaim America. Congressman Ron Paul

This book is dedicated to homeowners in North Dakota and throughout the U.S. and to Ron Almquist, who was one of the 25 sponsors who came forth to get Measure 2 on the North Dakota ballot. Ron was a tireless advocate for tax reform and small levelheaded government. At the time of his 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 to amend North Dakotas Constitution by abolishing property taxes.

Dedication

The citizens of our state have lost a great man dedicated to unselfishly giving his time to show how efficiently and effectively self-government can work. His accomplishments in the area of tax reform, exercising common sense, and working to promote better government will bear fruit for decades to come.

Ron Almquist

Chapter 1

Property Taxes Violate the Very Nature of a Free and Stable Society
In the 1760s, when America was composed of thirteen colonies, the British Parliament thought it could raise money by imposing a series of taxes. Starting with the Sugar Act and continuing with the Currency 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 government taxes and regulations. The result was the American Revolution, which liberated us from the whims of King George III and the British Parliament and led to the formation of the greatest nation in the world. The governing documents for our country have guided us since that time. They are two of the best-written documents to have ever been crafted: the Declaration of Independence and the U.S. Constitution. Over the years, the states and the federal government have taken the lead of George III and the British Parliament and imposed many taxes on citizens of the United States. This book deals with one of those taxes, one that the authors and many leaders nationwide have come to believe is not in keeping with the fundamental purpose of government in a free society: taxes on property.

by Brett Narloch

But what has happened in the past 236 years since the signing of the Declaration of Independence in 1776? Do we have more freedom now than we did then? Just as our forefathers rebelled and eventually went to war to free themselves from the onerous burdens placed on them by England, the citizens of North Dakota are leading the way in a second American Revolution to reassert their right of property ownership. In a free society, a familys home is a place of refuge, a sanctuary free from trespass, assault and taxes. The fundamental purpose of government is to protect these freedoms. A home is a persons castle, and home ownership should mean that, once the domain is bought and paid for, that no one can take it away. Property taxes violate this sacred and primary end of government. As long as we are not secure in our homes, we are not truly free. Almost every other tax can be controlled by the payer. For example, when an individuals income is reduced through loss of employment or retirement, his income tax goes down. Likewise, when a person purchases less, he or she pays fewer sales taxes.

The cornerstone of a free country is the ability of citizens to own property. When a pre-condition to possession of real estate is the payment of a tax, based solely on ones ownership, and when failure to pay the tax results in confiscation and sale, no homeowner has security in his or her own house. Such a tax means that not only are we less free, but we are not secure or safe, not even in houses that we have lived in and owned for many years. On the other hand, a property owners economic circumstances play absolutely no role in his real estate tax bill. No matter if a homeowner is rich or poor, is able to pay or not able to pay, the property tax is based on what the local jurisdiction decides the property is worth, which is known as an assessment. Failure to meet the tax that is assessed will result in the confiscation of the property by the government. Those defending the governments right to do this argue that the property owner always has the option 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

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 property 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 Governor Lloyd Omdahl, It is a stable form of revenue that protects schools, townships, counties and cities from the vagaries of the economy.1 Omdahl also asserted that property taxes are good for government 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 the vagaries of the economy. There is no tax that does. The recent housing collapse put governing bodies across the country into economic collapse as the values of property tanked. The only way political jurisdictions 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 and Northeast that rely on manufacturing. Rather than being a stable source of income, taxation of property has brought about scores of ghettos and abandoned houses. As property taxes went up, people had less money to maintain their properties. More and more homeowners let their properties fall into disrepair. Many homeowners simply moved. So much for the make-believe world of government finance.

Mr. Omdahl is correct that real estate taxes capture more revenue by taxing the appreciation in the value of property. However there is a major problem with this equation. The so-called increase in the value of the property is theoretical. The homeowner has no way of capitalizing on what the state says is a more valuable piece of land unless he or she attempts to sell the property. Thus assessing taxes on the basis of an artificial valuation rather than earned income is essentially counting nonexistent 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 the tax. This is precisely why property taxes actually have the ability to tax people out of their homes. Even though the government may determine that the value has gone up, the homeowner himself often has not had a corresponding increase in his or her personal assets. This often results in a very disturbing scenario: 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 wonderful things. However, when it breaks loose and runs uncontrolled, it becomes a nightmare that destroys everything in its path. Do you think that government always has the health and well being of its citizens as its top priority? You might be surprised to learn that this is not always the case. The preeminent 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 government is one less dollar for keeping families financially solvent.

Whats more Important in a Free Society A Fiscally Stable Government or Fiscally 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-

being of the government. The very thought that a community needs to subordinate its interests to the state conflicts with the very nature of a democratic government. Unfortunately, over the last 50 years, the essential purpose of government in the United States has been distorted. A case in point is that 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 something 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. The impact 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 worked out, the mortgage holders remedy is to foreclose on the property.

However, consider the scenario where a senior citizen on fixed-income cannot pay his property tax bill. A husband and a wife spent 30 years paying their mortgage. They rejoice when the final mortgage payment is finally made. Naturally, they believe that they now own their home, and can live out their senior years without the worry of a monthly house payment. They have maintained the property and need to worry only about utility bills and standard repairs. This would be a correct assumption except for one major factor: real estate taxes. If they live in an area where home values are not declining, they will be in for a big surprise as they continue to see the assessment on their home go up every year. While they could see the market price of their home increase five-fold, seven-fold, or even more, the value of their home to them has not increased. It provides the same financial worth and usability it did on the day they purchased it. Yet, now their property tax bill is higher than their mortgage payment was. While their home may have appreciated in value, they have not gained any profit from it. Their income as retirees to pay on this unrealized value increase isnt there. They can no longer sustain their standard of living and make their property tax payments. They are forced to either sell their property or have it taken from them by force. This example illustrates the unfairness of property taxes. It is blatantly wrong that such a couple could no longer afford to live in the neighborhood they helped build. No one should be faced with such a grievous dilemma, least of all one created by nothing other than a complex, unfair, and dysfunctional tax. Every year, people who are on fixed incomes face significant increases in their property tax assessments even though their incomes have not changed and their properties have not changed. The government, 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 situation occurs in the first place. The exceptions require that the property owner petition the government in 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 will accumulate against the property, and that when the property is sold, the government will then be first in line to receive the proceeds of the sale to cover the forgiven tax together with interest. This situation is humiliating and absurd. Its time this nonsense ends.

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 business owners have no control over the amount of property tax that they will be assessed and required to pay. The very nature of property taxes forces a property owner to open his or her property to invasion by 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 government bureaucrat. The assessor will forego the search if the property owner insists. However, the same assessor will warn the property owner that absent a search, the assessor has no alternative but to assess the highest possible value on the property a de facto government blackmail. When a property owner challenges the assessors valuation he/she must allow the assessor or his designee to enter the property to inspect. A perfect stranger must be permitted to go through every room, 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 permit a search of his home.

Property Taxes are Good for Government

The concept that property taxes are a good system of raising funds to support government is true. Those who depend on government revenues for their income are, of course, highly favorable to the 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, and improve their property. These taxpayers are the bedrock of society and the most stable element in their communities. Its argued that property taxes are locally imposed and controlled, thus, we should cherish them because they are so close to home. The facts tell otherwise: Property taxes are neither locally controlled nor close to home. Property taxes in North Dakota are controlled in virtually all respects by the state legislature. The only local thing about property taxes is the location of the property being taxed. In fact, it is the most subjective of all tax methods. This is one of the reasons governmental bodies and the professional politicians are so attached to it. Its complexity makes it easy for its supporters to deflect criticism, talk around its problems, and excuse its obvious inequities. Those favoring property taxes argue they are good because they are locally imposed. They suggest this tax is somehow more democratic and controllable than other tax methods. Ask yourself whether or not you actually have any control. Ask yourself whether you or your neighbor knew that property tax 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. No matter how the balloon gets squeezed, government always gets 100% of what it wants. When one property owner obtains relief, everyone else pays more.

Because of property taxes complexity, a government is able to provide tax relief to some while imposing 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 ever understanding what has happened or realizing why their property tax liability has gone up. In short, property taxes benefit politicians that seek to increase revenues through stealth.

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 system is that so few of them truly understand the system or how backwards it really is. How these (considerable) revenues are raised is complex, but the basic process is as follows. First, the [local] governing body sets its budget. Then it calculates how many mills it will need to assess to each property to generate revenue to meet the budget.2

Local mill rates the amount of property tax owed per thousand units of property value are equal to the revenue the political district needs, divided by the total taxable value of all property within 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 the propertys taxable value (as determined by the local government) by the local mill rate. Each taxing district prepares a proposed budget to determine the money needed to provide services.4 After public hearings, the elected governing bodies adopt final budgets and certify tax levies (total property taxes) to the county auditor. The government does act within some constraints: The tax levy may not exceed the legal maximum, and the only increases allowed without voter or legislative approval are for property added to the tax rolls.

Nevertheless, the entire process is driven by how much money each local government wants to spend, rather than by any set tax rate. Property taxes are directly related to how much each local government spends. This is an amazing fact. Unlike the taxpaying families, who see how much money they have coming in and then decide how much to spend, the local government decides how much it 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 matter what a politician tells you because if the value of your property increases, your taxes will, too. This creates a rather good excuse for local officials. They can bring in more revenue while leaving the mills at 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 rates largely the same and rely instead on rising property values whenever possible. The question of whether 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 generalfund contributions to K-12 education.8 The state now funds approximately 70% of the total cost of K-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 revenue from oil and gas tax and royalty payments. 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-

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 state spending while their taxes continued to go up and up. Legislators realized that the status quo might spark a citizens tax revolt.

ment of higher and higher property values.9 Indeed, before the latest legislative reform took effect beginning in 2009, property tax revenues had enlarged by over 52% in the years between 2000 and 2008, while the average mill rate in the state had actually fallen by almost 0.5% during that same time period.

Further complicating the property tax system are the numerous exemptions from the tax, provided by both the state and virtually all city and county governments. Although many require city or county 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 many other exemptions are more specific in their criteria and allow for more leeway on the part of city and county governments as to whether a particular property qualifies. For residential property, exemptions include partial or complete property tax relief for the blind or disabled, elderly, persons living below certain income thresholds, and disabled veterans.11 There are also exemptions for new houses and for old homes in Renaissance Zones. For commercial property, exceptions can include new or expanding businesses, as well as those which remodel or rehabilitate their properties, build public parking structures, provide day care or adult care services, install geothermal, solar, or wind energy systems, make pollution control improvements, or are located (or choose 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 holdings such as wetlands.12

Many of these exemptions, particularly the ones for commercial property, are overtly advertised as economic development tools by the state and the local governments.13 There are also special programs, such as Tax Increment Financing (TIF) districts, which allow city governments to capture portions of the property tax owed by particular businesses and divert the funds into redevelopment projects that benefit those businesses.14 It is obvious that programs such as these lead to an uneven, and sometimes unbalanced, application of the property tax. Owners of different classifications of real estate, and sometimes even holders of similar properties of the same classification, are hit with disparate rates. These taxes are flat-out unequal and unfair. When local government grants a $50,000 property-tax exemption to a favored property, does it reduce its budget by $50,000? No, it doesnt. It forces the rest of property taxpayers to pick up the tab by increasing their tax burden.

Taxing different properties at different rates is not only unjust. It is also impractical in that it retards economic growth and development. Moreover, it lends itself to all sorts of abuses of public trust. Favoritism and, more often than not, outright corruption inevitably result from such authority being placed in the hands of city and county officials. These are some of the ways that property-tax regimens harm everyone in the community. The state and local governments know full well that property taxes impede family stability and economic growth. We can verify this by the exemptions and abatements that officials allow to favored categories of homeowners, as well as the economic development programs that grant property-tax relief to chosen winners and deny them to everyone else. The system itself is very complicated and intentionally so. The obtuseness facilitates favoritism and corruption and discourages public inquiry into the mess. And even when citizens understand how the system works, unless they can lobby themselves into a favored classification, they have no control over the outcome of the tax burden they are required to carry. Few working people have time to 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 citys board of equalization meets on the second Tuesday of each April. These local boards certify their respective communities assessments and then pass them to the county board of equalization, which

meets in early June of each year. Finally, the state board of equalization meets in August of each year to certify the certifications of the counties, cities, and townships. Property owners disputing their assessments have the opportunity to appear before the local boards to protest. Even a minimal understanding of this system makes it clear, however, that the ultimate decision over any property tax determination falls ultimately in the hands of the state.

Each fall, local governing bodies (cities, towns, townships, school districts, etc.) create preliminary budgets 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 governing board, the final budgets are approved. Once this has been done the governing bodies determine how many mills must be charged against the assessed property valuations in order to raise the amount of money theyve budgeted to spend during their next fiscal year. This is a constant, year-round process. To fight the ever-increasing size of local budgets, (and therefore, the property tax bill) a citizen must battle effectively on a full-time basis. Unfortunately, few of 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 tax being so draconian. Even the people who truly understand the system have little motivation to participate.

Attempted Reforms Consistently Fail

Over past 12 years, North Dakotas booming economy has dramatically increased the revenues flowing annually into the state treasury.15 Tax and royalty profits from oil and natural-gas sales soared automatically due to increased drilling and tapping. With the consequent job creation and economic growth, income from sales taxes and income taxes grew as well. This windfall took place without any increases in the tax rates. The state legislature was therefore able to dramatically increase state spending squarely on the back of private-sector economic growth.16 The same has not held true for local governments, however, which consistently have had fewer revenue sources. The state legislature did not share its windfall with them. Instead, it spent the new wealth 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. without an increase in the tax rate (mill levy); without any change in the taxpayers property; and without any increase in the taxpayers ability to pay. The property tax is unique among the many forms of taxation. It allows taxing officials to increase an individuals or businesss tax bill: Thus property tax revenue is expanded simply by assessing property at a higher value. In effect, real estate price inflation results in higher property tax bills for everyone except for the selected few, discussed above.17 When property values go up due to inflation and unrealized appreciation, the property owner is squeezed. He or she is required to pay a tax based on the assumption the property owner actually has more money to pay the bill. Of course, this isnt true. While the home or business is not providing the owner any additional benefit, he or she is being taxed as if it is. This is one more reason property taxes are so abusive.

Almost everyone agrees that property taxes are a serious problem and out of control. Weve seen over 130 attempts to fix the problem. None have worked. Today, the property-tax burden has risen to

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

In response to escalating property taxes and the unrest among property owners, the state legislature has become involved. However, this involvement has not come about because of concern about the tax burden on property owners. Instead, it has resulted because lawmakers fear that property owners are beginning to notice governments escalating growth at their 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 school districts.19 Property tax increases have become a statewide political issue in large part due to increases in local spending on public education. Legislators took action in an attempt to defuse anger over rapidly escalating property taxes by allocating more state funds to local school districts.20 The surge in monies available has made it possible for the North Dakota legislature to spend recklessly, and it has. It has spent at more than twice the rate of taxpayers increase in income. 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 legislature has chosen to significantly increase spending by enlarging the government and lavishing hundreds of millions on special interests. Taxpayers are punished with a higher and higher overall tax burden. By 2009, taxpayer unrest and embarrassment over revenue and spending by the legislature finally 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 an agreement to fund 70% of the K-12 budget. Hitherto, most K-12 funding had come from the local governments that is to say, from property taxes. The state legislature had hoped that if it committed to a 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. The funds 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 foreseeable future. We see dramatic increases in sales and income tax revenue, owing in large part to the surge in economic activity in the western portion of the state. These, together with oil and gas tax revenue and royalty payments to the state, have added billions to our state treasury.21 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 only miniscule portions of the budget to address the problem and never get to the source of the frustration: a tax method and system that is broken and unfixable.

This has enabled the state government to provide steep increases in state funding to K-12 public education in an effort to mitigate the escalation of property tax increases. In addition to a revenue transfer program aimed at direct property tax relief, the state has also increased other financing for public schools through grants. In other words, local school boards can now spend money and send the bills to the state. North Dakota will not have a healthy, functional tax system as long as it has a government that ignores taxpayers, has explosive and unchecked growth, and creates special interests with insatiable appetites for other peoples money. North Dakotas state treasury is growing by billions. But instead of dispensing that wealth to its rightful owners the peopleby reducing the tax burdens, streamlining government, and cutting off special-interest spending, the state legislature and local governmental bodies are using the cash inflow to steadily expand government bureaucracy at every level.

The Only Way to Fix Property Taxes is to Eliminate Them

At least 130 attempts have been tried to legislatively fix property taxes over the last 30 years. None have come close to working. The time has come to do the only thing that will work: We must abolish property taxes. During the 2009 legislative session, the idea of expunging property taxes and creating a new funding mechanism 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 might work. Since then, political leaders have continued to write the idea off as foolish, ill conceived, unrealistic, and simply unworkable. The opposite is true. Numerous studies have analyzed the impact of elimination of property taxes, and all have arrived at the same conclusion: Abolishing property taxes would lead to significant economic growth, increased job creation, and more revenue by way of increased economic activity. All studies conclude that in the final sum, the government that abolishes property taxes gains 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 to easily confiscate revenue from taxpayers. Following years of working to involve politicians in eliminating property taxes, Empower the Taxpayer gathered almost 29,000 signatures to put the question on the ballot so the people could decide.22 Constitutional Measure No. 2 (hereafter, referred to as just Measure 2),23 if adopted, will make a clean break from the status quo in public finance by making North Dakota the first state in the nation to completely eliminate the property tax.24 In 2007, the legislature provided an income-tax credit for a portion of property tax levied. This tax credit reimbursed each owner of residential or agricultural property for 10% of his or her property-tax bill, with a limit of up to $500 for an individual and $1,000 for anyone married and filing jointly. Similarly sized reimbursements applied to holders of commercial property.26 The legislature budgeted an estimated $115 million in state income tax credits for 2007 and 2008. Generous as it sounds, however, this tax credit only applied to those two years. Moreover, like all government programs, the tax credit was so complex that it frustrated property owners 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 because of the elaborate process required to obtain it.

According to the Office of State Tax Commissioner, there were more than 130 significant changes in the property-tax laws between 1981 and 2009.25 Prior to the 2007 legislative session, there was a particularly 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-plus attempts by the legislature to fix property taxes came to nothing.

As they expected, the 2007 tax-credit plan caused much confusion. For instance, if taxpayers income tax credit exceeded their state income tax liability, they would be issued a certificate from the Office of State Tax Commissioner, which they then had to bring to their county treasurers office for redemption in 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 to get a tax credit from the indirect property taxes they pay through their rent. This criticism was somewhat unfair since all apartment building owners, as recipients of the tax credit, would theoretically have derived a cost savings and, in order to be competitive with other landlords, would have lowered rents to

their tenants. Nonetheless, the argument still resonated with renters, because they were not seeing any tax relief while their landlords were. In the end, what happened was that the tax-credit plan gave local governing bodies a little extra room to raise property taxes; and they did. In short, no one received real tax relief, and almost everyone saw 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 failure and unwilling to consider actually fixing the problem, the politicians began looking for a new propertytax-relief plan. It is ironic that many of the same politicians who were involved in the 2007 debacle have criticized 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 abolish property taxes than state legislators have invested in any attempt to reduce North Dakota citizens tax burden. The reality is that these legislators who oppose abolishing property taxes simply have no interest in changing anything that generates tax revenue. As the debate raged, the legislature decided to essentially double the states contribution to K-12 funding. The state would now fund 70% of the cost of our primary and secondary education budget.

