To hear tell, the passage of Measure 2 next June will mean new state-funded schools for all who want them.  Better roads. “Full funding” of local government.   The ATM will be open for whatever your local fire department, ambulance service, school, weed board, water board, park board, township, county, or city requests – all on the state’s dime.

Despite all the Nigerian-style “You’ll win the lottery” claims, in the end,  Measure 2 radically changes our State Constitution and deletes 120 years of history in how we fund basic health, safety, and private property protections. Some sobriety in the discussion would be nice.

Two disclosures for whatever they might be worth:  First, I am the McLean County State’s Attorney which means my salary is paid, in part, by property taxes. Also, I occasionally have to deal with property tax issues and disputes when they arise in my county. Second, Measure 2 is opposed by a spectrum of groups from across the state’s ideological divide. I am not a spokesman for any group.

I have a lot of practical questions about Measure 2, and may detail more of them later. For now, I’ll start with some transparent concerns when I read Measure 2:

Why give nonresidents a free ride?

Measure 2 proponents claim that, with its passage, schools and essential local government functions will be funded at the same (or an increased level) by substituting state tax revenues for local property taxes.

As some people have pointed out, however, there is a tremendous amount of nonresident property tax payers who currently pay few, if any, other taxes in our state. Yet, when a nonresident’s property starts on fire, local fire departments show up. Local police officers patrol and protect that property from vandals.  The roads to and from that property are maintained by local governments. Under Measure 2, nonresidents keep these benefits and we pay the costs.

Doing the math, in McLean County, 11.7% of the parcels of land are owned by nonresidents, who this year will pay $947,803 or 10.5% of the property taxes levied. Every county varies in this regard. Cass County levied over $19.4 million or 10.9% of the taxes levied; Grand Forks County over $13.5 million or 16.3%; Barnes County over $4.8 million or 29.7% of their  property tax levies came from nonresident property owners. In many rural counties the dollar amounts drop, but the percentage of nonresident property tax revenue increases.  For example, nonresident property tax levies this year in Mountrail County were over $5.2 million or 53.7%of the property taxes levied;  McKenzie County over $2.1 million or 46.8%; McHenry County  over $1.6 million or 35.8% of their levies were paid by nonresident property tax payers. All toll, nonresidents will pay over $126 million in property taxes in North Dakota this year.

If, then, as is claimed, funding levels for local governments and schools will be the same (or more than)  our current property tax funding,  $126 million in revenue currently from nonresident land owners across the state will have to be replaced by North Dakota residents.

How is transferring nonresident tax burdens to North Dakotans good tax policy? Even urban residents will have their sales and income tax dollars transferred out to rural areas to make up for lost nonresident property tax revenues. Why is that a good idea? How does Measure 2 not just compound the losses in revenue we already incur from having 50% of our mineral owners being from out of state, and all the millions of dollars in land rents and farm program payments going out of state?

How is governing by lawsuit going to be funded?

On some radio shows, Measure 2 sponsor Ms. Charlene Nelson has repeatedly claimed that schools and local governments will be “fully funded” under the measure’s language. She states that lawsuits can be filed and judges will order the state to provide “full” funding if the legislature fails to do so.  Ms. Nelson  further claims these lawsuits will work similar to the suits some school districts brought against the state over school funding.

It is true that some school districts spent years off and on between the courts and legislature tweaking a formula for state contributions to local school districts based on their enrollments. However, when the school districts pooled their resources and sued the state they had a property tax base to fund their lawsuits. Under Measure 2, there won’t be any property taxes or non-state funding to pay for the lawsuits. The state would have to fund lawsuits against themselves. In other words:

Appropriations committee:  I see here you’re requesting $100,000 for a new fire truck and some rescue equipment?

Local official:   Yes, we would like to replace our old truck and get a new jaws of life.

Appropriations committee:  Well, based on the money we have and all these requests you will just have to get by with what you have.

Local official:  Okay, since you aren’t going to “fully fund” our request as the public was told you would by the sponsors of Measure 2, we request you add $75,000 to our budget so we can hire a lawyer to sue the state to have a judge determine if we should have a new fire truck in order to be “fully funded”.

