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Bigger fish to fry in property tax reform

By Staff | Dec 13, 2013

Though greeted with hostility by the legislative leadership, Governor Jack Dalrymple appointed a talented 14-member Task Force on Property Tax Reform to take a look at the North Dakota property tax.

In its initial meeting, some members of the Task Force were impressed with the array of specific mill levies authorized for everything from social services to cemeteries. But talk about the plethora of mill levies is skirting the real issues begging for reform.

There are bigger fish to fry in property tax reform.

One is the gross inequities in farmland assessment. The detailed analysis of property assessments by University of Nebraska and North Dakota State University researchers published in 2007 is as valid today as it was years ago even though land prices have increased radically since then.

In fact, they noted that tax inequities were prevalent in counties experiencing escalating prices. That’s exactly what we have today.

The study pointed out that inequities existed within counties as well as among counties. That means taxpayers within the same county or school districts are paying other people’s taxes.

The researchers claimed that “the county-level productivity valuation approach does not appear to work particularly well in areas of either rapidly changing land values resulting from rapidly changing agricultural practices or increasing levels of recreational and hunting-based land purchases.”

In the meeting of another committee, Senator Dwight Cook of Mandan expressed concern over the 3-year period during which local assessors were assessing without having completed the certification process.

The 2007 report underlined this issue by pointing out that major reason for the inequities in farm land assessments could be traced to the inability of county directors of tax equalization to adjust or apportion county land values to township assessment districts.

This suggests that the Reform Task Force consider ways to shorten the certification process and increase the content of the coursework. More state funding to overcome the time lag would be helpful.

Another subject worth the Task Force’s attention is the inequitable assessment in small communities. The smaller the town the bigger the problem.

While residences in smaller cities in western North Dakota have gained value from the oil boom, many in smaller towns are over-assessed because they no longer have market value so low that any assessment looks extravagant.

The two most usable methods for assessing residential property are market and cost depreciated. Neither works in communities where there are no buyers and houses are so old that cost depreciated is speculative. Assessors are required to grab a figure out of the air.

Use of the textbook methods taught in assessor school, if applied to unmarketable ancient residences, leads to over-assessment.

A third problem worth attention is the practice of communities giving away the tax base as a gimmick for economic development. This usually involves a five or 10-year forgiveness of property taxes as a part of a package deal offered on the promise of a rosier picture of new jobs than is ever delivered.

Unfortunately, every city and state is doing it, meaning that communities and states get into bidding wars in which the only winner is the recipient of the tax break. Meanwhile, the hometown taxpayers end up paying for the subsidy through higher property taxes to keep public services functioning.

The Dalrymple Task Force is seeking transparency. This game could use some.

As a former tax commissioner and chair of the state Board of Equalization, I could continue but the editor has other items of more interest to readers.

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