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 political game of shifting the blame away from themselves to local governmental bodies that they said had failed to reduce the amount of the levies they assessed against property.28 The 2009 property tax relief plan passed by the legislature was even more complex than the 2007 plan. 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 biennium to 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 districts could generate, by mandating that most school districts could not increase their total mill rate above 110 mills.30 In addition, $100 million was allocated to school districts above and beyond the $295 million, increasing the total state aid to school districts to approximately $895 million for the 20092011 biennium. Like the 2007 plan, the 2009 one was enacted but, perhaps because of its authors failure to study or even consider whether this would actually result in lowering property taxes, it failed to reduce property taxes. It foundered for the same reason that its 2007 predecessor had. Other local governmental bodies refused 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 revenues are now so high, and are projected to remain so for decades, North Dakota can totally abolish property taxes and replace them with revenue already coming into the state treasury without increasing any tax rates or instituting any new tax. It must do so, or otherwise that revenue will be squandered on more government boondoggles and thereby fueling further increases in our tax burden down the road. Like the failed 2007 plan, local governmental bodies have found this 2009 plan even more to their

This plans mandate that the state directly provide 70% of K-12 funding was universally praised by the K-12 establishment. Ironically, this same group officially opposes Measure 2 on the grounds that it will eliminate local control of K-12 schools. Their opposition to Measure 2 is fueled by fear the state treasury may not have future funding for K-12 education. Yet they support the 2009 plan, which is scheduled to expire at the end of 2013.

liking than the old income tax credit plan. While local school districts would indeed have to reduce their mill rates and theoretically the property tax burden, there is no prohibition on local governmental bodies increasing property mill levies for other purposes. This is exactly what has happened. While property taxes that had gone to support K-12 education have been replaced with revenue from the state general fund, the property tax burden has not gone down it has gone up. For instance, historically, K-12 funding accounted for an average of approximately 55.5% of the property tax burden. Under the 2009 plan, the school districts portion of the property tax levy should have been reduced by 27.8%. It was expected that the overall property tax burden should have declined by approximately 15.3%. However, the first year the program took effect, the total property tax burden declined 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 abolishing them, perhaps stated it accurately when he described the 2011 legislative session as outstanding. He conceded, property taxes will increase over time. It should be evident by now that constant maneuvering 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 property taxes are abolished, well see the next legislature implementing the 131st fix of property taxes. It should be clear to any rational person property taxes cannot be fixed. Its time to put these taxes where they belong on the ash heap of history. North Dakota voters will have the opportunity to make this happen by supporting Measure 2.

Chapter 2

Elimination of Property Taxes: Everything You Want in Tax Reform and More
Measure 2 addresses virtually every concern that a freedom-seeking American might have about abolishing the archaic and oppressive property tax. It ensures that in the taxs absence, all essential government services will continue to be fully and properly funded, and that their funding will occur before any special interests or pet causes get funded.

by Charlene Nelson

The Government Will No Longer be Your Landlord

Not a single person in the United States has experienced life without property taxes. We have largely come to accept them as a simple fact of life. We shouldnt. Property taxes deny every person of the security of real homeownership: Either you pay the tax, or the government takes your property and 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 to get rid of this all-powerful landlord is to simply abolish this method of taxation. Its high time that we demand freedom from government control of our homes and businesses. Its long overdue that government ceases to be our landlord. Citizens are ready for a future in which we are no longer required to pay the government as a condition of remaining in our own homes. Its time for all Americans to be secure 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 governments tax.

The Myth of Local Control Exposed

Those promoting and attempting to justify property taxes argue property taxes provide local control. The question is: local control of what? Property taxes do not provide local control of anything. In North Dakota: The state legislature mandates how many mills local political subdivisions can assess, and their use. The State Board of Equalization controls how properties are assessed. The state mandates how money is spent on items such as roads and schools. Cities and counties that balk at the state mandates may find other funding options cut off. The equalization board routinely orders cities and counties to increase valuations even when their budgets do not call for additional revenues.

We will enjoy many benefits if we abolish property taxes. For one thing, we will rid ourselves of a number of property-tax-based government entitlements, such as:

Benefits from Abolition of Property Taxes

 Tax Increment Financing (TIF). Everyone will have the benefits now given only to a special few. Property Tax Abatements. Every home owner will have the ultimate property tax abatement: no property taxes at all, ever. Renaissance Zones. Every property owner will benefit, resulting in an explosion of private property improvement. Unfortunately, only a special few have either the clout or the connections to receive these special treatments. And usually, they are the only ones who benefit. All other taxpayers are hit with propertytax hikes in order to replace the lost revenue. Those lucky few who receive the governments special treatments get to keep their money while everyone else is hit with a hidden tax increase.

Under the guise of taxpayer-funded economic development, local and state governments across the country institute tax-increment financing, property-tax abatement, and establishment of Renaissance or economic enterprise zones. The recipients of these special treatments get to pay lower property taxes than anyone else, or possibly no property tax at all. For them, it is a win: They get to keep their own money to invest in their properties. But ask yourself: If eliminating the property tax on a lucky fewi.e., designating their properties economic 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 of North Dakota an economic enterprise zone.

Every economist and economic development director understands that property taxes impede commerce and prosperity. They know that repealing these taxes (even if temporarily) stimulates economic growth and job creation, and thus increases everyones standard of living. Indeed, it is difficult to overstate how much abolishing property taxes will stimulate economic growth and across-the-board prosperity. The Beacon Hill Institute (BHI), a Boston-based research firm that the North Dakota State Commerce Department often consults when developing economic policy, released a recent study on the impacts that abolition of property taxes would have in North Dakota. The study concludes that in just the first year following elimination, more than 11,000 new jobs will be created, and disposable income will increase 3.24 %, or nearly $900 per capita. An income rise of $900 per capitathats an additional $4,000-$5,000 for a family of five. More importantly, think of what it would mean to add 11,000 new jobs in the private economy. And mind you, these are not government jobs, so they will not require taxes to support them. The study also predicts a huge surge in business investments. In the first year, commercial investments 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 in new private-sector businesses, new jobs, and better wages. With the redoubling of business activity and economic productivity, we can also expect a significant ripple effect on sales tax collection. Revenue from sales taxes will swell markedly, along with a rise in revenue resulting from accelerated economic activity. This will more than offset what state coffers had lost in abolishing property taxes, according to BHI. In short, abolishing property taxes in North Dakota will: Everyone benefits the business community, government, wage earners, and families. directly create of thousands of private sector jobs; increase tax revenues. boost disposable income for everyone in the state; and

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

North Dakotas governmentally directed economic-development programs operate on the assumption that business wont locate in our state unless we bribe them. Established businesses and all wage earners already here are taxed to fund the bribes in other words, the state government taxes us and our states businesses so that it can bring new business competitors in at our expense. What is governments job regarding private sector business? Is it to manage the economy? Ensure that one business thrives, even if it is at the expense of another? Decide what are the right businesses to have in the state? Attempt to pick who wins and loses in the private sector?

Ideally, a government will work to create a level playing field for all economic players. Not North Dakotas 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 subsidizing them. Government-provided economic-development dollars are taken from other businesses and North Dakota taxpayers and given away to those businesses with the political clout to dip into the public treasury. Our states government seems to operate on the belief that government should try to decide which businesses receive tax dollars. Unfortunately, the majority of the recipients of taxpayer-funded economic development dollars go out of business. The reason is simple. The money at risk isnt theirs its yours. Businesses that receive public economic-development dollars whether they get them in the form of property-tax abatements given or in the form of cash allotments are nothing more than welfare recipients. It is simply 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 doesnt work to improve peoples lives.

This government-orchestrated use of taxpayer money to fund or support private business has no place in a free country, let alone a healthy economy. As noted above, economic development directors understand that property taxes are an impediment to business. Thus, providing property-tax abatement is often the first thing that government uses to attempt to attract new business or to encourage established businesses to expand. These government economic-development programs are themselves one of the factors that businesses look at when deciding where to locate. Competitive, self-sufficient businesses avoid those states that have many of these programs. They know that if they are successful, they will be taxed to subsidize those that arent. Meanwhile, businesses that play the governments subsidy game flock to these programs and profit at the expense of taxpayers. Often, once the subsidies or incentives end, these businesses will just move to the next political subdivision that offers them taxpayer-provided subsidies and incentives.

The first economic development fund in the state of North Dakota started in Minot. It appropriately called itself Minots Magic Fund. In its more than 20 years of existence, it has doled out tens of millions of dollars to one failed company after another. The net result has been no measurable benefits to anyone except those receiving the benefits. The majority of those receiving taxpayer money have flopped. Like most government programs, Minots Magic Fund had no guidelines that were followed, did not hold the recipients of taxpayer money accountable, and apparently did not care whether taxpayers received any benefits or not.

While this section is titled picking winners and losers, the truth is the majority of those picked to receive funds turn out to be losers. But all of we taxpayers are losers, too: The money that those companies lost was ours, not theirs, to begin with. We are forced into a lower standard of living so that government economic-development entities can tax us and give our money away to ventures that flop. How can this be? In essence, our government is insisting that it gamble our money on companies that any bank or other traditional investor would reject as too unstable or risky to be given a loan. Indeed, according to 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.

The North Dakota Department of Commerce, according to its Web site, distributes economic development 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 viable borrowers, or because the companies products are not ones in which private-equity investors are willing to invest. With this track record, if the government were a bank or equity investment company, it would be out of business in short order. Instead, the government gets a free pass to continue to gamble with taxpayers hard-earned money, funding the most risky investments one after another, all under the faade of growing business with these giveaway programs.

Businesses not receiving property tax abatement arent the only ones disadvantaged by capricious and onerous property taxes. The elderly and disabled living on a fixed incomes, as well as farmers who face downturns in crop production, also have difficulties with property taxes. So do all those families whose property taxes are increased to subsidize those with the clout to have their property taxes abated. Unlike income taxes and sales taxes, which decrease when one faces a personal economic downturn, the property tax has no connection to economic reality. Inability to pay means loss of property and the security that owning your property should provide. Governments answer to economic development has been to lower the property tax for a limited few at the expense of everyone else. While farmers and some elderly may qualify for homestead credits, thus relieving the pressure (at least temporarily), they do so at the loss of their dignity. They are made beneficiaries of an anything but benevolent government. But this too comes at the expense of the rest of the property taxpayers. Its like squeezing a balloon when one group pays less, the other pays more. Its time to take the states political subdivisions out of the business of picking winners and losers and playing monopoly games with property taxes. Lets make everyone a winner and abolish property taxes. Its time to turn the entire state of North Dakota into an economic enterprise zone. The only losers will be those bureaucrats that were employed to sustain the harmful and counterproductive property-tax system. Their services will no longer be needed. Even those bureaucrats may prosper in the end, however: They can find new jobs in the resurging private sector. Most of those jobs will be better-paying and more satisfying than their prior state junkets. And taxpayers will no longer have to support them, a change that brings governments costs further downward.

Allowing our elderly to keep their homes

North Dakota has 91,000 citizens 15% of its population over the age of 65. Theyve spent decades 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

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

At retirement, after they have worked for decades to pay off their homes, they often find that their property-tax payments are more than their house payments were. They quickly realize that in order to remain in their homes, they must rent them from their own government or lose them. Many find they have to return to work just to keep their homes. Others, unable to earn enough income to stay on 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. The average real estate tax on a home in North Dakota is $1,598 a year i.e., $133.17 a month. According to the Social Security Administration, the average Social Security check for a retired person is $1,177 per month. Think about that: 11% of an already meager income goes to paying property taxes, or more accurately, renting ones home from the government. During the petitioning process to get the Abolish Property Tax Measure on the ballot, the Empower the Taxpayer Committee received dozens of phone calls from elderly, retired, and disabled citizens frantic to save their homes from property tax foreclosure. One woman in her seventies informed us that her husband had to get a job at a grocery store just so they could pay their property taxes and remain in their own home.

Another caller, a retired and disabled Vietnam veteran, was unable to make his property-tax payments and had been able to keep his property only by paying the last years taxes. This worked until 2007, 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 decided that its delinquency period prior to property-tax foreclosure was too generous. Up until that point, a property owner had to be delinquent five years in the property tax payments before his or her property could be foreclosed by a property tax sale. The legislature, at the behest of counties, reduced the delinquency period that year from five years to three.

Just as this retired and disabled veteran was trying to make payment arrangements to save his house, the state cut the time he had to resolve the problem by two years. He eventually qualified for a homestead credit that would lessen his property tax, but it was too late to save his home. This is the kind of reward our legislature gives veterans who have been willing lay their lives on the line for our country. People who have been an integral part of building up our communities find themselves renting from a landlord (their own government) that continually increases the rent, with an endlessly higher and higher property tax bill. Our government is essentially telling the most vulnerable segment of our society the elderly, the disabled, and the unemployed: If you dont like the tax, sell your home or well take it from you. Abolishing the grossly hostile and harmful property tax system is the only way to remedy wrongs such as these.

Putting young families into homes

Young families are another vulnerable segment of our community. They generally have lower earnings, as they are just beginning careers. Meanwhile, they have to scrimp and save what they do earn to raise the next generation. And as we all know, raising children is an expensive task. Add property taxes to the equation, and homeownership becomes impossible for many of these families, particularly 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 will at last be able to afford better housing. For example, they could buy older homes and fix them up

without risking a tax hike for every renovation.

It is impossible to overstate the value of homeownership to young families and the connectedness that homeownership creates between families and their community. As homeowners, these young families become more fully invested in their neighborhoods and schools. They create the foundations for flourishing neighborhoods, successful schools, and a better community.

Strengthen agriculture

Agriculture is the biggest contributor to North Dakotas economy, and it has been so for generations. It is challenged, however, by the heavy costs today of seeds, equipment, fertilizers, pesticides, and the overall process of food production. The added burden of property taxes which cull $164 million annually from farms across the state can wreak havoc on our agricultural sectors long-term health and viability. It is no secret that it takes only two or three consecutive years of poor weather and weak markets to put todays farm or ranch out of business. Property taxes are not simply a nuisance in the farm and ranch budget. In bad times, they bring about the end of far too many farms. If we are serious about protecting our farmers, the most effective step that we can take is to abolish the property taxes.

State government recognizes that a fluctuating market, combined with ever-increasing property taxes, cripple our agricultural economy. For that reason, it calculates property taxes for agricultural properties based on a 10-year average productivity. This tax-level formula, nonetheless, is wholly inadequate. It fails to take into account yearly fluctuations or unforeseen disasters, such as floods, hail, and tornados. Without property taxes, the only taxes that a farmer will have to pay are those based on income and spending. A bad year would still mean less income, but it would not put the ownership of the farm at risk.

Personal economic development

If property tax abatement for businesses is the backbone of economic development, imagine the boost in the standard of living of every citizen in North Dakota when property taxes are abolished. It will generate almost $1,200 annually for every individual in North Dakota. For a family of five, thats $6,000 a year! It actually makes homeownership more affordable. No longer will we be punished with higher property 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 in new enterprises or help fund our childrens education. Abolition of property taxes helps each person in 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 jump in the sales tax rate. Money that families get to keep instead of using it to pay taxes enriches the community as a whole.

Is This Simply a Tax Shift?

Some argue that abolishing property taxes will simply result in a tax shift and that there will be no tax relief at all. That is, the government will replace the property tax with a corresponding, equally large 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 in over the last 12 years. In that time period, we have seen unprecedented increases in revenue flowing into the state treasury, and virtually every dime of it has been spent to grow government and fund the wish lists of special interests. Over the last 10 years, state spending has outpaced growth in personal income by a ratio of 2.5 to 1 and exceeded the growth of the Consumer Price Index (CPI) 5.1 to 1. State spending went into hyper drive between fiscal periods 2009-2011 and 2011-13: Its growth surpassed the growth of personal income 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. These crumbs thrown to taxpayers have been provided only because the legislature fears the backlash that the public might inflict if it realizes that the expansion and excesses of government and special interests 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 revenue to the state treasury for many years into the future. In fact, it will generate more than enough income 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 revenues to reduce taxes, it has been using them to keep taxes high and to grow government. Government growth, relative to personal income, has exploded.

North Dakotas fossil-fuel riches, and the economy that they stimulate, belong to the citizens of North 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 feeding the new wealth to an ever-expanding governmental bureaucracy and the appetites of special interests.

Tax shifting will occur if our elected state representatives refuse to curb their unprecedented and unjustifiable spending. But if we, the people, prevail upon the North Dakota legislature to bring its spending into line with the rise of our personal income or hike in the CPI, we could not only abolish property taxes, but income taxes as well. Furthermore we could still build a significant rainy-day fund and invest in infrastructure without any tax shift or tax increase.

Real Estate Boom

Housing construction and sales are the first indicators of a strong or of a failing economy. When we hear on the evening news that fewer people want to buy homes or that fewer homes are being built at all, we hear an ominous statement about the communitys overall financial health and prosperity. On the other hand, when the housing market picks up, every corner of the economic landscape feels the impact. Employment soars, wages for skilled labor rise, sales of durable goods pick up, and stress on public assistance programs diminishes. Given that the housing markets well-being and the welfare of the entire monetary system are so intimately 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

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 in plants and equipment. More jobs and higher wages will result. Of all tax methods, those on property have the greatest number of negatives. When property taxes are removed, everyone benefits immensely.

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

Economic Boom

Real estate taxes are a major disincentive to capital-intensive businesses investments in plants and equipment. Consider: Under our current property tax structure, an investment of $500 million in a manufacturing facility in North Dakota would bring with it a property tax of approximately $7.1 million 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 would take a serious look at North Dakota if there were no property taxes. With that surge in new companies relocating, 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 no property taxes to pay, the cost of doing business here would be significantly lower. This not only creates slews of new, better-paying jobs; it also diversifies our economy. A more diverse economy makes for a more stable community, thereby benefiting everyone.

Keeping Our Children in North Dakota

Although North Dakota taxpayers invest heavily in K-12 and higher education, a significant number of our high-school and college graduates leave the state to seek employment opportunities not available to them here. Between 2000 and 2008, more than 12,000 college graduates left North Dakota. The 25-64 age bracket in North Dakota is now the second smallest, as a percent of total population, of that of any state in the United States. Extended families are the bedrock of all stable societies and support the long-term growth and stability 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, and retired. North Dakotas social and economic programs have fewer productive citizens to keep them solvent. In short, this outmigration is a terrible loss to the state socially and economically. But if we want it to 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 home state. 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 departing at the rates that ours are emigrating.

Anecdotal reports from our 20-somethings tell us that their main reason for their moving out is the lack of fulfilling, well-paying jobs. College graduates nationwide average $20,000 more in annual earnings than those who only earned high-school degrees. The average North Dakota university graduate, meanwhile, earns a modest $10,000 more than someone who only earned a high-school diploma. This is hardly a robust return on the time spent and loan debt incurred to obtain a college degree. North Dakotas college alumni lag behind in earning capability because North Dakota lacks a thriving and diverse economy. North Dakotas economy is a monoculture, the lions share being based in agriculture, with an emerging oil industry. It needs to develop a more diverse economy. Until it does, the disparity between the salaries that collegians demand and the salaries that they are actually paid will continue to drive young career-seekers out of the state. North Dakota must jumpstart itself. It must attract new industry, and quickly. Abolishing property taxes will provide the jolt of energy necessary to attract new businesses and industry and to give them a 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 Dakota needs. It will encourage new businesses to take a long and serious look at North Dakota. Corporations that never had thought of North Dakota before will begin to vie with each other to make our state their new home. They will be intrigued by our offering what no other state in the nation offers a political jurisdiction without a property tax. More importantly, they will be the kinds of ventures that depend on a skilled and educated labor force. New industries will emerge within our borders, our states economy will diversify, and our youth will be able to find stimulating, well-paying jobs here in North Dakota. Theyll have every reason they need to stay and raise their families here. Whats more, theyll be able to more easily afford homes, safe in the knowledge that their homes are theirs and theyll never have to rent them from their 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 tax revenues alone will not only more than make up for the loss of property tax revenue, but also boost the governmental services that a thriving economy needs to support growth. Terminating property taxes 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 eliminate 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 taxpayer money that is now being spent on programs. Tax dollars will go toward providing the infrastructure that facilitates private economic development. Businesses will voluntarily come to look at what North Dakota has to offer and will no longer only come because they are hunting for taxpayerfunded incentives. Currently, small-population counties, towns, and cities linger in the shadow of larger counties and cities as, at best, bedroom communities. While the relatively strong Fargo and Grand Forks raise and expend tax dollars to feed their public economic-development efforts, smaller counties and cities with fewer dollars cannot compete. They struggle to remain viable while confronting a slow and lingering death. But with property taxes gone, every community in North Dakota will have an equal opportunity to

thrive. As much as $750 million will be put to work immediately to create brand-new opportunities within 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 the big cities raise through imposing taxes on their citizens and then dole those dollars out to their selected winners. Every part of our state will be equally as attractive to business and industry. All will be viable locations for new employers to locate. North Dakota offers a unique pace and culture that are particularly attractive to families and all who appreciate a true four-season environment. The type of individuals that North Dakotas culture attracts is the same as that which business and industry seek. These are stable, responsible, and selfreliant individuals. The state will for once have the capacity to compete aggressively with any state in the nation for new industries and capital-intensive businesses. The hard-working, well-educated, and self-reliant people of North Dakota will have employment opportunities that are nowhere in sight today.