Appropriations committee:  “Ha…ha….ha…lol…lol…You have a great sense of humor….. You expect “us” to fund a lawsuit against “us” so a judge can second-guess “us” on whether you get a new fire truck? ”

Measure 2 sponsors try to overcome the skepticism that the legislature will not provide adequate funding for schools and local governments by claiming lawsuits will keep the legislature in line.   Since this is a central issue to the sponsor’s claims, my questions are: Being the state will be the funding source for schools and local government under your measure, do you honestly expect the legislature to fund lawsuits against the state? Even if the lawsuits somehow got funded, how is it in the interest of North Dakotans to have their local governments in court against their state government in conflicts over budgeting issues? Lawsuits can easily take a couple years from filing to completion of appellate review. In that time, a political subdivision could be both asking legislators for their next budget and still be in court challenging the decisions of those same legislators from their last budget. How’s that supposed to work?

What about proper civics?

In a blog post titled, Abolishing Property Taxes Through Measure 2 Solves School Funding Issues, a Measure 2 sponsor named Mr. Robert Hale stated:

“Six months after being flooded Minot is still trying to find out how it will fund the rebuilding of Eric Ramstad Middle School and replace Lincoln Elementary. Had Measure 2, (the measure on the ballot June 12, 2012, to abolish property taxes), been in place this would not be an issue. Measure 2 requires the state to fund the rebuilding and replacement. The school district would have the authority to decide where and how they wanted the schools rebuilt. The state’s responsibility would be to pay for them.”

SayAnything Blog

What Mr. Hale is stating here is Measure 2 decouples the decision to spend tax dollars - “The school district would have the authority to decide where and how they wanted the schools rebuilt” - from the legislature that would be forced (under this sales pitch for the Measure) to pay for whatever the Minot school district decided they want to build for schools -“The state’s responsibility would be to pay for them.”

I can’t think of an economic or political philosophy that advocates decoupling those who decide to spend money from those responsible for the bills? “Minot school district, all you have to do is decide how much and how big and how nice, and how many swimming pools and weight rooms you want and the legislature will have you covered.” Sound’s great. Schools and local government boards will be getting their “you’ve won the lottery” letters as soon as Measure 2 passes.

Unfortunately, there is nothing in the Measure 2 language that supports Mr. Hale’s reading of it. In regard to how schools will be funded, paragraph “2” states:

“The legislative assembly shall direct as much [various types of taxes] as necessary to fund the share of elementary and secondary education not funded through state revenue sources before 2012.”…

(you can read it yourself here) 

A plain reading of this section, and the Attorney General has already stated that is how Measure 2 should be read, means the legislature is only required to replace whatever property taxes that were levied by school districts “before 2012” – which means the 2011 property tax levies, and those were set in 2010.

Therefore, in order for the legislature to be constitutionally mandated to fund new schools in Minot to replace flooded ones, the Minot School District would have to have anticipated the 2011 flood in 2010 when their property tax levies were set, and levied for new schools at that point.

Under Measure 2, if Williston needs more classrooms with the influx of oil workers, the price of school bus fuel or other costs spike, etc. - nothing requires the state to fund those added expenses if they weren’t levied for in 2011. As time goes by, Measure 2 is transparently designed to squeeze out public education funding and local input into education because the only revenue schools will get is from the state, and that state funding is fixed in time. (That’s why it’s terrible civics to date-stamp things into our Constitution.)

Ask yourself this: If Measure 2 had passed and fixed state revenues at 1980 levels, how many schools would still have the funding to be functional with all the inflation and cost increases over the past 30 years?   That’s what fixing state revenue in the constitution at 2011 levels does – it moves our public school system into sort of a voucher program the further out you get from 2011.

The sales-pitch term “full funding” is derived in paragraph “3” of the measure, which states:

“The legislative assembly shall direct [various types of taxes] not allocated to elementary and secondary schools to counties, cites, 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, cites, townships, and other political subdivisions .”…

A plain reading of paragraph 3 is:

1) Schools take their cut of state revenue off the top until they reach 2011 school property tax levy amounts as mandated in paragraph 2 of the measure;

2) The legislature decides what legally imposed obligations on each class of political subdivision will be.   (Like they do now, political subdivisions are created by state statutes)

3) The legislature designs “formulas” for each class of political subdivision, whether they be fire departments, park or weed boards, cities, counties, etc.;

4) The legislature the decides what “fully and properly fund” of each class of political subdivision is.

Perhaps the biggest fallacy Measure 2 sponsors have been laying on the voters is the state will have to “fully” fund local government before they fund state functions. Alright Dorothy, but let’s get back to Kansas for a moment. The legislature has sole discretion under the measure to decide what “legally imposed obligations” are, and what “fully funding” of those functions will be. If, for example, the legislature decides “fully funding” of local road departments should be half their current levels there isn’t much anyone can do about it.

