TAX NEWS - 2010

North Dakota Tax: Committee talks tax relief

The Legislature's Interim Taxation Committee reviewed two proposals that would continue property tax relief, ultimately voting to lend its support to a revamped version of last session's bill that replaces a large portion of school funding from property taxes with state dollars.

The alternative proposal that failed by two votes would have given homeowners tax credits for up to $5,000. That measure was sponsored by Sen. Tracy Potter, D-Bismarck.

The bill passed in 2009 had some issues. The wording left schools underfunded by not including certain types of taxable property in the calculations for what the state owed the school. That has been corrected in this year's version.

But Potter said the improved version of last year's plan still has some problems.

By tying school funding to property taxes, their revenue will rise and fall with the value of property. The problem, Potter said, is capping the amount the schools can levy on property.

"As valuations go up, a school's income will go up, so they should get less state aid, but instead they'll get more," Potter said. "But then when values go down, so does state aid. But they (the schools) can't do anything about it, because we (the Legislature) have told them they can only get so much from taxes."

Potter said the Legislature is overstepping its authority, hurting schools in the process and still not offering nearly as much tax relief as in his bill. He said his bill will do more to help fixed-income seniors.

Potter said he's still supportive of the other bill because it will still offer tax relief, but he said he is going to move forward with introducing his own bill.

While a similar bill to Potter's homestead tax credit was passed in 2007, it may face stiffer opposition this year.

Those opposed complained  that a homestead tax credit doesn't include certain types of farm property and cited confusion over how to implement it, while one senator complained Potter's proposal provided disincentives for schools to spend thriftily.

Also discussed at length were tax increment finance districts. There are 27 cities across the state that set aside a certain portion of money raised through local taxes on property within a central district. That money is reserved for urban redevelopment projects, including grants for improvements on business and apartment properties inside the district.

Several legislators questioned whether the program could be ripe for abuse.

"If the city doesn't stop collecting taxes once they get their money back, this could be the abuse of a pretty good idea, which is what I think TIF actually is," said Sen. John Andrist, R-Crosby.

Rep. David Weiler, R-Bismarck, questioned why Bismark's two TIF districts, started in 1979 and 1988, have had such longevity.

"We're looking at 20 and 30 years of improvement for these areas, but somehow these aren't improved enough yet?" Weiler said, later adding the diversion of taxes in the TIF districts was taking money away from schools and the city.

Senate Majority Leader Bob Stenehjem, R-Bismarck, also was concerned about TIF's effect on schools.

"We've had all this discussion about how we're not funding schools, well here's a big draw on their tax revenue sources because it goes into this tax district instead of K-12 education," Stenehjem said.

Rep. Lonny Winrich, D-Grand Forks, said his city has had a lot of success using the program, which, in Grand Forks, places a cap on the duration of the district designation.

"There seems to be a lot of hostility here. There may be some abuses, but we want to make sure there's no wholesale slaughter of TIF districts here," Winrich said.

The city started using TIF districts in 1985, and usually limits them from five to 15 years. They have been used downtown after serious flooding.

"I see it as more of an engineering tool for cities in terms of where they want development, which I'm not saying is a bad thing, but is it always the right thing?" asked Sen. Joe Miller, R-Park River.

The committee also met to discuss taxation ideas for potash, which will likely be mined soon.

Potash, which has a large potassium base, is used primarily in fertilizer. J.T. Starzecki of Dakota Salts, the company interested in mining the substance on the edge of the Williston Basin, estimates there is about 1.5 billion tons lying about two miles below the surface.

Legislators spoke of taxing potash similarly to oil and natural gas by setting up a tax on production that would replace a need for property tax. They also requested that an account  be set up to reserve some of the tax revenue for the future, while a certain portion would go to the counties as revenue was collected.