Todays property-tax abatements usually expire after 3-5 years. By contrast, Measure 2 will put in place a property-tax abatement that is permanent. With its passage, North Dakota will finally be in a position to actively and actually dramatically diversify its economy.

Satisfying the Left and the Right

Politically, everyone benefits. Eradicating property tax addresses substantive and legitimate concerns of both conservatives and progressives. Who wouldnt support a tax system that is more equitable and compassionate? A system without property taxes would be just that! Its also the compassionate thing to do. Compassion need not mean spending more and more money on a growing welfare state that creates and perpetuates a needy class. Invalidating property taxes will allow all people, including those in the working class, to keep more of their own money and there is no better way to help people succeed than to allow them to keep the fruits of their labor.

Abolishing property taxes is the equitable thing to do. It puts an end to corporate welfare and other special treatments for the privileged and well-connected few. Everyone will be treated the same everyone will benefit directly by having no property tax. Moreover, it will also attract and facilitate the creation of a larger and more divergent economy. By facilitating an environment that attracts private-sector industry with quality jobs, North Dakota can reduce its welfare class. It will provide real opportunities to those who need them most, while at the same time allowing them to keep what theyve earned. Everyone can be proud knowing that the tax man will not be forcing the elderly, disabled, and other vulnerable members of society out of their homes. No more jumping through hoops, begging, or trying to qualify for homestead credits or other special treatment from the government everyones home will be a homestead, every year. Elected officials on both sides of the political aisle can focus their energy on culling out the rules and regulations that thwart job development, and on structuring revenue sources to place the responsibility for funding governments vital services on all citizens, so that each citizen has a stake in the success of North Dakota. Instead of taxing some to give to others, North Dakota will be able to facilitate an increase in private sector jobs while reducing the tax burden for all of its residents.

Local Control

For the first time, local governments will have all of the funds that they need, and full control over how they spend it. Measure 2 guarantees this. It directs the legislature to fully and properly fund the legally imposed obligations of every political subdivision in the state. It goes on to state: How counties, cities, townships, and other political subdivisions choose to allocate the expenditures of this revenue is at the sole direction of the governing bodies of counties, cities, townships and other political subdivisions (emphasis added).

Better Roads, Stronger Towns

This measure mandates that the state, fully and properly fund all legally mandated services. No longer will the state be able to simply appropriate a fixed fund to counties and expect them to make do. Instead, it will need to accurately assess the costs of its counties basic needs and fund them in full accordingly. By the same token, no longer will townships and counties have any excuse to allow bridges and roads to fall into disrepair. These essential, legally obligated services will be designated as top-priority funding matters.

The Shot Heard Around the World

Even though North Dakota is uniquely situated to abolish property taxes, there is still resistance. Its such a novel idea, and such a significant change, that many question its wisdom. It may take our legislators several sessions to work out a smooth funding formula meeting the requirements of Measure 2. There is no doubt, however, that they can get it done, and that once the kinks are worked out and the political dust settles, North Dakotans will realize the full benefits of a property-tax-free state. The new revenue streams that will emerge from property taxes abolition will make the transition painless. North Dakota is already ahead of the nation by being one of the few states operating in the black. But this measure will put the state light-years ahead of all the others in attracting new business and industry, diversifying the economy, increasing wages, and securing a fiscally healthy state. In fact, we can expect other states to follow our example. Our state can lead the rest of the country toward a new level of freedom, home security, and economic vitality.

Intangible Benefits

A host of other, more conceptual benefits will flow from abolishing property taxes. First, North Dakota will, like no other state in the union, be affirming that private property and property rights are secure against government invasion. By declaring the tax null and void, our state will declare that the individual citizens autonomy, dignity, and property supersede that of the state. Property taxes presume that the individual is not really the property owner. A homeowner may choose to remodel his or her property, keep it in good repair, make all the payments on it, and defend it against intruders. But he or she cannot deny the government access to that property. At any time an assessor may demand entry into it. And unlike a police officer, who must show a warrant stating probable cause that a crime has occurred on the property before entering it, that assessor does not need to show any statement of probable cause of anything untoward at all. That assessor need only say that he or she thinks that the property needs to be reassessed. If the home-

owner balks, the government will punish him or her with a punitive spike in assessed value.

In essence, government coerces the homeowner to admit it entry into his or her property. No other power than government can exert that kind of dominion and invasion of a law-abiding citizens personal privacy.

Budgeting Government

Everyone would like to get something for nothing. Most of us understand, however, that something for nothing is seldom ever possible. We must either pay for what we want or go without.

Over the last 70 years, our governmental bodies have increased taxes at a rate much greater than the increases in personal income or in the cost-of-living index. Most of these tax increases have gone toward funding a growing government payroll and an ever-expanding welfare system. As money has flowed into the public treasury, government has greatly expanded the activities it undertakes and funds.

Measure 2 puts a stop to this runaway growth in governmental taxing and spending. It specifies that the state treasury (which is funded by all taxpayers) will not fund every pet project that the politicians in the counties and townships may wish to undertake. Instead, the state treasury will fully and properly fund all legally imposed obligations of the counties, cities, townships, and other political subdivisions (italics added). What are the legally imposed obligations? Its up to our legislators to decide. Historically, the obligations were those things that benefited the citizens of those political jurisdictions equally and necessarily. This included such things as adequate and safe roads, police and fire protection, courts, and the like. As tax collections grew and more things were funded, the line blurred between legally imposed, appropriate obligations of government on one hand, and governments wishes and desires on the other. Measure 2 will force our elected officials to once again delineate exactly what are legally imposed obligations and what arent. The treasury must fund those things that are and refrain from funding those things that are not. If the citizens in any particular political subdivision wish to tax themselves for what are not legally imposed obligations of government, they may. And on the flip side, once the legally imposed obligations have been funded, any excess will be given back to the taxpayers. That is to say, if the revenues that flow into the state treasury exceed the cost of providing legally imposed obligations of government, it will be clear that it is time to lower taxes.

Measure 2 will give citizens an opportunity to help their elected officials define what they wish to make legally imposed obligations of government. Those shall be funded through state revenue sources. Any other spending that those political subdivisions wish to engage in and which the voters in are willing to tax themselves to fund will be funded. This will, for the first time, put actual and meaningful control over taxes in the hands of those paying the taxes. It will provide meaningful local control over the size and cost of government. Currently there is no meaningful prioritization of spending by any governmental entity in North Dakota. Its an upside-down budgeting process, and it creates an upside-down relationship between citizens and their government. Instead of the citizens telling their government what it can spend, the government tells them what money will be left over for them. If citizens protest this arrangement, government leaders shrug their shoulders and say, Well, if you dont want to pay what we want, well just have to cut fire or police protection. It never occurs to them that some of the non-essentials need constraint. The property owner is being held hostage pay up or well cut essential services or seize your home. The home has become governments personal ATM an unlimited source of revenue for

whatever is on the wish list.

Measure 2 ensures that all the necessary government services the legally imposed obligations are covered. Other wishes, nonessential services, and extras a dog park, an art festival, etc. will be available through the voting booth. If taxpayers are willing to be taxed extra to pay for such things, then they can vote to have them added. Dog parks and art festivals are certainly nice things, but it is not governments duty to provide them. It is the citizens prerogative to opt for them and, if they wish, consent to pay additional taxes in order to have them.

If a communitys citizens vote to have that art festival, dog park, or other extra, the taxes for it will be collected at the local level only i.e., their own jurisdiction. They will not receive funds from the state treasury. State treasury funds will go only toward the legally imposed obligations. In this way, each political subdivision county, city, township, etc. pays its own way for the extras that its own citizens vote to fund. This is local control at its best.

Following passage of Measure 2, the relationship between government and taxation will be set right: It will be put in the hands of those being taxed. Governments revenue collection will attend to the peoples basic needs, and it will not put peoples homes at risk.

No longer will we taxpayers be merely sharecroppers, who are permitted to retain what we earn only at the whim of the taxman. Measure 2 will secure our homes and require our elected officials to distinguish and prioritize what government must do from what it can do. This measure will recognize each of us as fully fledged citizens who actively direct government and who are no longer at the mercy of a capricious and destructive tax system.

Conclusion

North Dakota is blessed with abundant resources. We have the richest soil, along with immense deposits of coal, natural gas, and oil. We have wind and turbines to generate electricity from it. We have hard-working, well-educated, and self-reliant people. Once we are set free from the burden of the property tax, we can make the best of these natural and human resources, and embrace the bright future that is within our grasp.

Chapter 3

How North Dakota Will Become a Property Tax-Free State

by Robert L. Hale What Measure 2 Says and What it Means

A QUICK HISTORY THE ORIGINS OF MEASURE 2

In 2007, concerned citizens met to discuss what to do about property taxes. Could taxes be simplified? Are they fair, and if not, how could that be improved? Why are they so divisive? Is there a way to make property taxes understandable to the average taxpayer? Property taxes are not like other taxes. Compared to the income tax or sales tax, as examples, property taxes are both more unequal and more burdensome. While a persons income tax burden is higher or lower in accordance with his or her income, property taxes are tied only to property value, not to the ability of the property owner to pay. Whereas the sales tax applies equally to all taxpayers, property taxes have especially hard impacts on those who have limited incomes. Moreover, by taking income that is often critical to maintaining the property, they discourage property improvement. With every other tax, if a persons income changes, so does the tax burden. No other tax puts a persons home or job at risk. All other taxes, if unpaid, result in a levy against income.

Numerous meetings were held. Dozens of ideas were discussed. Many proposals were set forth. Many months later, we reached a unanimous conclusion: The property tax system is unfixable. In the course of our investigation, we found that between 1981 and 2009, more than 130 attempts were made to fix this broken system. Not one worked. If anything, the system had become even more complex, more abusive, and more bothersome.

Property taxes often dont benefit property owners or taxpayers. The only beneficiary is the governmentand the government benefits at the expense and often great detriment of the property owner. In short, regardless of the property owners ability to pay, regardless of his financial circumstances, he has no control over his property tax bill. If he cant pay, he loses his property. Unlike sales or income taxes, property taxes do not adjust when a persons ability to pay changes. In truth, the property tax makes government the ultimate landlord. A homeowner has two choices: Pay the property taxes or lose the property. The decision to pay can gravely impact the homeowners ability to provide other necessities for himself and his family. Such a threat, however, delights those government entities and personnel who rely on property taxes. Since the penalty for non-payment is so harsh, they know these taxes will be paid. Government is allowed to maintain a robust budget regardless of difficult economic times for taxpayers. Real property is easily identified, and the threat of loss is the ultimate motivator.

It has become the firm belief of many a citizen that no free person should ever lose his home because he is unable to pay his property taxes. Once it was concluded that the property tax system was beyond fixing, the mission became to find a way to successfully abolish this destructive tax. A team of individuals drafted the wording for what

is called Constitutional Measure No. 2, a referendum to abolish property taxes in North Dakota.

This team of concerned taxpayers took what is now the official wording for Measure 2 to the 2009 legislature. The goal was to have the legislature submit the Measure as a referendum that could be voted on by the people of the state. Instead, the members of the House moved to recommend that a study be conducted over a twoyear period from 2009 to 2010. They directed that it focus on whether the legislators thought abolishing property taxes would be feasible rather than on addressing how to implement the abolition. If the results of the study indicated that it was achievable, Measure 2 would be placed on the 2013 ballot. However, the House Constitutional Revision Committee, after reviewing it, sent it to the floor with a DO NOT PASS recommendation. The measure failed on the floor of the House and moved no further. In essence, the legislature chose to do no study and ignore the concerns of their constituents on this vitally important issue. Since no action was taken by the legislature, concerned citizens decided to bring the issue to the people of North Dakota through the initiated measure process. Close to 29,000 people signed the petition to put the measure on the ballot.

Article III: The Powers granted in the North Dakota Constitution

Article III of the North Dakota Constitution is titled, Powers Reserved to the People. This section gives the people direct control over the laws that govern them. North Dakotas Constitution recognizes and protects its citizens right to self-government and provides a method to take action, particularly when the elected officials either fail or refuse to do so. Section 1 of Article III states: While the legislative power of this state shall be vested in a legislative assembly consisting of a senate and a house of representatives, the people reserve the power to propose and enact laws by the initiative, including the call for a constitutional convention; to approve or reject legislative Acts, or parts thereof, by the referendum; to propose and adopt constitutional amendments by the initiative; and to recall certain elected officials. This article is self-executing and all of its provisions are mandatory. Section 9 governs the requirements necessary to propose a Constitutional measure and have it placed on the ballot for the people to consider: A constitutional amendment may be proposed by initiative petition. If signed by electors equal in number to four percent of the resident population of the state at the last federal decennial census, the petition may be submitted to the secretary of state. All other provisions relating to initiative measures apply hereto. This power is granted through Article I, The Declaration of Rights, Section 2, of the State Constitution: All political power is inherent in the people. Government is instituted for the protection, security and benefit of the people, and they have a right to alter or reform the same whenever the public good may require.

Can the Legislature Overturn a Constitutional Measure?

If a majority of voters approve a measure, it is deemed law and goes into effect 30 days following the vote, according to Article III, Section 8. The legislature can overturn a Constitutional measure, however, as the section further states:

A measure approved by the electors may not be repealed or amended by the legislative assembly for seven years from its effective date, except by a two-thirds vote of the members elected to each house.

Thus, if the majority of the voters approve an initiative, the legislature is powerless to overturn, repeal, or amend it unless two-thirds of the legislators cast votes to do so. Initiatives become law within 30 days of an election and remain intact for seven years. After that time, the legislature may pass laws amending or repealing the measure1.

After Passage, What Guarantees Are There that the Legislature Will Follow It?

While it is unlikely the legislature would ignore both the state Constitution and the will of the people, the citizens of North Dakota are fortunate that safeguards exist to ensure that the legislature follows the law.

If the legislature fails to do so, the people or a legislator can petition the state attorney general to issue an opinion directing the legislature to fulfill the Constitutional responsibilities. Any citizen can file for a writ of mandamus2 requesting the court to direct the legislature to act. If Measure 2 passes, it will be difficult for the legislature to ignore or disregard it. The legislature is required by law to set up a formula to fully and properly fund political subdivisions legally imposed obligations. What the legislature will likely do is to debate the formula, as well as the meanings of fully and properly and legally imposed obligations. Legislators repeatedly requested that they be involved in implementing changes. Thus, Empower the Taxpayer included them as key participants in developing the formula to replace property taxes. Devising a formula to allocate revenue to political subdivisions is not unprecedented. In 2009, the legislature chose to take over funding of approximately 70% of K-12 expenses and devised a formula to do so. While there were struggles, and in fact litigation did occur, a formula was worked out which all parties found effective and equitable.

When North Dakota by constitutional amendment abolished its much-hated and invasive personal property tax, our legislature effectively and equitably addressed the issues surrounding the challenges this presented. We have no doubt our legislature has the ability to do so with the abolition of the unjust, illogical, and unfair property tax.

A STEP-BY-STEP LOOK AT MEASURE 2 What Does Measure 2 Eliminate?

Measure 2 amends sections 2, 4, 14, 15, and 16 of Article X of the North Dakota Constitution. It also repeals sections 5, 6, 7, 9, and 10. The end result is the elimination of property taxes, poll taxes, and acreage taxes. The lost revenue will be replaced by various state taxes and other revenues, without restrictions on how these revenues may be spent. Measure 2 makes it illegal for any political subdivisions to tax real and personal property. Article X, Section 1, of the Constitution currently states: The legislative assembly shall be prohibited from raising revenue to defray the expenses of the state through the levying of a tax on the assessed value of real or personal property. Measure 2 amends Section 1 to read as follows:

The legislative assembly shall be and all political subdivisions are prohibited from raising revenue to defray the expenses of the state or political subdivisions through the levying of a tax on the assessed value of real or personal property. [Bold indicates the new language added by Measure 2].

Article X, Section 4, of the North Dakota Constitution is amended as shown below (strike-through is language eliminated and underscored language is language added: Section 4. All taxable property except as hereinafter in this section provided, shall be assessed in the county, city, township, village or district in which it is situated, in the manner prescribed by law. The property, including franchises of all railroads operated in this state, and of all express companies, freight line companies, dining car companies, sleeping car companies, car equipment companies, or private car line companies, telegraph or telephone companies, the property of any person, firm or corporation used for the purpose of furnishing electric light, heat or power, or in distributing the same for public use, and the property of any other corporation, firm or individual now or hereafter operating in this state, and used directly or indirectly in the carrying of persons, property or messages, shall be assessed by the state board of equalization in a manner prescribed by such state board or commission as may be provided by law. But should any railroad allow any portion of its railway to be used for any purpose other than the operation of a railroad thereon, such portion of its railway, while so used shall be assessed in a manner provided for the assessment of other real property by law. The property, including franchises of all railroads operated in this state, and of all express companies, freight line companies, dining car companies, sleeping car companies, car equipment companies, or private car line companies, telegraph or telephone companies, the property of any person, firm or corporation used for the purpose of furnishing electric light, heat or power, or in distributing the same for public use, and the property of any other corporation, firm or individual now or hereafter operating in this state, and used directly or indirectly in the carrying of persons, property or messages, shall be assessed by the state board of equalization in a manner prescribed by such state board or commission as may be provided by law. But should any railroad allow any portion of its railway to be used for any purpose other than the operation of a railroad thereon, such portion of its railway, while so used shall be assessed in a manner provided for the assessment of other real property.

1. Taxes upon real property, which were used before 2012 to fund the operations of counties, cities, townships, school districts, park districts, water districts, irrigation districts, fire protection districts, soil conservation districts, and other political subdivisions with authority to levy property taxes must be replaced with revenues from the proceeds of state sales taxes, individual and corporate income taxes, oil and gas production and extraction taxes, tobacco taxes, lottery revenues, financial institutions taxes, and other state resources.

2. The legislative assembly shall direct as much oil and gas production and extraction tax, tobacco tax, lottery revenue, and financial institutions tax as necessary to fund the share of elementary and secondary education not funded through state revenue sources before 2012. The state cannot condition the expenditure of this portion of elementary and secondary education funding in any manner and school boards have sole discretion in how to allocate the expenditure of this portion of the elementary and secondary funding provided.

3. The legislative assembly shall direct a share of sales taxes, individual and corporate income taxes, insurance premium taxes, alcoholic beverage taxes, mineral leasing fees, and gaming taxes and any oil and gas production and extraction taxes, tobacco taxes, lottery revenues, and financial institutions taxes not allocated to elementary and secondary schools to counties, cities, and other political subdivisions according to a formula devised by the legislative assembly to fully and properly fund the legally imposed obligations of the counties, cities, townships, and other political subdivisions.

The allocation of the amount determined by the legislative assembly must be provided to the governing bodies of counties, cities, townships, and other political subdivisions. How counties, cities, townships, and other political subdivisions choose to allocate the expenditures of this revenue is at the sole direction of those subdivisions governing bodies. Real property will no longer be assessed for purposes of taxation. There shall no longer be a state commission or board of equalization for purposes of assessment. Measure 2 does not prohibit special assessments Measure 2 does not eliminate or prohibit special assessments. If property owners have specific projects that need funding, they may, if they wish, raise revenue through the creation of special assessment areas. Monies raised in this manner are not to be used for general funding purposes. Does Measure 2 address how much the state can go into debt? Measure 2 does not change limits on indebtedness. Under the present property tax system, political subdivisions in North Dakota are permitted to incur debt up to 5% of the assessed value of the property within their geographical boundary. Incorporated cities may increase their debt an additional 3% by a two-thirds vote. School districts may increase their debt an additional 5% by majority vote. How does Measure 2 deal with assessed value versus market value of property? Measure 2 changes assessed value to market value. There will no longer be a need for the counties to assess real property. With the passage of Measure 2, the value of all property in political subdivisions shall be based on market value3.