Additionally, we can put a provision in our Constitution that says “All farmers will get 100 bushel wheat”.   But that doesn’t make it practical just because it is constitutional language. How in the world is the legislature going to design funding “formulas” for the expenses of our over 350 cities that range in size from Fargo to Marmarth? Our 53 counties ranging from Cass to Slope? Some counties have lots of paved roads and high maintenance costs for them, some counties have very few paved roads – how do you uniformly formulate those maintenance costs? Some counties have jails of varying sizes, others have none? Big cities have park boards with staffs, opposed to small city park boards that count on volunteers?

Political subdivisions have courthouses, maintenance shops, libraries, fire and ambulance barns, and other buildings or structures in various states of age and repair. How do you create a formula for repair or replacement of all these buildings?

What’s this doing in the measure?

A couple sections in Measure 2 seem to have gotten scant discussion, but strike me as a bazaar request to have the voters change.    The concerning sections deal with general obligation bonds and are found in sections 3 and 4 of the measure.    Measure 2 seeks to amend current constitutional language to require the government to place values on everyone’s personal property when bonds are issued.     I am not going to reprint all lengthy verbiage in each section, you can read them here if you want:  

I’ll focus you in on the concerning proposed changes:   Go to page 2 under “Section 14”, paragraph 2 , and see where it says “ full and true market value of all taxable property”.    You will find a like provision in “Section 15” where on the second line it states “assessed market value of taxable property…”

So everyone is on one page, when you see words crossed out or underlined the passage of the measure either deletes or adds those words accordingly.

If memory serves me correctly, I believe a lot of these particular sections in our Constitution date back to the old “McKenzie Political Boss” machine and railroad monopolies wherein it was believed that local and state governments were being corrupted by powerful insiders.     As part of the “populist” address to this, limits were placed on how much long term debt the state and local governments could hold.   For example, on page 3, Section 15 you  will see that political subdivisions are limited from issuing bonds in an amount greater than “five per centum” of the assessed value of taxable property” unless the public votes by at least 2/3 to increase a political subdivisions debt up to 8%.    This way, political bosses couldn’t get their government stooges to vote for large bond issues to fund projects that benefited their railroad buddies - at least that was sort of the idea.

Currently this is how this works in practice:  Let’s say the Red River Joint Water Board (RRWB) wants to issue $500 million in general obligation bonds to pay for Fargo area flood protection.   The first thing they have to do is get the “assessed” value of “taxable” property, which is already on file with the county auditors for property tax purposes.    As long as $500 million is less than 5% of the “assessed” value of “taxable” property within the RRWB jurisdiction the bonds can constitutionally be issued.  (There are statutes beyond this that also have to be complied with.)   If $500 million fails between 6-8%, 2/3 of the voters from within the RRWB jurisdiction have to approve the bond issue.

Under Measure 2,  the substitution of “assessed” for market and the deletion of “taxable” in front of  property means: To comply with the constitutional debt limit of 5%, the RRWB has to hire assessors to determine the “market” value of any property within their jurisdiction. This does a couple things. First, it dramatically increases the amount of debt the government can issue because “property” no longer will be just real (taxable) property, but also include Walmart and Gander Mountain’s inventory, the equipment a beet farmer owns, each residences personal property, etc.

The second thing it does is quash the argument that Measure 2 should be passed because it is expensive to implement our property tax system. In other words, if you think our current system is expensive  because we have to hire assessors to put values on all the real property for tax purposes, then how is it a cost savings for the government to have to hire assessors for both all the real, and now everyone’s personal property so the “market” value of taxable property can be ascertained?    Talk about big government getting into your kitchen.

These proposed amendments to bonding are so crazy I can’t help but think the measure drafters weren’t clued in with what changing these words mean in practice?    But, then again, if their agenda was to “fully fund” schools they could have done that in the language, but choose not to.

What made the sponsors think our people want the government assessing the market value of everything you own?    It reminds me of Ben Franklin’s famous warning: “When the people find that they can vote themselves money, that will herald the end of the republic.”

Are the Measure 2 sponsors trying to get the people to “vote themselves money”, or is there some agenda here to end our republic?   Honestly, I don’t get it?

How is Measure 2 going to be paid for?

The sponsors claim that sales, income, and oil taxes will replace property taxes.    But those numbers don’t come close to adding up without massive increases in at least some of those taxes.    In Mr. Hale’s blog post he states:

“The Legacy Fund is growing at the rate of more than $1 million each day! The state can borrow from this fund if it wishes and charge itself either nothing or a very low interest rate. Nothing could be a sounder investment than our school buildings. Or it can go into the bond market to borrow. Revenue to repay either is secure, available, and will be for decades to come.”