What are political subdivisions? A political division is a geographic area under the jurisdiction of a particular government entity. Measure 2 identifies the following political subdivisions: counties, cities, townships, school districts, park districts, water districts, irrigation districts, fire protection districts, soil conservation districts, and other political subdivisions that at the time of the vote on Measure 2 have authority to levy property taxes. What state revenue and resources will be available to replace property tax revenue? Measure 2 distinguishes between funding of public schools (K-12) and funding for all other political subdivisions. The following taxes and resources will be used to supplement elementary and secondary education after the passage of Measure 2: 1. Oil and gas production and extraction tax 2. Tobacco tax 3. Lottery revenue 4. Financial institutions tax and 5. Other state resources. 1. Sales taxes

The state currently funds approximately 70% of elementary and secondary education. Propertytax assessments and other local revenue sources cover the remaining 30%. All other political subdivisions shall be supported by the following state resources: 2. Individual and corporate income taxes 3. Insurance premium taxes 4. Alcoholic beverage taxes 5. Mineral leasing fees

6. Gaming taxes

What role does the legislature play when property taxes are eliminated? Measure 2 directs the legislature to devise a formula to fully and properly fund the legally imposed obligations of all political subdivisions. Chapter 2 of this section discusses the constitutional responsibilities that the legislature must fulfill following passage of Measure 2.

7. Oil, gas production and extraction taxes, tobacco taxes, lottery revenues, and financial institutions taxes not allocated to elementary and secondary schools, and 8. Other state resources

Finally, Political Subdivisions Will Have Real Local Control

The only thing local about property taxes is the location of the property.

The most frequently asked question on this issue is: Will the abolishing of property taxes result in the loss of local control? The answer is a firm no. It will do the exact opposite. It is a myth that property taxes are currently controlled locally. The actual payers of property taxes are far removed from the government entity controlling what must be included in the tax levied on real property and how it is spent. Property owners have absolutely no say and no control over how these taxes are determined, collected, or used. Property taxes are used to partially fund an array of political subdivisions. The following entities derive portions of their annual revenues from property taxes: county governments city governments township governments fire protection districts school districts water districts irrigation districts vector control districts soil conservation districts other political subdivisions authorized to levy property taxes

Dispelling the myth that property taxes provide local control

Rather, the authority to impose property taxes is entirely directed by the state legislature. Chapter 57-154 of the North Dakota Century Code defines the power the state has been given to decide and manage these taxes. It does not matter where the tax is assessed. What matters is who determines the rules governing the imposition of the tax. Such rules and regulations are solely in the hands of the state legislature, not the local governing bodies.

Citizens have no direct authority over which taxing districts are established in their geographical area. These decisions are initially made by lawmakers, either local or state. Taxpayers are never provided an opportunity to vote on the creation of a new tax levying entity. Yet, once established, these political subdivisions gain a life of their own and they are sustained through the imposition of property taxes. The only exception is those properties whose owners have the political pull to have themselves exempted. And when one property is let off the hook, the tax burden is increased

on those who were not so fortunate. In effect, every exemption is a hidden property tax increase.

The state legislature gives each political subdivision/district authority to impose a mill levy against the properties within its geographical area. A mill is one-hundredth of a cent. The local political entity is permitted to levy mills only as authorized by the state legislature.

Control over the process is strictly regulated. The North Dakota Century Code has 32 pages that outline the mandates, limitations, and authority the political subdivisions of North Dakota must follow when imposing property taxes. The Code specifies in minute detail what political subdivisions can and cannot do regarding imposing, collecting, and expending property taxes. For example, section 57-15-02.1(1) states: A public hearing under this section may not be scheduled to begin earlier than six p.m. The notice must have at least one-half inch [1.27 centimeters] white space margin on all four sides and must be at least two columns wide by five inches [12.7 centimeters] high. Counties are limited to imposition of 23 mills per dollar for general or special county purposes, but they may impose more levies for 38 additional purposes. For example, they can impose a property tax levy (above and beyond the 23 general-purpose levy) to pay for a judgment obtained by the state of a state agency against the county [57-15-06.7(7)]. In the case of emergency needs, again, its the state legislature, not local civic officials, that decides how much can be raised, what it can be used for, and how it is to be managed. The state, not the local governing body, determines the amount of levies for:

Advertising purposes Park district levies Recreation facilities

Support of port services School district levies

General fund levy limitations in park districts Service charges for forestry purposes General fund levy limitations in school districts County agricultural and training schools

Cities are entitled to impose more taxes than counties: 38 mills per dollar, as opposed to the counties limit of 23.5 As with counties, the legislature allows 32 exceptions to levy more taxes [57-15-10].

The list of exceptions includes: 4 mills for a library, 3 mills for police retirement system, 5 mills to pay off judgments against the city, 5 mills for a municipal arts council, 5 more mills for a fire department, an additional 5 mills for city employee pension fund, one mill for career and technical training, one mill for advertising, 5 mills for a city fire department reserve fund, 5 mills for public transportation, mill for animal shelters, 4 mills for a city job development authority, mill for programs and activities for persons with handicaps, one mill for a city band, 4 mills for a city commerce authority, and 4 mills imposed to fund the deficiency due to properties that are exempted from payment of property taxes!

School District Tax Levies

Schools in districts whose populations total 4,000 or more residents are allowed by the state legislature to impose property taxes of 185 mills per dollar.

Occasionally taxpayers vote on the tax, but the total amount of the levy is limited by the state legislature; it is not decided at the local level. And when it comes to school building projects, the state,

not the local school board, determines the amount that may be collected and when the building funds are to be repaid. Furthermore, the state controls the funding and the timing of abatement of hazards in public schools, not the local school board. In this case, North Dakota limits the local school district to 15 mills for the purpose of raising revenue or payment of bonds to abate hazards in schools. Not only does the state legislature dictate the amount that may be levied; it also regulates how it is to be spent.

Collection, Seizures and Sales

The local sheriff is in charge of collection enforcement. For those who are unable to pay the tax, the sheriff is required to take possession of their property and sell it at a tax sale. Seizures and sales have escalated over the past decade. No longer are we secure in our own homes. Even if the mortgage has been paid off, and repairs and home improvements done (which increase the tax liability), failure to pay the piper will result in confiscation of your most valuable possession. The sale of the homes of those who have not paid their property taxes is an embarrassing public affair with the express purpose of demonstrating that such failure is not to be tolerated. The property is sold to the highest bidder, with full knowledge of neighbors and friends. No longer is a mans home his castle, nor is it a place where he can find safety or security. In fact, if a man is unable to pay the tax on his home it becomes a liability and not a place of safety and security6.

Townships

The state legislature permits townships to levy 18 mills. As with cities and counties, the resulting expenditures are totally regulated by the state. In addition to the 18 mills the township board has authority to add mills for up to 11 additional purposes including: Fire protection districts Hospital districts Vector control districts Cemetery tax levies Ambulance service districts Recreation service districts Water resource districts

But even with this limited ability to impose property taxes, unless there is specific state legislative authority, the townships, cities, and counties are powerless to impose one cent (or to be more precise, one mill) of tax levies. If they act on their own, a stiff penalty is charged.

Abandoned cemetery tax levies

57-15-35 STATES: Any county auditor who extends taxes in excess of the limitations prescribed by the terms of this chapter shall forfeit a sum of not less than twenty-five dollars and not more than one thousand dollars, the amount to be determined by the court in an action brought in district court by the states attorney in the name of the state for the benefit of the county general fund, and if such action by the county auditor is willful, the county auditor also is guilty of a class A misdemeanor. Thus the North Dakota legislature has granted to itself the power to enforce its mandates through the courts by imposition of fines/penalties and execution of criminal action. Property taxes are at the

sole discretion of the state of North Dakota. No local entities can overrule this power without severe consequences.

Measure 2: Finally, Local control is constitutionally mandated and enforceable

Thus the reason for the long-overdue Measure 2, which, for the first time grants and guarantees local control over spending of all funds received from the state general fund and other state resources! For the first time in North Dakotas history, the power to distribute revenue is left to the sole discretion of the local governing bodies. The state has no say and is prohibited from mandating how these revenues are to be allocated. This is a total turnaround from the current law. Currently the legislature routinely imposes duties, responsibilities, and directives as to how local governmental bodies are required to spend both the revenue they receive from the state, as well as much of their own locally-generated revenue. Political subdivisions must often use property tax revenue just to meet all these mandates of statutory enactments. Measure 2 fundamentally changes this relationship.

Measure 2 is the first step to empowering School Boards

The state legislature directly funds approximately 70% of elementary and secondary education. The other 30% of the money comes from local revenues, either directly from property taxes or from municipal bonds funded from property tax revenue. Funding for K-12 school construction is generally done through bond levies, also called special assessments, which are not affected by Measure 2.

Right now, the legislature and the Department of Public Instruction (DPI) are the sole arbitrators of how schools in North Dakota are funded. There is no local control over any K-12 expenditures unless the legislature or DPI specifically permits local control. The legislature and DPI direct how every dollar allocated for K-12 is expended. School boards have little or no meaningful input. Without control over funding, school boards are unable to implement decisions without state legislative or DPI concurrence. The Department of Public Instruction controls these expenditures either through legislative direction or mandates imposed through application of the State Accreditation Manual. The state cannot condition the expenditure of this portion (the 30% currently funded locally) of elementary and secondary education funding in any manner and school boards have sole discretion in how to allocate the expenditure of this portion of the elementary and secondary funding provided. Measure 2 fundamentally changes this! It declares:

Thus Measure 2 is a huge first step toward empowering school boards with meaningful authority. It is a groundbreaking maneuver that will give parents control over the education of their children. With Measure 2, the North Dakota Constitution is amended so that the expenditure of 30% of the K-12 school budget is at the exclusive discretion of the local school board. Parents, through their locally elected school boards, will now have control over nearly one-third of the funds used for their childrens education. We hope this will encourage parents to demand that their legislators give them the same discretion over the other 70% of school funding.

For all other political subdivisions all strings are cut

Measure 2 provides:

How counties, cities, townships, and other political subdivisions choose to allocate the expendi-

tures of this revenue is at the sole direction of the governing bodies of counties, cities, townships, and other political subdivisions.

These few lines, when implemented, will bring about a groundbreaking outcome for local jurisdictions. For the first time in state history, the cities, counties, and townships will have sole control over how they allocate the revenues to fund their obligations. The revenue mentioned in Measure 2 is the dollar amount that the legislature will release to the localities. It is important to note that along with local control comes responsibility and accountability. Responsibility for spending decisions will rest fully in the hands of locally elected officials. The voters in each political subdivision will know who to hold accountable, namely, those they elect.

Funding K-12 & Political Subdivisions come first, before authorizing spending for things not constitutionally mandated

When Measure 2 is enacted, it will amend the state constitution, requiring the legislature to prioritize how it allocates state resources. First the state must meet the obligations set forth in the constitution, namely to make sure that elementary and secondary schools are properly funded and that the commitments to the cities, counties, and townships are likewise, fully and properly funded. Once mandated responsibilities have been financed, remaining state resources may be distributed. There are only three places unallocated resources may be distributed. Second, surplus monies can be aside for a rainy day.

First, excess state revenue may be used to reduce the existing tax burden. The only reason for excess revenues is because the tax burden is higher than need be; it would be just that this income be used to reduce the taxes of North Dakota residents.

The third and least responsible usage would be for projects not mandated. However, this flies in the face of the vision of Measure 2 as such actions would serve to broaden spending, enlarge government size, expand the scope of government and/or widen distributions to special interests. The result would be that North Dakota taxpayers would be left with less of what they earned while, at the same time, legislators could have a field day spending discretionary funds at will.

The Legislatures Role

Devising a Formula to Fully and Properly Fund Legally Imposed Obligations What kind of a formula?
Measure 2 directs the state legislature to devise a formula to fully and properly fund the legally imposed obligations of political subdivisions. This means that the legislature is to replace all of the property tax revenue that currently funds many government expenditures at the county and local level. All those programs and services that had been funded by property taxes will now be financed from state revenues and resources as follows:

1. Education will remain a top priority after Measure 2 goes into effect. It shall be financed by the following revenues:

a. Oil and gas production and extraction taxes; b. Tobacco taxes;

2. For all other political subdivisions, funds will come from the following sources:
a. Sales taxes b. Individual and corporate income taxes c. Insurance premium taxes d. Alcoholic beverage taxes e. Mineral leasing fees f. Gaming taxes h. Other state resources

c. Lottery proceeds;

d. Financial institutions taxes; and e. Other state resources

As you can see, Measure 2 itemizes the specific sources that the legislature may use to fund what had previously been paid by property tax revenue. Furthermore, Measure 2 directs the legislature to create a suitable formula to pinpoint how to continuously finance political subdivisions multifaceted functions. In 2007, North Dakota developed a similar blueprint for distribution of state general-fund revenues to fund elementary and secondary education. Initially, the legislature handled this effectively and efficiently. When an impasse occurred, the court stepped in and developed a workable formula that all parties accepted. There is no doubt that legislators working with their constituents can successfully devise and implement procedures to achieve the directive of Measure 2. In the event there is disagreement or the legislature fails to fully and properly fund as it is directed to do, the judicial branch of the government is always available to serve as an arbitrator. This court function is one of the fundamental responsibilities of our legal system.

g. Any oil and gas production and extraction taxes, tobacco taxes, lottery revenues and financial institutions taxes not being given to elementary and secondary schools

What does fully and properly fund mean? Measure 2 clearly defines what fully and properly means: Taxes upon real property which were used before 2012 to fund the operations of political subdivisions with authority to levy property taxes must be replaced with revenues from the proceeds of state revenues and other state resources. When Measure 2 takes effect, all those operations of political subdivisions funded on that date by property taxes must be replaced with revenues from the state revenues and/or other state resources. While the legislature is free to come up with its own implementation scheme for Measure 2, most likely the political subdivisions will continue to develop their budgets in concordance with state law (namely NDCC 40-40-05, 40-40-09, 40-40-16, and 40-05-01) in the same way they do now. When Thus the level of funding on the date that Measure 2 takes effect will be considered the total dollar amount of full and proper. From that point forward, as political subdivisions change by growth, shrinkage, or additional legally imposed obligations, the amounts involved would change. Modifications in funding would be addressed through the formula devised by our elected state legislators with disagreements to be settled by negotiation or through court intervention, when necessary.

the budgets are submitted, the legislature will address issues relating to what is or is not considered proper for purposes of meeting the requirements of Measure 2.

The optimal result will be the standardization of practices and procedures that will be adopted by all of the political subdivisions. The model for this is the private sector, in which best business practices are shared and used by many businesses. It is likely the same will occur with this process, and the result will be a more streamlined, effective, and efficient management of public services, infrastructure, and resources.

What are legally imposed obligations? There is no single definition of a legally imposed obligation. Legal and political commentators, however, generally agree such commitments arise where there are necessary public functions requiring attention. Thus the duties and responsibilities imposed and granted by statute to political subdivisions would constitute the legally imposed obligations in Measure 2. However since there is no black and white definition, the legislature may well seek to proscribe the meaning on a case-by-case basis. When or if a disagreement arises, our judicial body could render a final determination.7 Will Measure 2 freeze what is determined to be full and proper funding? Measure 2 will not freeze funding amounts required by political subdivision as of the date of its passage. Some, in an effort to frighten local officials and voters, have claimed Measure 2 will fix the amounts political subdivisions would receive at the level that would be needed to fund their legally imposed obligations at the date of passage. Nothing is further from the truth. The Legislative Assembly is directed to devise a formula to fully and properly fund all legally imposed obligations of its political subdivisions. Clearly, this would not occur if the funding amount were frozen on the date Measure 2 become effective. Measure 2 is clear: The Legislative Assembly must adopt a formula that will provide full and proper funding from the date Measure 2 becomes effective forward. The amount of funding will not be restricted as of the date Measure 2 passes. Special taxes, special levies, and special assessments totaled $94.2 million in 2010. Since these revenue sources are not property taxes, they are not affected by Measure 2 and would not require replacement.

How Do We Replace Property Tax Revenue and how much property tax revenue would have to be replaced? In 2010, $676.6 million8 were collected in property-tax revenue. Measure 2 will require that this amount be compensated by other state resources. The cost to administer and collect property taxes is estimated to be between $30 million and $50 million. Thus right off the bat, there will be a tax saving when property taxes are abolished. The annual state revenue resources necessary to replace property taxes following passage of Measure 2 will initially be between $626.6 million and $646.6 million annually.

Property taxes do not provide a stable or reliable tax base It has been argued that property taxes are a stable and reliable tax base. This is not so. It is true that property is easy to identify, that ownership is not difficult to determine, and that the threat of confiscation of property tends to keep most property owners fairly motivated to pay the taxes levied. The actual revenue that property taxes bring in, however, drops precipitously when any of a number of variables comes into play.

Property has value when there is a demand for it, or when it is being used in a way that generates income. A strong and vibrant local economy makes for high property value. When difficult economic times come, demand for property drops and so does the value of property. In difficult economic times, owners are often forced to sell their properties and move to find employment, but the number

of property buyers has shrunk. Consequently, the availability of property exceeds demand. Value of property drops, which impacts the taxable value of properties and thus the amount of tax that each property can generate.

A natural disaster, such as flood or earthquake, also diminishes propertys market and tax value. Its inevitable; property that is damaged or worse, rendered uninhabitable will hold a lower market value and will therefore generate less tax revenue. In such a case, the local government levying the property taxes faces a dilemma. It can attempt to maintain the existing tax on the damaged property, or it can attempt to compensate by raising property taxes on undamaged neighboring properties. Neither action generally results in more tax revenue. The existing tax will not draw the same revenue from the property following the damage as it did before. Conversely, an attempt to shift the tax to other properties may not even be permissible under the state or local statutes.

Even if the law allowed it, a property tax increase will often induce owners to relocate to less burdensome tax locations to live or continue their businesses. When property owners are struggling to support themselves and their families, increased taxes on their homes are often the final straw forcing them to pack up and leave. With fewer residents in its locale, the government is left with an even larger hole in its tax base. All that remains are abandoned properties, rapidly deteriorating neighborhoods, and stagnant business districts. It is a depressing environment that repels others from coming. When times are good, the economy robust and growth is occurring, property taxes can be a reliable tax source to fund public services. However as our nations Rust Belt, the ghettos areas of our inner cities, and economically depressed markets such as southern California, Nevada, Arizona, and Florida attest real property is a fickle tax-revenue source, at best. Property taxes are complex and expensive. It is often argued a balanced tax system should be equated to a three-legged stool. One leg is sales tax; the second, income tax; and the third, property tax. The implication is that government is limited to only three forms of taxation to raise revenue. This is patently wrong. The federal government does not have either sales or property tax authority. It actually has only a one-legged revenue source i.e., income taxes. Yet few would argue that the federal government lacks the capacity to ensure a sufficient flow of revenue.

When economic times become difficult or when natural disasters occur, property tax revenues fall, triggering a downward spiral that few political subdivisions can overcome. All things considered, relying on the property tax to support public services is a risky proposition. The argument supporting this three legged taxation stool is that it provides a balance of tax sources to ensure that government has a reliable and steady stream of income. This image makes sense until one thinks, not about a three-legged stool, but about whether government actually has the appropriate tools to raise revenue. Nor does every state live by the three-legged stool model. Some get by just fine on two legs, or even one. Seven states (Alaska, Delaware, Nevada, South Dakota, Texas, Washington, and Wyoming) have no personal income tax. Three states (Nevada, Texas, and Wyoming) have no corporate income tax. Six states (Alaska, Delaware, Montana, New Hampshire, New Mexico, and Oregon) have no general sales tax. There is no need, let alone a reasonable argument, to support the fiction of a three-legged

stool providing any better assurance of government funding than a one-legged or a two-legged stool.

North Dakota does not have a three legged tax stool, either; it has a 12-legged stool. The tax sources that it relies on include the following:

STATE TAX LEGS

1. 2. 3. 4. 5. 6. 7. 8. 9. 1. 2. 3. 4. 5. 6. 7. 8. Sales tax Use tax

Motor Vehicle Excise tax Individual Income tax Corporate Income tax Oil Extraction tax Cigarette & Tobacco tax

Financial Institutions tax Oil & Gas Production tax

10. Coal Severance tax 12. Gaming tax

11. Wholesale Liquor tax

Not only are property taxes fiscally unsound. They are also a tall barrier no American can ever overcome in order to truly own his home, even after he has completed all his mortgage payments. A homeowner, regardless of his or her financial situation, must either pay the property tax or surrender his or her home to the sheriff. The government becomes every citizens landlord. Its fundamentally un-American. There is no justification, in a free country, to impose a property tax regime on anyone. Moreover, there are many benefits to abolishing it, as earlier chapters in this book have shown. There is really only one leg to governments tax stool: the taxpayer. The methods used to extract income from taxpayers vary. However, the bottom line is that there is really only one source of income

In addition, the State of North Dakota has these eight other sources of revenue: Lottery revenue Departmental Collections revenue Interest income Bank of North Dakota profits revenue State Mill and Elevator revenue Student loan trust fund interest Oil and gas royalty income Other fund transfers, including: a. Land and mineral trust funds b. Water development trust fund c. Permanent oil tax trust fund d. Bonding fund e. Health care trust fund f. Other miscellaneous transfers

for government: the earnings of its citizens. Every dollar government gets comes from our pockets. The only question is, which pocket is government reaching into?

Will Measure 2 simply result in tax shifting? Tax shifting assumes that if one tax is reduced, government will simply replace it by raising another tax. Thus, overall tax exactions will not change. The only change will be the pocket from which government will take the money from taxpayers.

The question of whether passage of Measure 2 will result in tax shifting needs to be fully addressed. In many if not most jurisdictions in the United States, unless government refuses to shrink and take less of its citizens earnings, then elimination of one tax would result in the governmental body increasing other taxes, provided the citizens permit it. Scenario A: where all revenue government gets from the taxpayers is used to expand government size and scope. Scenario B: where government limits its expansion, and uses new revenues to reduce taxes imposed on its citizens.

North Dakota is not like other jurisdictions. This state has an abundance of new and increasing revenues coming from sources other than taxes.

We will first explore options that North Dakota has relative to its tax policies and the pressure on our elected officials to expand the size and scope of government. There are two scenarios possible.

Scenario A: Tax Shifting

1. All the money government now raises is necessary to provide essential services. If this is the case then 2. The elimination of one tax, presuming no other resources are available or other spending is decreased, would necessitate increasing other taxes to maintain this revenue. The net result would be tax shifting.

We have Scenario A if we begin with the premise that:

Scenario B: No Tax Shifting

We have Scenario B if one or more of the following are true:

The net result is no tax shifting.

1. No increases are necessary, because existing tax sources will generate sufficient funds to replace property tax revenue; or 2. Abolishing property taxes will stimulate economic activity, which will result in increased revenue despite lower taxes9; or 3. There is enough incoming revenue from non-tax sources, such as income from sales of public assets or royalties on state-owned (i.e. citizen-owned) natural resources (such as oil and gas), so that property taxes will not be missed; or 4. The legislature can restrain spending by setting budgetary priorities and no longer dispensing public funds on pet causes that only benefit limited special-interest groups (such as subsidies of non-resident college students, horse racing, or any of dozens of other items detailed in the North Dakota Policy Councils Pork Report); or 5. We increase the efficiency and cost-effectiveness of the existing government programs and activities, so that they will need less revenue in the first place; or 6. Any combination of the above.

Few, if any, states are as fiscally solid as North Dakota. Unlike them, our state has ample opportunity to implement Scenario B. And it has the chance to do so, in the form of Measure 2, which, if enacted by the voters, will take North Dakota in a direction the citizens of every other state will envy. It will reduce every citizens tax burden, increase economic opportunities for all, and significantly raise the standard of living of every working man and woman in our great state. North Dakotas unique fiscal fortune is due to its bounty of natural resources. The state has vast reserves of coal, natural gas, oil, sand, and gravel, along with tens of thousands of square miles of fertile farmland. Sales of oil and gas both steadily increasing combined with steady income generation from the royalties and lease revenues of state owned land, add up to a massive, and rapidly increasing, income base that feeds the state coffers completely independently of taxes. This resourcebased revenue can and should be used to reduce the tax burden of North Dakota families. The key would be using the financial value of these natural resources to fund basic government services, not to simply expand governments size and scope. Were we to take this resource-based route instead of the usual tax-and-spend, we would in the process maximize productive activity: putting would-be tax dollars back into private sector hands to invest, thereby creating new economic opportunities, raising the standard of living for the entire community, and continuing to generate enough tax revenue for the government to continue to fund every program that it is bankrolling today. When discussing abolishing property taxes with some of his constituents, former Governor Schafer commented, We dont have to raise taxes to do it.10 Hes right. North Dakota can abolish property taxes without tax shifting. The only obstacle to eradicating property taxes and not raising any other tax is the willingness of our state legislators to do so.

If we utilize the natural richness of our state, there would be sufficient new proceeds to abolish property taxes without increasing any other tax.

Fear of tax shifting and special interest manipulation of our tax system

An alliance of special-interest groups, led at the time of this writing by the State Chamber of Commerce, has been seeking to reduce the tax burden on businesses in North Dakota. During the last legislative session they succeeded in getting a reduction in the corporate income tax rate. This was a positive accomplishment for the wellbeing of the people in North Dakota. We heartily applaud it. These same groups are reluctant, however, to support passage of Measure 2. They fear that if property taxes were done away with, the legislature would want to increase income taxes to make up for the state revenues to fund what is currently financed by property taxes. They do not want to jeopardize their goal of reducing or eliminating the income tax and other taxes. Many who have studied the wording and the effects of Measure 2 believe their concerns are ill-founded. In North Dakota, this need not be the case. The revenue being generated from the sales and leasing of oil, gas, land, and other state resources is more than sufficient to totally replace property taxes, as well as other taxes currently being imposed. The only barrier to using these new revenues to reduce our tax burden is state legislators who lack the will. Our elected state legislators are being, and will continue to be, lobbied mightily by special interests to divert these revenues to their own causes while leaving the tax burden on the hard-working men and women of North Dakota.

There is an assumption by these groups that taxes and elimination of taxes is a zero sum equation. That is, regardless of how robust the economy is, the government will take more and more of what its citizens earn. If this were so, then the reduction of one tax would necessarily result in the increase of other taxes.

There is a groundswell of opinion in North Dakota concerning how legislators should represent their constituents. The grassroots sentiment is that state legislators would do well to take a stand

for their citizens, not for the special interests, and to support Measure 2s repeal of the property tax. Doing so would directly stimulate the economy. The abolition of a tax, any tax, almost always results in direct increases in the standard of living, since it leaves people with more income that they can use as they see fit in the private economy. Those who create jobs get to retain more of their profits and reinvest them into growing their businesses and increasing the overall prosperity of their whole community. This is repeatedly demonstrated by econometric studies that are discussed elsewhere in this book.11 Passage of Measure 2 will ironically raise incoming state tax revenues to new heights. This we know from economic studies that all demonstrate conclusively that abolishing property taxes stimulates economic growth. Over time, that growth results in increased tax revenues from sales taxes, income taxes, and other taxes due to increased industry and consumer spending. Those increased revenues come from increased economic activity, not increases in tax rates. Studies show this additional revenue more than makes up for lost property tax revenue. Those seeking to further reduce and/or abolish income taxes in North Dakota are seeking to do our state and its citizens a great service. However, minimizing income taxes and property taxes are not either-or options. It is fully within North Dakotas power to achieve both.

On June 12, 2012, North Dakota can do away with property taxes. All citizens of the state will reap economic benefits quickly thereafter: North Dakota will see new economic activity that we will never otherwise enjoy. The benefits of lowering taxes will become clear to all North Dakotans and voters will press for further reductions in other taxes. With property taxes gone, we can continue to reduce other tax burdens and make North Dakota the number one state in the nation for business and industry to locate.

North Dakota Can Replace Property Tax Revenue with Any One or a Combination of The Following And Not Raise Any Other Tax:
1. 2. 3. 4. 5. Reducing and/or eliminating of special-interest spending Increasing current tax rates Bringing state expenditures into line with private-sector spending Allocation of increased state revenue income to lowering taxes

6. If the legislature did #1 thru #4, it could not only abolish property taxes. It could reduce or eliminate North Dakotas sales and income taxes, too! Measure 2 empowers the legislature to help the state to reap the greatest economic benefit possible from abolishing property taxes and taking advantage of our states unique circumstances.

Allocation of North Dakotas natural resource blessing to reducing our tax burden

The measure directs the legislature to devise a formula to finance what property taxes presently fund. The legislature is directed to use specific state tax revenue to replace property taxes. The measure specifies that the legislature may access other state resources. This includes royalty and land lease revenues, as well as any other state resource.

The legislature can, if it chooses, simply increase other current tax rates in an amount equal to the property tax that is abolished. But this would be needless, and in fact irresponsible, in light of North Dakotas financial blessings. New and growing oil and gas revenue alone is more than enough to fully replace property taxes, without eliminating any current programs, reducing special-interest spending, or increasing any other tax.

Even without oil and gas revenue, property taxes could be fully replaced without increasing any other tax. The state simply needs to do any or a combination of the following: Reduce or eliminate special interest spending; Bring state expenditures into line with private-sector expenditures; or

Allocate other tax revenues or state oil and gas income to replace the lost property-tax revenue.

The decision as to how it will be done has been put in the hands of the legislature. Taxes will be increased only if the legislature chooses to do so. It will be the voters responsibility to make it clear to their elected representatives what they wish them to do. Measure 2 gives voters an immense amount of real power over their tax burden and North Dakotas tax policies. If it is passed, voters will be relieved of their property tax and need not suffer any new tax in its place. North Dakota has the resources to do so. Voters have the power to demand it. And the legislature has the tools to do it. The only question is whether or not the legislature is willing to carry it out. Below is a brief discussion of the tools available to the legislature to reform our state tax policies and spending priorities.

1. Reduction or elimination of special interest spending

What are special interests?

Group trying to influence government policy: a group seeking to influence government policy in favor of a particular interest or issue.

Special interests use various forms of advocacy to influence public opinion and/or policy; they have played, and continue to play, an important part in the development of political and social systems. Groups vary considerably in size, influence and motive. Some have wide-ranging, long-term social purposes; others are focused and are a response to an immediate issue or concern. Motives for action may be based on a shared political, faith, moral, or commercial position. Organizations use varied methods to try to achieve their aims, including lobbying, media campaigns, publicity stunts, polls, research, and policy briefings. Some associations are supported by powerful business or political interests and exert considerable influence on the political process. Others have few such resources. Special interests sometimes become important, political institutions or social movements. Powerful lobby groups have, on occasion, been accused of manipulating the democratic system for narrow commercial gain and in some instances have been found guilty of corruption, fraud, bribery, and other serious crimes. Lobbying has become increasingly regulated as a result. Some groups, generally ones with few financial resources, may use direct action and civil disobedience and in some cases are accused of being a threat to the social order. These are called domestic extremists.

The American Heritage Dictionary defines a special-interest group as follows:

Special interest groups seek to not only influence government policy, but to gain access to the public treasury for the purpose of providing public funding for their particular cause. It is important to note that no special-interest group, when seeking to direct tax dollars, represents the general welfare or population as a whole. Instead it personifies only a limited segment of the population, while seeking to take monies from the taxpayers to fund or subsidize its own agenda. In some cases, it may be argued that these groups are working to promote policies, programs, and projects that some may view as important public activities. Most often, however, special-interest

groups seek to create policy or obtain funding that benefits them alone. Unfortunately these organizations pursue public funds to promote their limited interests at the direct expense of those whose tax dollars they are seeking to control12. The North Dakota legislature allocates hundreds of millions annually to such groups.

How much special interest spending is in the state budget? Its difficult to know exactly how many tax dollars the legislature dispenses year by year to special interests. The North Dakota Policy Council, a private non-profit think tank, publishes many reports on the state legislature in North Dakota. One is called the North Dakota Pork Report.13 The most recent edition (covering the 2007-09 biennium) identifies more than a billion dollars of wasted spending, much of which is doled out to special interests. Who decides which special interests get our tax dollars? Who gets our tax dollars special-interest group or not is left exclusively in the hands of our elected legislators in Bismarck. No special interest can receive a single dollar from the state treasury without a vote and spending authorization by a majority of the members of the legislature. Why do special interests get our money in the first place? Special interests get our money because they ask, and because they have the time and resources to lobby the legislature to give them our money. When our elected state representatives have access to our money, they see it as theirs to distribute to those they either want to help or believe can help them remain in office.

2. Bringing state expenses and operations into line with responsible management practices

Government is a business. In a democracy, government entities exist to serve the customer base (the citizens) by providing them with defined and limited services, just as any private-sector firm would. And like any business, government had best operate professionally, responsibly, and efficiently. Its citizens can, and should, expect from it sound management of public resources and services. So it was at the end of World War II. At the time, most of our countrys governmental entities were, for the most part, managed by men who had been drafted from the private sector. These men had run private businesses, and they drew from their experience to oversee a historically vast expansion of public infrastructure and provision of governmental services. Their guidance and management resulted in efficient and well run governmental bodies. With new infrastructure and an unprecedented increase in the standard of living, there was an excess of revenue flowing into public treasuries at all levels of government. Over the next six decades, however, this cadre of business executive recruits was slowly replaced by an incoming class of professional public servants, called public administrators, few of whom could claim any prior experience managing anything. They had never operated businesses, and, consequently, knew nothing of business management practices. Instead, their expertise lay in process: writing rules and regulations, overseeing committees, appointing task forces, seeking public input, negotiating compromise, and so forth. This new type of elected official and professional public administrator, coupled with an abundant flow of tax revenue spawned by a private sector that was not over-regulated, was a recipe destined to produce the fiscal mess we have today at virtually every level of government: excessive spending with dwindling revenue, growing debt, skyrocketing regulation, and no one at the helm equipped to put our ship of state back on course.

The majority of todays governmental bodies are failing to meet their obligation to provide sound management of public resources and services. Almost three-quarters of all states are operating in the red. Their infrastructure is in shambles and staff productivity is dismal. Not surprisingly, public unrest is common. If todays government bodies were private businesses, they would have been forced to shed expenses, review their practices, and bring spending into line with revenue either that, or close shop. Unfortunately, governmental bodies are not subject to all the rules that hold true for private businesses. They have been insulated from having to institute and follow responsible management practices. They have been allowed to refuse to act responsibly in managing public resources and services.

Certainly some private business leaders can act inefficiently, arrogantly, or irresponsibly, too. The difference is that the private sector deals with them quickly and effectively: They fail and go out of business.

Instead of exercising efficient and responsible management practices to maintain solvency, they have so far been able to ignore such requirements. When their failures become too much to ignore, the solution has been to increase revenue that is, raise taxes. When providing services, governmental entities, like their private sector counterparts, should use responsible management practices. All too often, though, they dont. Government, with its established monopoly position, routinely alienates taxpayers, fails to meet taxpayer expectations and is more often than not abusive, abrasive, arrogant and inefficient in responding to citizens. Yet, because it is a monopoly provider and is not held to the same marketplace standards as the private sector, it usually gets away with it. Instead of receiving and expecting efficient and cost effective services, taxpayers have come to expect and accept service and treatment they would never tolerate in the real world. Taxpayers need not and should not accept this double standard. The only way to again make government a servant and important public resource rather than an arrogant tyrant is to make it accountable in the same manner private businesses are accountable.

State salaries and benefits

Elected state legislators are the Taxpayers Board of Directors. They owe fiduciary duties to their shareholders. The shareholders are the voters. Employees of the company (i.e. government employees) and special interests are not the shareholders. The job of our elected officials is to manage our public resources. These resources include the precious taxes we pay and entrust to their management. Government employees are important to the effective and efficient delivery of services governmental bodies are responsible to provide. They are entitled to adequate compensation, fair treatment, and benefits for the services they perform. Its the responsibility of the legislature to see that public servants are properly treated. That said, it is also the legislatures responsibility to ensure that there is a proper balance between state employees fair salaries and benefits with a just and equitable expenditure of precious taxpayer dollars. At one time public employee compensation was intentionally kept below that of the private sector. This was the case because civil service jobs were secure. These jobs were looked upon as recession-or layoff-proof. Those taking them were aware that they might be receiving a salary and benefit package slightly below those offered in the business world for similar jobs. The tradeoff was that their jobs were more secure and generally not subject to loss/layoff. But things have changed dramatically with the growth of government at all levels. Todays average state employee receives almost 25% more than his private-sector counterpart. This increase in

governmental salaries is continuing unabated. The nationwide downturn in the economy began in earnest in 2008, and wages in the private sector are still declining. Meanwhile, the North Dakota legislature is giving state employees an across-the-board 5% annual pay raise. The state salary appropriation for the 2009-2011 biennium14 not only provided this wage hike, but it also stipulated that in no case is the increase to be less than $100 per month for each of the next two fiscal years (2011-2013). The 2011-2013 budget is somewhat more austere: It provides a 3% annual increase. Also, unlike in the prior biennium, salary increases are not across the board and must be based on merit. These are positive steps, but they still give state employees a far better deal than what their non-governmental counterparts can look forward to for the next two years, namely: no salary increases in some industries, and increases below 3% in the others, along with more and more layoffs. And whats a layoff, in reality? Its a 100% salary decrease! The 20112013 budget increased state employee health insurance monthly premium payments from $826 to $887. The annual per-employee state health care benefit is now $10,644.

The inequity doesnt stop there. North Dakota state employees have a health care package that covers 100% of the cost of their health care. The state pays a health insurance premium for every state employee that exceeds $10,000 per year. For the 20092011 biennium, the legislature increased taxpayer payments for each state employee by $2,014.68 annually. These health care benefits cost taxpayers more than $100 million annually.

In addition, the legislature added $22.99 million for pay equity increases. This upgrade is in addition to the health benefits and the 5% annual pay raise. It is the result of a study funded by the legislature purportedly aimed at seeing that similar jobs are all paid the same. It is an academic fiction. Interestingly, in no cases were any pay scales reduced. All were boosted. If state employee salaries and benefits were brought in line with the private sector, taxpayers would see a savings between $100 million and $300 million annually. In 2010, budget obligations exceeded revenues in almost 40 states. The majority of these states budget woes are the direct result of personnel costs rising too quickly for revenues to keep up. These states, all of which are required to operate under a balanced budget, are faced with either having to raise taxes or reduce expenditures. More and more of them have responded by shedding employees. America found itself in a recession in 2009, with 10% of the workforce collecting unemployment and another 10% not working. Thus, almost 20% of Americas workforce was unemployed or underemployed. Faced with a high jobless rate and a sluggish economy, state governments have been facing a fiscal dilemma: Cut costs or raise taxes, and most state officials are either unable or afraid to raise taxes. The consequence of years of unfettered spending hit hard. Governments expansion during good times, with increased salary bases, benefits, and growing retirement obligations, coupled with recession finally brought the sobering reality of mismanagement into focus. North Dakotas excessive employee obligations are no exception. However, because of already high taxes relative to obligations and its natural resource bounty, North Dakotas legislature and executive branch have been able to mask their excesses.

This state is blessed. North Dakota has the opportunity to take control of its spending and avoid the woes other states are facing if it acts prudently. Failure to do so will result in North Dakota having to take the same actions other states are now taking in regard to employee salaries, benefits, and retirement obligations. North Dakota needs to and can avoid this if it has the political will and leadership to do so.

If North Dakota voters turn out to vote in favor of Measure 2, it will send a loud and clear message to our state legislators. Citizens, in effect, will be telling them to carefully look at our states income and resources and to adjust spending, set priorities, and institute sound management practices. North Dakota can become a role model for the nation.

State operations functions, services, and responsibilities

What are the required functions, services, and responsibilities of the state? Article I, Section 2 (Declaration of Rights), states: All political power is inherent in the people. Government is instituted for the protection, security and benefit of the people, and they have a right to alter or reform the same whenever the public good may require. Article IV, Section 7 (legislative branch), states: The legislative assembly shall enact all laws necessary to carry into effect the provisions of this constitution. Relative to political subdivisions (Article VII, Section 2) the legislature is directed to provide by law for the establishment and the government of all political subdivisions. The legislature is to establish political subdivisions and (Article VII, Section 1), To provide for maximum local self-government by all political subdivisions with the minimum duplication of services. Article I of the North Dakota Constitution spells out the Declaration of Rights of the people in the state. It is for the purpose of ensuring these rights that the political subdivisions of government, including the state, have been established. The functions, services, and responsibilities required of government are the ones set forth in the Constitution. Those that are not specifically or clearly spelled out are discretionary.