Even if Mr. Hale’s plan came remotely close to paying the costs of Measure 2, which it doesn’t, I don’t recall any discussion during the debate over the Legacy Fund that advocated that it could or should be used to “loan shark” off future generations to pay current debts like Mr. Hale envisions.   In essence, borrowing against the Legacy Fund to pay for current spending makes North Dakota no better or wiser than Congress when it borrows from the Social Security Trust Fund to pay for current federal spending.    Maybe it’s me, but I don’t like the idea of importing Washington D.C.  budget gimmicks.

Another method the sponsors claim will be used to pay for Measure 2 is by dramatic cuts in state employees.    In support of this, the sponsors rely on a report from an agenda “think tank” called the Beacon Hill Institute (BHI). The BHI is apparently supposed to provide the intellectual backing for Measure 2.

One of my undergrad degrees is in mathematics, where I learned you can create whatever fictional future projections you want with linear models.   It’s all in the assumptions, data, and variables you chose to get the result that supports your preconceived ideological predilections.

BHI “models” three scenarios to pay for Measure 2 - ranging from not increasing sales taxes and cutting 11,908 “mostly state” public sector jobs; to 100% increase on sales taxes and a cut of 4,492 public sector jobs.    (All of these numbers are as of 2010.)   Even under these models, however, the BHI report admits that these projected cuts and/or sale tax increases still leaves them 21% short of funding Measure 2 to 2010 property tax funding levels.

All of the flaws in BHI’s projections might take more space than their actual 11 page report, so I’ll just point out some glaring miscalculations.

On page 3 of the BHI report it states: “While [eliminating property taxes] would pose challenges to local governments, the money used to pay property taxes does not disappear from the state economy.”   As we know, that’s not true.  At a minimum, $126 million in current nonresident property tax revenue would in fact leave our economy each year.   In addition, North Dakota is an agricultural state.  In this and other business sectors property taxes are “expenses” on income tax forms.  When you eliminate property tax expenses you remove that income tax “expense” from the tax schedules (Schedule F for farmers and ranchers), which sends millions more dollars out of our economy to Washington.   Failing to account for this lost money from our state’s economy facially invalids all the BHI “modeled” projections.

In addition, eliminating 11,908 public sector jobs does not “add” what BHI projects as $622 million to our state’s economy.     Those public sector jobs are part of our state’s economy as it is.    Teachers, snow plow drivers, highway patrolmen, and others shop, buy houses and cars, and pay taxes just like everyone else.    It’s a false premise that cutting public sector jobs somehow euphorically “adds” all kinds of money to our economy as a whole.   Granted, cutting public sector jobs can increase private sector spending power if those cuts decrease taxes and the loss of public sector jobs aren’t necessary to support or protect businesses.    But, it’s misleading to claim that the loss of public sector jobs increases the state’s economic wealth on some quid-pro-quo basis because public employees are also part of the tax and consumer base.   In other words, if you follow BHI’s false premises, closing NDSU wouldn’t impact Fargo’s private sector economy, nor  would firing every state employee that works in Bismarck  impact the Bismarck/Mandan private sector economy because those are just “public sector jobs”.

My questions are:  Since all of these “projections” (that don’t add up) to pay for Measure 2 call for massive cuts in public sector employees, what employees do you think should be cut?    We all would like to take a scalpel to the state budget to cut things we don’t like.  And it is easy to argue for cuts in the abstract by saying there should be fewer state employees to pay for Measure 2.   But, do we get rid of highway patrol slots?   Teachers?  DNA chemists?  Correctional officers?  Highway department people?  The UND medical school?  Sexual predator evaluators?   Our colleges and universities are constitutionally protected institutions so we can’t close them.   Do we just “shell” them out?

In other words, paying for Measure 2 isn’t in the same ballpark as Ed Schafer 10% budget cuts; nor some “special interest” projects or being upset with Higher Ed – things many people can agree with.  You’re talking about paying for Measure 2 by cutting core state functions that people now take for granted because many of those jobs are needed for roads to get oil and wheat to market safely,   to care for the mentally ill or sexually deviant, to stop poachers or other criminals, etc.   So what specific 40-50% of the state’s public sector workforce do you think should be cut?

Thank you.

(Editor's Note: This is a guest post submitted to NorthDecoder.com by Ladd Erickson, of rural McLean County. It's my understanding he has submitted this for possible publication elsewhere, too.  It's clearly too long and informative to get published in any North Dakota newspapers.)

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