Constitutionally required functions must be met before discretionary functions are funded. Politicians must begin to distinguish between required governmental functions and discretionary ones. For the long-term security of all of us and the viability of our public institutions, we must begin to say no to special interests and excessive discretionary spending.

3. Allocating increased revenue to tax reduction

The states legislators act as if tax revenues belong to them and are theirs to do with as they wish. Recent budgets adopted by the North Dakota legislature illustrate the point. Over the past 10 years, state tax collections have far exceeded whats necessary to provide for legally obligated state services. Revenues exceeding those collected during each prior budget period have consistently been used to expand spending, programs, and compensations beyond required responsibilities, beyond the CPI, beyond compensation in the private sector, and at more than twice the rate of increases in taxpayers personal incomes. Instead of reducing the tax burden for North Dakota taxpayers, the legislature has done the opposite and kept taxes high. The legislatures actions can be summed up as, If we have it, we will spend it. This has not occurred because of need or requirement, but because of a lack of fiscal discipline. Revenue coming into the state treasury over the last 10 years has increased as a result of overall economic expansion, not population growth. The legislature has chosen to grow government programs and the government itself. This decision has resulted in a decreased standard of living for North Dakota families. By 2013, the state legislature will have increased general fund spending 135.26% above its levels in 2001. Dont blame this one on inflation. In that same 12-year time frame, the consumer-price index will have increased merely 26.03%, and personal income went up by a modest 57.53%. The

bottom line: State governments income is growing while taxpayers incomes and standards of living are shrinking.

Its time to reverse this disparity. North Dakota families would be much better off if the legislature curbed its spending. As can be seen in the charts above, state general fund spending has increased at a rate significantly greater than either the CPI or its citizens personal income growth.

North Dakota suffers from too much government spending and an astounding lack of discipline by those who have been elected to manage our state. Rather than seeking to ensure that North Dakotas citizens retain as much of their earnings as possible, elected officials have sought to spend as much money as they possibly can. Limiting the tax burden on citizens has not appeared anywhere on their agenda.

What if state spending growth had been kept to that of the CPI?

Were the legislature to have kept spending increases to that of the CPI, general fund expenditures would have gone from $1.68 billion for the 2001-03 biennium to $2.12 billion for the 2011-13 biennium. Instead, the legislature approved spending $4.07 billion for 2011-2013. That amounts to a full $1.95 billion more than would be justified had the legislature limited its spending to the increase in the Consumer Price Index. Had the legislature limited spending to the CPI since the 2001-03 biennium, by 2013, taxpayers would have had $4.03 billion less to pay in taxes.

Had the legislature limited its growth in spending to the growth in the CPI and lowered taxes between 2001and 2013 North Dakota taxpayers could have seen the: State sales-tax rate decrease by 69% from 5% to 1.5%; or Any combination of the above. Individual income taxes totally eliminated, with $751.6 million left over; or Corporate income taxes totally eliminated, with $3.06 billion left over; or

Instead, government has grown; family budgets have been squeezed; and North Dakota citizens have seen a decline in their standard of living while government grew bigger and bigger

What if state spending growth had been kept at that of the growth in personal income?

If the legislature had kept spending increases at the same rate as the growth of personal income, general fund expenditures would have gone from $1.73 billion for the 2001-03 biennium to $2.76 billion for the 2011-13 biennium. Had the legislature equalized its spending to the growth in personal income between 2001-03 and 2011-13, taxpayers would have paid $1.71 billion less in taxes than they did pay. Had the legislature tied its surge in spending to the growth in personal income and low-

ered taxes between 2001and 2013, North Dakota taxpayers could have seen the: State sales-tax rate decrease by 30% from 5% to 3.5% Individual income taxes reduced by 52% Or any combination of the above Corporate income taxes totally eliminated, with $734.2 million left over

Very importantly, without counting any revenue from royalty payments or oil and gas tax income, if growth and spending were kept at either the increase in the CPI or personal income, property taxes could be eliminated without any increase in any tax.

4. Oil and gas revenue

To repeat, North Dakota has been blessed with a bounty of natural resources: large tracts of land under which sit billions of gallons of oil and gas. The royalties from this bounty belong to the people of North Dakota.

It is the responsibility and right of the people to direct how the legislature uses these natural gifts of nature. Unless the legislature receives a very clear and unambiguous message to the contrary, this largess will be consumed by an aggressively expanding government.

In April 2010 Lynn Helms, director of the North Dakota Oil and Gas Division, concluded there were about 4 billion barrels of recoverable oil in North Dakota. He added that with current technology, production at todays rates would run for 30 to 40 years.

Helms office estimates that the North Dakota portion of the Bakken Shale Formation contains 167 billion barrels of oil, of which 4 billion are now recoverable. Oil companies, led by Continental Resources, Inc., the largest operator in the Bakken, believe the ultimate recovery to be 24 billion barrels. Half that amount is underneath North Dakota. Thus, current estimates of recoverable oil in North Dakota at current rates of production would run for 90 to 120 years. There is no certainty as to how much oil actually exists under North Dakota or exactly how much is recoverable. The United States Geological Service (USGA) last did a study published in 2008. In early 2011 it announced it was undertaking another study, which it stated would be completed within 2 years.

In any event, the most conservative estimates call for at least 30 years of production at current rates. But that number will likely be raised considerably if historical trends bear out and if the technology for locating and extracting oil and gas continues to grow more sophisticated. Industry estimates project no fewer than 90 years. Currently, oil production alone puts more than $100 million a month in the North Dakota treasury. The revenue from oil comes from two sources. The first is taxes levied on the oil companies. The second is royalty and land lease payments received from oil extracted from state lands. Oil and gas tax revenues from taxes currently exceed $1.3 billion annually. This does not include lease revenue of state land for oil and gas wells or royalty payments on oil and gas taken from stateowned land. Royalty revenues are proceeds directly related to the natural resource bounty of the state and come with no burden to any taxpayer. Under current production and revenue streams from oil and gas, more than $1.25 billion dollars flow into North Dakota accounts yearly. This income is not currently allocated to government obligations. It is new revenue; the legislature will decide how it will be allocated. We believe it should be used to replace property taxes making North Dakota the only property tax-free state in the nation15. If the legislature sought to benefit the general welfare of the state, it would use this new wealth stream to reduce taxes rather than expand government. Allocation of less than 60% of the new oil and gas profits would totally replace property tax revenue. These estimates are based on current production. If the production increases, so will the income stream. In this case, the legislature could put those additional monies into a property tax replacement trust to ensure revenue long into the future to keep us free of property taxes.

What happens when oil and gas revenues run out?

The most conservative estimates indicate oil and gas revenue will continue unabated for at least 30 years. It is reasonable that the proceeds will last two to four times longer if, as has often been the case throughout history, either the proven reserves exceed estimates or the technology changes. Amend the Constitution to again impose property taxes Increase sales- or income-tax rates Reduce other spending Or any combination of these options

What happens when this revenue stream does run out? That is a decision for the people to make at that time. However, if they wished they could:

One thing we know today is that oil and gas revenue is providing us a continual flow of money that requires no tax rate increases and no new taxes unless our legislature decides to expand government to consume it, and continue funding special interests rather than reduce our tax burden. It is up to the state legislature to allocate how to use these oil-and gas-related windfalls. One viable option would be for the state to use them to to replace property tax revenue when the voters pass Measure 2. This would require no new taxes, and it would put $750 million back into the private economy and directly into the pockets of business and families in North Dakota. This would be the most responsible way to share with North Dakotas citizens the great natural resource bounty of our state.

5. Increase current tax rates

The legislature could choose to hike current tax rates on the premise that more monies are needed to fund the programs and services currently being supported by property taxes. However this would occur only if the legislature: 3. dramatically increased spending on current and new programs to more than the $2.5 billion in new revenue (each biennium) from oil and gas; and 1. continued to finance all programs and expenditures currently being subsidized

2. re-allocated expenditures for all public programs that have been identified as one-time spending;

4. boosted spending on current and new projects to consume most or all the revenue from sales, income tax, and other current taxes

5. Even if the legislature were to spend every dollar and increase taxes, abolishing property taxes serves another, very important purpose: making all property owners secure in their homes. North Dakota would be the only state in the nation where citizens would never have to fear that they will lose their homes to the tax man. No longer would anyone have to rent his/her home from the government. No longer would the government be everyones landlord. And there would still be no net increase in the total taxes we are currently paying.

If the Legislature did #1 through #4, they would not only abolish property taxes; they could substantially reduce or eliminate sales and income taxes in North Dakota, as well!

North Dakota is blessed with a strong economy, an abundance of natural resources, and the most productive and robust people in America. If the state is properly and skillfully managed without increasing any taxes it could abolish property taxes and also reduce both our state sales tax and income tax rates, all while continuing to fully fund every program that its citizens need.

Not only is there is no justification for increasing any tax, there is no reason to keeping current taxes at the high level where they are now. That is why the grassroots organization, Empower the Taxpayer, was founded: to help free North Dakotas citizens from needless and burdensome taxation. The impact of abolishing property taxes has been diligently researched by Empower the Taxpayer. It discovered that not only can we abolish real estate taxes without increasing other taxes, but there would still be a significant amount of unallocated revenue left in the state treasury. The legislature has in its grasp, sufficient resources to fully and properly fund all state and political subdivision obligations and responsibilities while significantly cutting the citizens tax burden. All its lawmakers need is the determination to do it. It is clear that special interests wield a great deal of influence in the state legislature. However, an informed and active citizenry can bring an equal or even greater amount of pressure to bear on their elected officials. The purpose of this book is to inform and enlighten taxpayers. Government has grown large and distant from those whose money it takes and on whom it imposes taxes, rules, regulations, and mandates. Measure 2 is a major step for citizens to direct their government, free themselves from taxation of their property, limit their tax burden, and facilitate fewerbut bettercitizen-friendly rules and regulations.

How Do We Fund Local Spending for Things Other than Legally Imposed Obligations?

Property taxes currently pay for over 40% of the budgets of counties and a similar amount for those of cities, towns, and townships. They also finance a varied percentage of the budgets of other political subdivisions that receive funding from their authority to impose mill levies. When real estate taxes are eliminated, this revenue will be replaced by monies from the state general fund and other state resources. If local political entities no longer have authority to impose property taxes, by what other means if any would they be able to raise revenue? There are four primary methods available: 1. Special assessments (including special levies); 2. Local option sales tax; 3. Other taxes and fees; and 4. Citizen involvement, including donations and volunteer efforts. 1.Special assessments Special assessment is the term used to designate a unique charge that has historically been assessed against real estate parcels for specifically defined projects. The charge is levied in a specific geographic area known as a Special Assessment District (S.A.D.). This special assessment is imposed against real estate that has been identified as having received a direct and unique benefit from the project. Special assessments are only applied after the property owners in the special assessment district have approved the proposal. Approval may be by majority vote of those in the S.A.D. or by a super-majority vote (in which 60% vote in favor). Most assessments are sanctioned with a simple majority vote. In North Dakota many school bond issues (which are generally identified as special assessments) require a super-majority vote. Measure 2 does not prohibit special assessments. Historically, such assessments have been associated with property taxes because they have been funded through a levy against property and collected as a part of the property tax. With the abolition of property taxes, special assessments dont go away, but the method of assessment and collection may change. If property taxes are abolished how would special assessments be levied? One of the functions performed in a property tax system is assessing the value of each property. This is an expensive and time-consuming process. It could be retained if property taxes were abolished, but it wouldnt have to be. There are simpler, less costly alternatives.

The nature of the assessment would be the most important factor in determining the most equitable method to allocate the cost of special assessments. The procedure to do so may be determined by statute. The legislature has the authority to either delegate the method or methods used to the local jurisdiction(s), or it could define the options available that the jurisdiction(s) could utilize.

For example, lets say it was determined that there will be a special assessment to replace curbs, gutters, and sidewalks in a neighborhood. The most equitable way to base the assessment would be on a frontage foot basis, making adjustments for corner lots. 2.Local option sales tax Charter cities and counties in North Dakota have been given authority by the legislature to impose sales taxes in their geographical areas. More than 100 cities and counties have chosen to do so. Local option sales taxes raise tens of millions of dollars each year and fund a multitude of different projects and purposes.

Or if a community wanted to build a recreation facility, it would be fair to appraise all properties equally, since all would be entitled to equal use and benefits. In the event this was the method chosen, the cost would be divided by the number of properties and assessed accordingly.

The local sales tax is collected with the state sales tax. The state then returns to each local jurisdiction its proper portion. The cost to administer this process is minimal. Under this system, voters have control over this portion of their own tax burden. This, in turn, would surely encourage taxpayers toward greater participation in the elective process. Nothing is healthier in a democracy. Sales taxes Use taxes

This is an excellent way to raise revenue in local jurisdictions for a number of reasons, the foremost being that it is usually imposed for only a set period of time and for a specific purpose. This means that the voters/taxpayers can have the tax discontinued at any time, if a majority wishes. 3.Other taxes and fees Charter cities and counties have authority to implement a wide variety of other taxes and fees in addition to special assessments. Counties, for example, have the following tax options at their disposal: Income taxes Farm machinery gross receipts taxes Motor vehicle registration fees Excises Fees Local option sales taxes Charges Alcoholic beverage gross receipts taxes

Municipalities do not have the authority to levy income taxes. They can, however, impose any of the following:

Motor vehicle fuels and special fuels taxes

Charges for services to the extent authorized by state laws

Clearly, cities and counties both have arsenals of tools with which to fund local spending. Thus, our state is equipped at all levels to pay for its obligations, per Measure 2, via state revenues and resources.

4.Citizen involvement In addition to taxation for the purpose of providing goods and services, the citizens of any political subdivision may come together to donate their time and money for any purpose they choose. Those goods and services a community would like to have, and which it isnt required by law to provide, may be generated voluntarily and made available to everyone in the community. This is the essence of a democracy.

How Measure 2 Will Affect the Way the Legislature and Other Governmental Bodies Function

Chapter One of this book explored whats wrong with property taxes. Chapter Two discussed many of the positive consequences of abolishing property taxes. This section will address some of the ways that Measure 2 may change the way our elected officials go about their jobs.

As with anything new, its not possible to predict all intended or unintended consequences with certainty. One thing we can fairly confidently predict is which groups will oppose abolishing property taxes. Many citizens believe much of the initial opposition will cease once those in opposition understand Measure 2. As Measure 2 is fairly and openly debated, fear of the unknown, ignorance, continuation of the status quo, and self-interest motivations to retain property taxes will be fully explored. Those opposing Measure 2 will generally fall into one of the following groups: Those who fear and have a difficult time dealing with change Those who have not read or studied Measure 2 Those who see Measure 2 as eroding their power base Those who have a vested financial interest16 in continuation of the property tax system17 Many elected officials and bureaucrats18 Special interests that benefit financially from the property tax system, including:19

Possible changes in how the legislature and other governmental bodies may function: There will be a necessary reordering of the understanding of the relationship between the State and its political subdivisions

1. Businesses receiving abatement of their taxes 2. Homebuilders that lobby for abatement on new housing 3. Property owners that are able to use Enterprise Zoning and TIF financing for competitive and personal financial advantage 4. Elected officials that build a voter and financial support base in exchange for doling out special treatment to their special-interest constituents.

The spokesman for the North Dakota Association of Counties expressed concern regarding state funding of what is currently funded from property-tax revenue. He stated, Counties should not have to rely on state generosity to fund local government!

Clearly he fails to understand the nature and function of government. It is not a parent, and it does not provide generosity to anyone, except when it is assisting the poor. State government is a resource for counties and other political subdivisions. The revenue that it collects does not belong to it. The state is simply an agent who is taking in monies for the benefit of its political subdivisions. It does not exist to dole out goodies for the compliant or withhold them for those not compliant. It is a servant of its political subdivisions and, more importantly, of its citizens. Measure 2 recognizes this. Replacing property taxes with other revenues, contrary to what the North Dakota Association of Counties may think, is not at the generosity of the State. It is a constitutional responsibility and obligation. When the State collects sales taxes, income taxes, and other taxes, it is doing so for the benefit of its political subdivisions, not for its own advantage. The citizens of North Dakota live in various political subdivisions throughout the state. These political subdivisions have been created to serve their inhabitants. While counties, cities, townships, etc., are creatures of the state, the state exists as a resource to serve these subdivisionsnot the other way around.

It makes sense to collect sales and income taxes as well as other types of taxes at the state level. In this regard, the State is operating at the behest of the political subdivisions. The state is not obtaining taxes statewide for the benefit of the state. It is collecting them so that it can allocate them back out to each of its county level and municipal locales.

Before it uses state resources (including tax revenues) for non-constitutionally required expenditures, the state must first fully and properly fund all legally imposed obligations of its political subdivisions. Thus, there can be no discretionary spending by the state legislative body unless revenue is available after the states political subdivisions have been fully and properly funded so they can fulfill their legally imposed obligations. There is absolutely no generosity involved, despite what some suggest.

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

One state senator20 expressed his concern that the states political subdivisions could not trust the state to provide the resources for them to meet their legally imposed obligations. He stated, Sure, Measure 2 may give the political subdivisions absolute authority in how they spend what they get, but were the gatekeeper determining how much we will give them. He stated that under Measure 2, there would be no local control, because even if the state could not attach strings as to how local jurisdictions spend what they get, the state would be determining what each jurisdiction gets in the first place.

This senator has expressed, in very clear terms, how central governmental bodies have lost sight of their proper role and function. Instead of being an agent of its political subdivisions, the central government sees itself as towering above them. Instead of seeing itself as a resource to those political subdivisions, it believes it exists to dictate to them. Discussions with many state legislators regarding the relationship between the state and its political subdivisions are troubling. For the most part, our lawmakers see their duty being to the state, and not to the citizens who elected them into office. It is astounding to hear these elected officials repeatedly state that counties, cities, towns, and other political subdivisions cant trust the state governing body. They are really saying we cannot trust them! If those legislators understood that the state exists for the benefit of its political subdivisions and not for itself, such statements would never be made. Our state legislative body is the board of directors of the state government. Those that elect them are the shareholders. Everything the state has is held in trust and is to be managed for the benefit of the states citizens, not for the benefit of some creature known as the state. The states legislative body is not a parental body elected to rule citizens. It is elected to fully and properly provide the resources that it collects and manages to its political subdivisions. Those resources belong to the citizens of the state, not the state. And they are collected solely for the citizens benefit. Political subdivisions have been created to facilitate providing services for the benefit of the community and its members. A limited number of those services are best provided centrally. The vast majority, however, should be provided by those political subdivisions closest to those receiving the services. That is the reason political subdivisions were created.

Measure 2 is a mechanism to allow all ND residents to finally have security in their homes, and to help better order the relationship between the state and its political subdivisions

Measure 2 will bring about changes in how the state legislature and other governmental bodies function and interact. In addition to abolishing an expensive, harmful, complex, and unfair tax, it will stimulate other much-needed changes in how our political bodies function. Measure 2 will:

1. For the FIRST TIME bring about actual, enforceable and meaningful local control

1. Bring about actual, enforceable, and meaningful local control; 2. Cause elected officials to focus on fulfilling their legally imposed obligations; 3. Assist elected officials and the public to more clearly know what functions of government are discretionary and which are not by directing the publics attention to examining what the states true obligations are to the citizenry; 4. Prioritize spending of our tax dollars particularly at the state level; 5. Encourage the state to work with local governing bodies, not over them; 6. Attract to elective office those with management skills and experience; 7. Make political bodies more accountable to their constituents and better attuned to how to meet their needs; and 8. Make clear who is responsible for government decisions that impact citizens and local communities.

With Measure 2s enactment, North Dakota will have, for the first time in its history, actual and enforceable local control over spending. Some people believe that property taxes are a means of local control, but that is a myth. Property taxes are under the control of the state. The collection of property taxes in North Dakota is executed at the local level. This is the extent of the local control. How property taxes are administered, what the mill rates are permitted or required to be, and how and for what these taxes are spent is largely, if not entirely, controlled by the state legislature. Measure 2 prohibits the state legislature from directing how local political bodies spend the money the legislature appropriates to replace property taxes. Every dollar appropriated will be spent at the sole direction of the governing bodies of counties, cities, townships, and other political subdivisions. No longer will the legislature need to spend time writing legislation conditioning how local political bodies expend the revenues they receive from the legislature. Instead, they will need to focus on ensuring that they fully and properly fund the legally imposed obligations of the states political subdivisions.

Measure 2 gives all political subdivisions, except school districts, complete autonomy over the expenditure of revenues they receive from the state legislature to meet their legally imposed obligations. School districts are a separate case. Property taxes account for approximately 30% of school district funding, with the remaining balance covered by the state general fund. Measure 2 directs that this 30% cannot be conditioned by the legislature in any manner; expenditure of these funds will be at the sole discretion of the school board.

Measure 2 will force the legislature to reconsider what governments duties and obligations are. Currently the legislature has no guidelines on spending: They meet and pass numerous bills funding pet projects as they see fit, and are often swayed by lobbyists to pour taxpayers money into the pockets of special interests. Lawmakers give little, if any, thought to the appropriate use of our hard-earned dollars. They concentrate on collecting as much of our money as they can and spending it on whatever they wish. This must end. Measure 2 provides an excellent opportunity to change the way business is done in Bismarck and around the country as the citizens of other states take up the charge.

2. Focus on legally imposed obligations

The legislature (as well as counties, cities and other political subdivisions) is required to fund its legally imposed responsibilities before it undertakes discretionary spending. The very concept of limited government is one that fulfills its legally required obligations and stops there. When government moves beyond funding what is legally required, the inevitable result is a growing government with ever-rising taxes and a ballooning bureaucracy. Measure 2 significantly impacts the legislatures fiscal responsibilities by requiring it to identify what are legally imposed obligations. This will make it clear to both elected officials and the public what it is that government has been established to do and is or isnt required to do. Activities that are not legally imposed are discretionary and not necessary governmental duties, responsibilities, or obligations. Measure 2 will, for the first time, require the state to define legally imposed obligations, both for itself and for its political subdivisions. Spending hundreds of millions annually to subsidize non-resident college student tuition was a legally imposed obligation; Spending hundreds of thousands to fund a horseracing commission was a legally imposed obligation; and Spending millions for grandstands was a legally imposed obligation, and so on. Identification of legally imposed obligations will make it easy for taxpayers to identify whether their tax dollars are going for necessary government purposes or being expended to fund specialinterest programs. For example taxpayers would know whether:

3. Focus on legally imposed obligations will help elected officials and the public to clearly know what functions are discretionaryi.e., not required

Because Measure 2 requires the legislature to clearly identify legally imposed obligations and to fully and properly fund them, this will be the first time that the legislature must identify what is required to be funded and what is not. By definition, all things not required are discretionary. Discretionary spending may sometimes benefit the community as a whole. However, as can clearly be seen when taking even a cursory look at the state budget, as well as almost any county or city budget, much of what is funded with tax dollars does not benefit the public at large. Millions of tax dollars go every year to special interests that taxpayers would never knowingly fund. In a democracy, taxpayers can allow their tax dollars to fund special interests if they wish. However, it must be made clear to the voters and taxpayers what expenditures are legal obligations, which are discretionary, and which simply fund special interests. Measure 2 provides a major tool to help taxpayers know how their tax dollars are being used: whether tax dollars are going to required government functions, to necessary public services, to discretionary spending, or to the wishes of special interests.

This will pose a new reality for state legislators and the elected officials of the states political subdivisions. It will make it clear to voters and taxpayers what government is and isnt required to tax them to fund. How voters and taxpayers use this information will be up to them, but the information will, for the first time, be available to everyone. Such public knowledge is critical in a democracy. The only way a democracy can sustain itself is with a fully informed electorate.

4. Prioritize spending our tax dollarsparticularly at the state legislative level

Let us remember that North Dakota has a representative democracy. Its state legislators are locally elected. That means that voters are responsible for ensuring that those legislators know their wishes and are carrying them out.

The state collects the majority of tax revenue (state sales, income, and oil and gas taxes), but that money does not belong to the state. It belongs to the people of the state. Central collection of these taxes makes sense. However, just because the state collects the revenue does not mean that the state may with impunity spend it any way that it sees fit. Measure 2 makes it a constitutional responsibility of the state to use the revenue that it collects to fund the legally imposed obligations of its political subdivisions. After all, the people live and work in their local counties, cities, towns or townships, not the inclusive state. As Measure 2 outlines, the state collects taxes only on behalf of its political subdivisions. Measure 2 makes clear that the state is a tax-collection agent, but it is not the spending authority. Spending decisions remain with the subdivisions. The state, as the collection agent, is responsible to gather tax revenue and then fully and properly distribute it to each and every one of its political subdivisions, so that they can pay their own bills as they choose. After and only after the people living in the states counties, cities, towns, and townships have been properly funded, does the state have discretion to fund other, non-constitutionally mandated spending wishes.

How will local governing bodies fare if they do not have property taxes and rely on the central governing body to fund what had been previously paid for with property-tax revenue? What if the state governmental body faces unexpectedly tight revenue flows? Will it cut back local aid and leave communities dangling? Measure 2 has been designed to give local political bodies significant tools to see that the central governing body funds them properly. The most powerful tool is that constitutionally the central governing body the state is required to fully fund the legally imposed obligations of local political bodies. This is not a suggestion. Its a mandate, one that is enforceable through the judicial system. This power, held by political subdivisions, is not self-executing. In the event the state fails to fully and properly fund political subdivisions, legal action is the tool to require it to meet its constitutional mandate. This is not a hypothetical tool. It is a real one that is spelled out within our constitution. The state must meet its constitutional responsibilities. It doesnt have an option. North Dakota has had experience with this. When the state took over the responsibility to fund 70% of K-12 education, there was an immediate conflict. The districts challenged the method and the amounts the state initially proposed. The disagreement ended up in the state court. The court stepped in and effectively arbitrated the dispute. The system put in place has worked well to this day, and there has been little disagreement as to proper and fair funding by the state of K-12 education. The abolition of property taxes will, like the shift from local funding of the majority of K-12 education, achieve some much-needed adjustments in how the legislature fullfills its mandate under Measure 2 to properly finance its political subdivisions.

5. Encourage the state to work with, not tell local governing bodies what to do

Measure 2 has been designed to encourage the state to work with local government bodies instead of merely dictating to them what to do or not do. With few exceptions, governance works best when the decisions impacting local areas are made by the people living there. North Dakotas Constitution and its Century Code spell out the duties and obligations of its

political subdivisions. How each subdivision implements and meets these duties should be, to the greatest degree possible, left to the local governing bodies. What works for one locale does not necessarily work for another.

Measure 2 was designed to fund the legally imposed obligations of political subdivisions with general fund revenue AND give those bodies discretion over how they allocated the revenues. In this respect the state has the opportunity to act as a clearing house of ideas and advice to political subdivisions. That is, it can provide information and serve as a conduit of ideas and recommendations to assist local bodies in meeting their responsibilities. Rather than acting as a parent or overseer, mandating what must be done or will not be allowed, the relationship between the state and its political subdivisions will change under Measure 2. Decisions will be made where those who are affected live. Moreover, those who are affected will be able to influence the impacts and the trajectory of change more directly and more quickly.

6. Attract to elective office those with management skills and experience

Measure 2 will facilitate a change in how state and local governing bodies function. This includes the responsibility and authority of these bodies. Measure 2 changes some of the functions of state government from managing and directing to allocating. Likewise, it will change the authority and responsibility of local political subdivisions.

The state legislative role will, in many areas, change from directing to analyzing the legal responsibility of its subdivisions, assessing the necessary fiscal resources, and determining how to provide those resources. Local governing bodies will find their responsibilities change from implementing directives to managing the implementation and meeting the duties and obligations of the governing body. This will shift accountability of governing bodies much closer to where the services and obligations are being provided. In a representative democracy, its critical that those impacted by government decisions are able to directly impact the governing body. Measure 2 puts the authority close to home and ensures full and fair funding. Measure 2 will require both state officials and locally elected officials to meet new and different responsibilities than they have in the past. These responsibilities will encourage those with business, executive, and management skills. This would bode well for taxpayers. The focus would be on meeting legal obligations and responsibilities first and foremost. The state would work, we anticipate, diligently with local bodies to best define legally required duties and then ensure that they are met. Financial resources to meet the legally required obligations will be the first to be allocated from general fund revenues. Once these are fully met, any remaining revenue would be made known, and this will be the resource from which non-required obligations and/or responsibilities could be funded. Alternatively, if there were additional revenues, it would be clear to taxpayers. Then the question would be, should this excess revenue be spent on discretionary things, or should tax rates be reduced?

7. Local political bodies are more accountable to their constituents and better understand how to meet their needs

Accountability is best maintained when the control is closest to those exercising authority. Measure 2 moves the decision-making process to the local level. Measure 2 not only abolishes a disgraceful, complex, and unfair tax; it also brings spending authority and control to the local level. Local control is the essence of democracy. With control comes responsibility. Responsibility needs to be clear and be able to be held accountable. There is no better way than being able to do so locally.

8. Elected officials will be held more accountable and cant point fingers

Accountability is best served when those who have responsibility are easily identified and when the impact of their decisions can be seen and understood by those electing them. Our political system has evolved or devolved, perhaps to where it is often unclear who is responsible for what. This may be intentional or not. Either way, Measure 2 will cut through the uncertainty and specify where the political responsibility rests. The state legislature will have a definitive say in what legal responsibilities the political subdivisions do and do not possess. When questions arise, it will be obvious which group of elected officials has authority to address the matter. Pointing fingers, which todays politicians do far too much of, will be more difficult. Measure 2s primary purpose is the elimination of an especially harmful tax the property tax. Repealing this tax will, for the first time in North Dakotas history, give citizens real security in their homes. No longer will North Dakotans be required to rent their homes from their government or fear that their homes will be seized if every last penny of their taxes is not paid. In Measure 2, voters have a tremendous opportunity to receive the great bounty of the natural resources with which their state has been blessed, and to direct this bounty toward simultaneously reducing their tax burden and boosting their quality of life. The choice will be made by the voters of North Dakota on June 12, 2012. Measure 2 will also put the allocation of all spending directly in the hands of local officials. It will guarantee, for the first time in North Dakotas history, local control over expenditure of revenue to meet all legally imposed governmental obligations.

Notes
Chapter 1 Endnotes
1 2

Omdahl, Lloyd. Property tax repeal will fail at the polls. Bismarck Tribune. April 10, 2011. URL: http://bismarktribune.com/news/columnists/article_dab8d8a8-5fc7-11e0-8c13-001cc4c002e0.html

The formula for how much a given property is valued for taxing purposes depends on the classification of the property. For residential property, the determination of taxable value begins with the true and full value or market value of the property. The true and full value of residential property is usually established by the local assessor. The assessed value is 50% of the true and full value and the taxable value is 9% of the assessed value. For commercial property, the true and full value of most commercial property is established by the local assessor. The assessed value is 50% of the true and full value and the taxable value is 10% of the assessed value. For agricultural property, the true and full value of agricultural property is based on productivity as established through computations made by North Dakota State University of the capitalized average annual gross return of the land. This information is forwarded to the State Tax Commissioner who certifies to the county directors of tax equalization the estimated average true and full agricultural value of farm and grazing land in each county The assessed value of agricultural land is 50% of the true and full value and the taxable value is 10% of the assessed value (State and Local Taxes: An Overview and Comparative Guide 2010).
3 4

Property Tax Rates. North Dakota Department of Commerce, available from http://www.business.nd.gov/businessInformation/operating-costs/tax-expenses/property-tax-rate/

One mill equals .001. Multiplying the taxable value of a property by the mill levy gives you the amount of tax due.

State and Local Taxes: An Overview and Comparative Guide 2010.

6 7

ibid. ibid.

8 9

Fong, Cory. State and Local Taxes: An Overview and Comparative Guide 2010. Bismarck: North Dakota Office of State Tax Commissioner. 2010.
10 11 12 13 14

U.S. Census Bureau, State and County Quick Facts. URL: http://quickfacts.census.gov/qfd/index.html

The exemption for disabled persons and low-income elderly persons is more commonly called the Homestead Tax Credit. See Homestead Tax Credit for Senior Citizens or Disabled Persons. All examples of exemptions can be found in State and Local Taxes: An Overview and Comparative Guide 2010, as well as many other documents published by the Office of State Tax Commissioner. For an example of the state advertising exemptions for economic development purposes, see North Dakota Tax Incentives for Business.

For an example of a city using exemptions for economic development purposes, see Dotzenrod (2008) on the City of Grafton granting a 20-year property tax exemption to lure a manufacturing firm. The use of TIF districts can be quite controversial, because they take funds that would otherwise go to other political subdivisions, such as schools and parks, and divert them to the city government, which then uses them to finance additional projects and/or services that benefit the businesses within the TIF district. The practice has even led to a lawsuit in one North Dakota city (Eckroth, 2011).

The year-over-year increase in total sales tax collections in North Dakota was an outstanding 33.6% during the first three months of 2011. Leading the way were the cities and counties in the midst of the booming oil patch (North Dakota taxable sales up 34% in 1st quarter). In fact, in spite of Cass County, which includes the City of Fargo, having a far greater number of residents and whose own taxable sales increased by a very healthy 5.59% annual rate, it was Williams County, which includes the City of Williston in the western part of the state, that was the top county in overall taxable sales (North Dakota Sales and Use Tax Statistical Report: First Quarter 2011).
15

For an illustration of the rise in local tax revenues, see Fongs 2010 edition of State and Local Taxes: An Overview and Comparative Guide 2010). Note that the dip in local revenues in 2009 was due to the program enacted by the state legislature to provide property tax relief that is, local property tax revenue fell, but the total revenue available to local governments for expenditure did not fall, since lost property tax revenue was replaced by additional revenue sharing from the state. See the Office of State Tax Commissioners 2010 Property Tax Statistical Report, available online at www.nd.gov/ tax/property/pubs/statreport.html.
16

Robyn, Mark ed. Facts and Figures: How Does Your State Compare? Washington, DC: Tax Foundation. 2010. In this annual report, the Tax Foundation compares property taxes in relation to home values nationwide.
17 18 19

North Dakota Legislative Council. 2010 North Dakota Finance Facts. Bismarck: North Dakota Legislative Branch. 2010. URL: http://www.legis.nd.gov/fiscal/pdf/2010ndfinancefacts.pdf
20

For anecdotal evidence of the level of political awareness surrounding the issue of property taxes, see Dugan (2009).

For a graphical representation of K-12 public school enrollment versus spending, see the North Dakota Legislative Councils report 2010 North Dakota Finance Facts. In regards to state aid to public schools, the Legislative Council reports that the state appropriated $665.6 million from the General Fund and State Tuition Fund in the 2003-05 Biennium, which was a significant number at the time, yet transfers to schools have since increased dramatically, reaching $1179.2 million during the 2009-11 Biennium including the $295 million property tax relief program.
21

For instance, even with record amounts of revenue forecasted, the latest numbers from the North Dakota Office of Management and Budget puts the 2009-11 budget at an estimated $235.7 million, or 8.4%, ahead of the legislative forecast through May of 2011 (Sharp, 2011).
22 23

North Dakota Secretary of State. Initiated Constitutional Measure No. 2: Elimination of property taxes and replacement of lost revenue. Ballot Measures to be Considered - Primary Election. June 20, 2012. Bismarck: North Dakota Secretary of State. URL: http://www.nd.gov/sos/electvote/elections/considered-measures.html.
24

Information concerning the group can be found at http://www.empowerthetaxpayer.com.

According to the Tax Foundation, there are 13 states that do not levy any property tax, but each of those states has political subdivisions that do levy property taxes. According to Kiplingers Personal Finance magazine (2010), Alaska is the closest state to being property tax free, as only 25 of its municipalities levy property tax.
25 26 27 28

Property Tax Relief Frequently Asked Questions (Senate Bill 2032). ND.gov. 2010. URL: http://www.nd.gov/tax/ misc/faq/property/proptaxrelief.html Boustead, Beth. Taxpayers Reminded to Redeem Property Tax Certificates. ND.gov. Dec. 2, 2008. URL: http://www. nd.gov/tax/media/pressrel/2008/12-2-08.html
29 30

Fong, 2010.

Governors Office. Hoeven Signs Historic $400 Million Relief Package. ND.gov. April 30, 2009. URL: http://www.commerce.nd.gov/news/detail.asp?newsID=393 Ibid.

KXMCTV Minot. Governor Signs Education Bill. KXnet.com. May 20, 2009. URL: http://www.kxnet.com/getArticle. asp?ArticleId=378277

Chapter 3 Endnotes
1

Legislative repeal or amendment of Measure 2 Q. Can the legislature repeal Measure 2 within seven years of its passage? Yes. Passage of an initiated measure does not bind the Legislature. Article 3, Section 8 Enactment of the North Dakota Constitution states that when a measure is passed, it becomes law 30 days after the vote. Then, the next clause states, A measure approved by the electors may not be repealed or amended by the legislative assembly for seven years from its effective date, except by a two-thirds vote of the members elected to each house. A super-majority vote by both the state Senate and House members can amend, alter, or repeal any measure. After seven years, the legislature can act as if the initiated amendment were passed by the legislature, and only a simple majority is necessary to alter, amend, or repeal the measure. This also means a super-majority decision can amend the effective initiation date of Measure 2.
2

Market Value vs. Assessed Value Q1. What is market value, and how does it compare with assessed value? The Property Tax Assessment Terms and Concepts Guideline, published in July 2005 by the office of the North Dakota Tax Commissioner, defines market value as follows: Market value, as defined by the International Association of Assessing Officers, is the most probable price expressed in terms of money that a property would bring if exposed for sale in the open market in an arms-length transaction between a willing seller and a willing buyer, both of whom are knowledgeable concerning all the uses to which it is adapted and for which it is capable of being used. The Office of the State Tax Commissioner stated that, Market value is the same as true and full value for residential and commercial property. Therefore, true and full value is equal to market value, the definition of which has been given and cited by the International Association of Assessing Officers. Not only is the definition of market value stated by the Tax Commissioner, local assessors determine market value when they find true and full value. Assessed value means 50% of true and full value. Agricultural land is not covered in true and full value, because different formulas are used to determine taxable value. After the passage of Measure 2, using market value on farms no longer negatively affects farmers because it no longer determines a tax burden, but is only used to determine property values for the whole political subdivision. In addition, Measure 2 removes a sizable monetary and time burden of the state in assessing property, applying formulas, and defending outcomes.
3 4 5

A writ of mandamus or simply mandamus, which means we command in Latin, is the name of one of the prerogative writs in the common law, and is issued by a superior court to compel a lower court or a government officer to perform mandatory or purely ministerial duties correctly. Mandamus is a judicial remedy which is in the form of an order from the district court to any government, subordinate court, corporation, or public authority to do or forbear from doing some specific act which that body is obliged under law to do or refrain from doing, as the case may be, and which is in the nature of public duty andin certain casesof a statutory duty or constitutional duty. It cannot be issued to compel an authority to do something against statutory provision. Mandamus can be supplemented by the statement that it is not only the command to do but also a command not to do a particular thing against the rights of the petitioner. Mandamus is supplemented by legal rights. It must be a judicially enforceable and legally protected right before one suffering a legal grievance can ask for a mandamus. A person can be said to be aggrieved only when he or she is denied a legal right by someone who has a legal duty to do something and abstains from doing it. [Bryan A Garner, Blacks Law Dictionary, p. 980, 8th Ed., St. Paul, USA, 2004].

Cities whose population exceeds 5,000 may levy an additional mill for each additional 1,000 residents above 5,000 up to a maximum of 40 mills. However, a majority of the voters may increase the levy, in a special election, by an additional 10 mills.
6

This North Dakota Century Code information may be found at: http://www.legis.nd.gov/cencode/t57.html.

This is not a fictional situation. The entire system is designed to ensure that government gets its pound of flesh. When faced with the loss of his home Mr. J.S. tried everything he could to keep his home. He was a disabled veteran. He had inherited his home from his mother. It was free and clear. His meager pension and Social Security was sufficient to pay for his medical care, his food, and his utilities. However, he was unable to also pay his property taxes. The Fargo property tax assessor told him there would be no quarter given: Either he finds a way to pay it, or he loses his home. The assessor told him that he should sell his house and use the proceeds to pay rent and then if he couldnt afford that he could apply for government-subsidized housing. Mr. J.S. said that if he would just be allowed to live in his house, he would pay everything he had after paying for food, medical care, and utilities. This, he was told, was not an option. Mr. J.S.s case is one recent example of the injustice the property tax system imposes. Debtors prisons were abolished long ago, but what we have today is worse. Once thrown out of your home when you cant pay the government its tax, you

become a ward of the state and must comply with its humiliating public housing system. Not only does our property tax system take homes; it takes ones pride and independence. The property tax system is cruel. It denies citizens the right to ever own their homes. It denies all people the opportunity to be safe and secure in their homes without the threat of losing their homes to the tax man.
7

Legally imposed obligations of Political Subdivisions. Measure 2 requires the North Dakota Legislative Assembly to fund its political subdivisions because they will no longer be able to levy taxes against real property for purposes of raising general fund revenue. Without property tax revenue the state legislature is directed to allocate state general fund revenues to cover the expenses of the counties, cities, townships, and other political subdivisions that had previously been funded with property-tax revenue. However, the language in Measure 2 requires the legislative assembly to fully and properly fund the legally imposed obligations of the subdivisions. The issues are what are the legally imposed obligations the state legislature will be constitutionally required to fund and how much discretion will they have in providing those funds. While Measure 2 designates where the money to fund the subdivisions comes from, it does not explain what legally imposed obligations are and are not. Since Measure 2 will abolish a longstanding tax-revenue stream that local governments have relied on since the states founding, these two issues are critical and demand a clear resolution. The issues that will have to be dealt with will be ones of first impression. Current statutory law was not written by a legislature that has to fund legally imposed obligations. Those things that will be legally imposed obligations will have to be determined by an implied meaning in the current statutes pertaining to political subdivisions.

Statutory Law All powers that counties, cities, and other political subdivisions have come from the legislature through statutes. North Dakota Century Code (NDCC) 40-05-01 Powers of all municipalities starts with The governing body of a municipality shall have the power. It then lists 76 powers, some of which involve projects that would require the municipality to spend money. For example 40-05-01 says, The governing body of a municipality shall have the power [t]o construct and keep in repair culverts, drains, sewers, catch basins, manholes, cesspools, vaults, cisterns, areas, and pumps within the corporate limits. Thus municipalities have the power to construct and maintain public utilities, a power that necessitates funding. This power, it may be argued, is not an obligation but discretionary power. Just because a municipality has a power granted by statute, does not answer whether it is a legally imposed obligation. Some statutes happen to make legally imposed obligations. For example, NDCC 40-20-03, which pertains to city engineers, says, The city engineer shall keep an office in some convenient place in the city and the governing body, by ordinance, shall prescribe the city engineers duties and compensation for services performed for the city. By statute, a city must have a city engineer. The engineer is obligated to keep an office, fulfill his duties, and be compensated. Thus the expenditure needed for a city engineer is a legal obligation. The statutory language for the city engineer is one example where a statute imposes a legal obligation on the city. Not all statutes are written this way. In many cases a political subdivision is empowered to do something, but it does not mean that it is a legally imposed obligation. Case Law That statutes giving powers to cities, and by extension political subdivisions, do not always create a legally imposed obligation is found in Trinity Hosp. Assn v. City of Minot, 76 N.W.2d 916 (N.D. 1956). Statutes gave political subdivisions power to establish and maintain a jail, and another statute specifically gave cities the power to create city jails. However, the court held that It should here be noted that these sections give to the city power to establish and maintain a jail but do not place upon the city the duty to do so. Thus, a statutory power is not necessarily an obligation. It can be entirely discretionary. The court has also held a statute to be a mandatory obligation. In Tayloe v. City of Wahpeton, 62 N.W.2d 31 (N.D. 1953), the plaintiff claimed that a city ordinance granting exclusive garbage-collecting rights went beyond the statute granting municipalities health and safety police powers. The court said, The collection and disposition of garbage is not a private enterprise. It is a municipal duty, which the city, under the police power granted to it, must carry on by itself or by its agents. The court interpreted the statute granting certain powers to be legal obligations. That is, the collection of garbage is a duty and must be carried out, thus it is a legally imposed obligation. Conclusion This issue will be worked out after Measure 2 passes, most likely when the legislature establishes a formula for funding the subdivisions. In the formula, the legislature can determine what is a legally imposed obligation (which it must fund) and what is discretionary. The subdivisions will probably put together budgets, as they do now, and submit them to the legislature. Then the legislature can figure out what to fund or not fund. It is possible, too, that the legislature will update the current statute and write new laws that define those things that are legally imposed obligations and those that are discretionary, and therefore funded locally.

In 2010, property taxes and special assessments totaled $816,215,832.63. Of this total, $94,227,588.97 were special taxes and special assessments that would not have been impacted by Measure 2 ($11,822, Special Taxes; $70,293,379.73, special assessments-cities; $12,110,967.45, special assessments-rural). An additional $45,370,645.23 were centrally assessed ($8,544,7551.03 for railroads; $12,602,183.43 for electricity, gas, and heating; and $24,223,710.77 for pipelines. None of these will be impacted by Measure 2, either). The total amount of property taxes that will need to be replaced initially is $667,617,598.43, less the cost of collection, according to data presented June 22, 2011, by the State Supervisor of Assessments and Director of the Property Tax Division of the Office of State Tax Commissioner to the Legislative Property tax Measure Review Committee.
8

BHI Beacon Hill Institute, Study on Abolishing property taxes in North Dakota. URL: http://www.policynd.org/images/uploads/NDStamp.pdf
9 10

Enhancing Texas Economic Growth Through Tax ReformLaffer econometric studies. URL: http://www.texaspolicy.com/pdf/2009-04-taxswap-laffer-posting.pdf
11 12

Former Governor Schafer offered this observation during a phone conference with members of Empower the Taxpayer and the North Dakota Taxpayers Association. Beacon Hill Institute Study.

Special-Interest Groups in North Dakota obtaining significant funds from taxpayer dollars: North Dakotas higher-education system is probably the most aggressive special-interest group in North Dakota. How can this be?, you may ask. Isnt education a priority and a necessary investment in the future of our state? Yes, it is, but the North Dakota University System (NDUS) has been appropriated $614,224,947 for fiscal-years 2009-2011. This is over and above tuition revenue it receives, housing and meal plan revenues, and student fees. The problem is this: Almost half the total NDUS student body is composed of non-resident students. They are charged substantially less than the costs of their education. In short, North Dakota families are being taxed between $150 million and $200 million dollars per year to subsidize the education of children of parents who dont live in North Dakota and dont pay taxes in North Dakota. No other state is as generous. Most public higher-education institutions charge non-resident students the full cost or a premium over the full cost of their education; they dont subsidize it. NDUS lobbies very hard to get hundreds of millions of taxpayer dollars so they can subsidize the education of non-resident students at the expense of North Dakota families. North Dakota state employees are another major special interest. State employees, as well as city, county, and public-school employees, are important to the well-being of the state. However, state employees are paid on average 25% more than their private sector counterparts. In addition, (for 2009-2011), state employees were given a 5% annual salary/wage increase while private-sector professionals received less than 3.8%. Further, state employees enjoy a 100%-funded health-care plan. Taxpayers are funding every state employees health plan to the tune of almost $10,000 annually. Private-sector employers typically cover only around half of their employees health-care plans, while the employees pay for the rest. This health benefit is in addition to the 5% pay increase. On top of this, the Governor sought and was given by the legislature $22,985,000 for pay equity increases. Pay Equity is a fiction created by academic/consultant game playing. This equity increase is purportedly designed to insure that similar job responsibilities are paid the same. More often than not, the similar job responsibilities are those of the same job description in other state or federal positions in other states and regions of the country. The North Dakota state employees lobby is very powerful and has obtained pay and benefit packages that are much more generous than those of the taxpayers funding them. Health and Human Services [62nd Legislative Assembly State Budget Actions for the 2011-12 BienniumJune 2011] has a total 2009-2011 budget of $2,620,432,843. Of this $701,226,530 comes from the state general fundi.e., the money thats collected directly from North Dakota taxpayers. Between fiscal-year 2007 and fiscal-year 2011, the total Health and Human Services budget increased 18.24%. The total from general funds increased by 21.23%. The average annual per-capita (i.e., for every man, woman and child) expenditure was $1,992.71. That averages almost $8,000 for a family of four. However, not every person in North Dakota is a recipient of Health and Human Services payments or services. The official poverty rate in North Dakota is 10.8%. If we were to allocate the Health and Human Service budget based on the percent of the population in North Dakota

that is identified as being in poverty, the average per-capita expenditure of Health and Human Services revenue would be just under $18,450. While the general population of North Dakota is suffering from the economic downturn, the Health and Human Services budget is expanding. There is no question that in a downturn needs increase. However, the HHS budget has, by any measure, grown far in excess of private-sector personal income and continues to grow. During the legislative session you can see literally dozens of lobbyists daily working to increase spending on HHS programs. Between the 1997-1999 budget period and the 2009-2011 budget period, the HHS budget INCREASED 89% while personal income decreased 0.86% [See Bureau of Economic Analysis Regional Economic Accounts]. It is important to note that 87.25% of the HHS budget goes to human services, of which the balance is distributed as follows: North Dakota Department of Health (7.913%), Veterans Home (0.65%), Indian Affairs Commission (0.03%), Department of Veterans Affairs (0.04%), Protection and Advocacy (0.19%) and Job Service North Dakota (2.5%). The Department of Human Services is a special-interest advocate that consumes annually hundreds of millions of tax dollars. While providing welfare is a charitable act, private entities also provide significant services. We must ask how much is enough, and how the money is actually being spent. It is clear that welfare in North Dakota is a growth industry, stimulated by literally hundreds and hundreds of special-interest lobbyistspaid and volunteer. The North Dakota Horse Racing Commission receives $295,000 or $147,500 each year to support horse racing in North Dakota. Its worth asking why every family in North Dakota has to be taxed to subsidize horse racing in the state. How many North Dakotans even go to horse races? Not many: There is only one horse racing track in all of North Dakota. Note that the governor sought an appropriation of $412,576 from the General Fund. The legislature rejected that, but did increase horse-race appropriations for the next two fiscal years by 144.5% above those of the last two. Those who are interested in horse racing should fund their own sport and not force taxpayers to subsidize their hobby. The State Historical Society of North Dakota has been appropriated $52,174,252or $26,087,126 per yearfrom the general fund for 2009-2011. Thats an increase of 410% from what the Historical Society received for 2007-2009, which totaled $10,232,603, or $5,166,301 annually). Its also nearly double what the governor himself had intended to grant it. He initially recommended an appropriation of $30,834,807. The legislature, caving to aggressive lobbying, settled on an appropriation of $52,174,252. Here we have the opposite situation from that of the horse races: The governor sought less, and lobbyists got more. It seems that special-interest groups have little trouble getting their hands on our tax dollars at the expense of North Dakota families. North Dakota State Fairthis is an interesting expenditure. Arguably, all North Dakota taxpayers/families can participate in attending the State Fair. However, for the 2007-2009 budget periods the State Fair was awarded $1,167,150 and for the 2009-2011 budget period it is receiving an astonishingly higher $15,697,150 in general fund revenue, along with an additional $3 million from other sources. The major part of the increase is to fund the construction of a new grandstand. The grandstand that was replaced was in good condition and more than adequate for the few dates per year that it was being used. However, the lobby in Bismarck for a new grandstand was more influential than all the families whose taxes have remained high in a down economy. Bank of North Dakotathe state claims that the Bank of North Dakota generates a consistent financial return to the state. Yet, it received an appropriation of $11.1 million from the general fund. In the prior biennium, it received $13.6 million from the general fund. If the bank is generating a consistent financial return to the state, why does it need millions of taxpayer dollars in contributions year after year? The funding to the Bank of North Dakota is another special-interest expenditure that comes from the pockets of North Dakota taxpayers and families. Banks shouldnt cost taxpayers. In this case, they do. North Dakota Forest Service received $3,855,768 from the general fund; a steep increase from the $2,535,546 it got for the last biennium. This budget provides technical and financial assistance for management of private forest lands. While forestry is something we may all support, it isnt something we should support when private entities are being subsidized using taxpayer money. This is special-interest funding using taxpayer dollars to subsidize private entities. Not only is it unfair. It also violates the State Constitution (Article X, Section 18), which prohibits the transfer of public funds to private entities. North Dakota Department of Commerce received $58,476,303 for the 2009-2011 biennium. This is an increase of $48.13 million over the 1997-1999 biennium, or an increase of 465%. This could be a positive thing if the extra funds went toward actual economic development. However, millions are being used to subsidize private businesses. North Dakota already has a State Bank that should be used for this purpose, but it isnt. Why? Because the private entities the Commerce Department is funding cannot, or will not attempt to, qualify under banking requirements. The Commerce Department is essentially giving money away to private entities that either cannot or will not try to obtain financing the way virtually all other businesses do. Further, this transfer of public tax dollars to private entities either in the form of loans, loan guarantees and outright grants, is prohibited by our State Constitution (Article X, Section 18). The North Dakota Policy Councils Pork Report can be accessed at this address: http://www.policynd.org/images/ uploads/PR_for_Website.pdf
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State of North Dakota budget data can be found at: http://www.legis.nd.gov/fiscal/.

An example of this is Marvin F. Poer and Company, a property-tax consulting firm headquartered in Dallas, TX. Its Web site states: During four decades of service, we have become widely recognized as the nations leading property tax advisor. We are a full-service property tax company with unsurpassed expertise in real estate, personal property and the complex valuation issues associated with special-use properties. Deeply rooted in the LOCAL communities we serve from our 14 offices, our full-time permanent property tax staff includes many former assessors; appraisers and high-level tax experts who fully understand your LOCAL tax jurisdictions system. Companies like Poer have a vested interest in seeing property taxes remain in place. They rely on property taxes to remain in business. Poer implies as much with this statement: Tax planning, valuation, compliance, appeals, technologyPOER is the first choice for experience and excellence in property tax services. Their perspective is certainly not without significant bias. (Source: Martin F. Poer and Company. URL: http://www.mfpoer.com/)
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This includes all those whose jobs are directly connected to implementing and the property tax collections system. County appraisers, property tax collection staff, those that operate the appeals system, and those that support them, including those that sell software and hardware that is used in the property tax imposition and collection enterprise, will all be affected. There are no exact figures available as to what it costs to collect property taxes. However, based on interviews with many of those involved at both the state and county level, Empower the Taxpayer estimates the cost to total around $50 million a year.
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The property-tax system enables elected officials to provide special treatment to some and withhold it from others. This is nothing short of corruption. Every Tax Increment Financing (TIF) approval benefiting the entitled property owner is fully funded at the expense of all other property owners. Bureaucrats also find the property tax system much to their liking. For example, the superintendent of the Valley City School system said candidly that he favored property taxes because regardless of the economic times, we are always sure of having our budget fully funded and dont have to worry about
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our budget. He acknowledged that while he realized that the families in his district might have to tighten their budgets, it was important to him that the school district would not.
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Abolishing property taxes would obviously give every business and homeowner immediate tax relief. So why would some businesses and homebuilders want to keep property taxes in place? Because they want to retain what they selfishly see as a business advantageone paid for by all other property owners. If everyone had the same advantage as them, they would lose. Of course, this is short-term thinking and harmful to the community as a whole.
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Comments by State Senator Ronald Sorvaag (RFargo), on June 22, 2011, during the Property Tax Measure Review Committees first hearing. The committee was formed to study Measure 2s potential effects and fiscal implications. The Legislative Council would submit a finalized assessment of Measure 2s likely fiscal impact to the secretary of state at least 30 days prior to the June 12, 2012, election (Source: North Dakota Legislative Council. Property Tax Measure Review CommitteeBackground Memorandum. North Dakota Legislative Branch. June 2011. URL: http://www.legis.nd.gov/ assembly/62-2011/docs/pdf/13.9018.01000.pdf)

ROBERT L. HALE, the founder of Empower the Taxpayer, is an attorney, an entrepreneur, and the director of a public interest law firm. Since 1976, he has been a successful builder and developer, operating single and multifamily housing in addition to actively building and operating retirement and assisted living facilities in the upper Midwest. He is president of Spectrum Care, LLC; Vision Management Services; LTC Solution, LLC; and Oak Tree Decorating Center. He served on the board of directors of both the Western Center for Law and Religious Freedom and the Ward County (ND) Farm Bureau, and he is a member of the Heritage Foundation National Legal Strategies Forum.

About the Authors

He is founder and president of the Northwest Legal Foundation, a nonprofit public interest law firm. For more than three decades, he has been involved in drafting proposed laws and counseling elected officials in ways to remove burdensome and unnecessary rules and regulations. Mr. Hale has a bachelors degree in Business Administration and a minor in Sociology from the University of Washington (Seattle) and a J.D. from Gonzaga University Law School in Spokane, Washington. He resides in Minot, North Dakota, and maintains homes in Seattle, Washington, and Maui, Hawaii. BRETT NARLOCH is a founder and executive director of the North Dakota Policy Council, which was formed in 2007 to monitor the North Dakota Legislative Assembly. He is a frequent writer and speaker on the value of freedom in our nation and on how individual and economic liberty leads to a better society. He is the author of Moving Forward: A North Dakotans Guide to Public Policy and his articles have appeared in the Dakota Beacon and the State Policy Network newsletter. He has a bachelors degree in history with honors from the University of North Dakota in Grand Forks. A lifelong resident of North Dakota, Mr. Narloch was born in Minto, and currently resides in Bismarck with his wife and daughter.

ROBERT HALE

BRETT NARLOCH

CHARLENE NELSON is the North Dakota state coordinator for the Campaign for Liberty, a citizen activist group that educates people on political issues and effective activism and encourages people to change their country and restore freedom by taking a role in the political process.

Since moving to North Dakota in 1993, Mrs. Nelson has been very active in state party politics. For eight years, she was state chairman of the Constitution Party, and led the petition drives to get three presidential candidates on the ballot in North Dakota. In 2001 she was the chairman of Protect Our Privacy, the citizens group that successfully repealed SB 2919, a bill that allowed banks to sell peoples personal financial information. Because of her work in this major victory for privacy protection, Mrs. Nelson was granted the prestigious Brandeis Award in 2003. In 2008, Charlene Nelson was the State campaign manager for Ron Pauls presidential campaign. Under her leadership, North Dakota was the first state where Ron Paul achieved double-digit percentages. He won 22% of the vote and tied for second place. Mrs. Nelson has a bachelors degree from Brigham Young University in Portuguese and History. She and her husband, Ross, live in Casselton, North Dakota, and homeschool their three sons.

CHARLENE NELSON

Empower the Taxpayer (ET) is a citizen-based lobbying organization dedicated to achieving fiscally responsible government in North Dakota. Founded in 2004, volunteer activists of Empower the Taxpayer spend countless hours following, studying, and researching the activities of the state, county, and local governments. Empower the Taxpayer works with the appropriate legislative bodies to achieve change. If it becomes clear that citizens concerns are falling on deaf ears, we take the matters directly to the people. Empower the Taxpayer believes that good government requires direct and active participation in the governing and taxing process. In order for citizens to have an impact in shaping public policy, it is critical that they become educated on issues that impact our communities and state. This is the essence of democracy citizens becoming informed and actively participating in their government. North Dakotas Constitution reserves to the people the right to initiate measures to address concerns that the voters do not believe the legislative bodies are properly resolving. Thus Empower the Taxpayer undertakes to: 1. Research key issues and problems within the state. 2. Identify specific solutions to matters that our legislative bodies either refuse or fail to adequately address. 3. Initiate measures and referenda that will achieve these solutions. 4. Acquire the signatures necessary to qualify measures to be placed on the North Dakota ballot. 5. Implement and promote meaningful public debate to educate the public about the various issues to be voted upon.

About the Publisher

Measure 2, which will be on the ballot on June 12, 2012, was initiated by members of Empower the Taxpayer. If it passes, not only will citizens of North Dakota be freed from the onerous burden of property taxes, but homeowners nationwide will see an example of how to organize statewide citizen referenda. We encourage you to become involved in this campaign to pass Measure 2. Empower the Taxpayer does not seek, nor will it accept, money or in-kind support from any governmental body or program. Since Empower the Taxpayers mission is to undertake improving government and overseeing spending by government, we are not a tax-exempt entity, and donations are not tax-deductible. We encourage you to support the very important work of Empower the Taxpayer with your contributions!

Empower the Taxpayer1919 2nd St. SEMinot, ND 58701 701-721-9782www.YesM2.com