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Local schools and cities concerned with unknowns of property tax elimination

One of the most closely watched and hotly contested choices voters will make on Tuesday doesn’t have to do with any elected officials at all.

6/06/12 (Wed)

By Caroline Downs

One of the most closely watched and hotly contested choices voters will make on Tuesday doesn’t have to do with any elected officials at all.

Instead, citizens across North Dakota who go to the polls for the June 12th primary election will determine if the state’s constitution should be amended to eliminate taxes on residential, agricultural and commercial property.

“For me as a landowner, it’s a good thing,” said Alan Lee, mayor of Berthold. “Of course this is attractive to the landowners, property owners or business owners, but what they need to know is that the money has to be picked up somewhere else.”

Officially known as Initiated Constitutional Measure No. 2, the proposed amendment would also require the state legislature to devise a formula to replace lost property tax revenues to fund the political subdivisions. This includes the state itself, counties, cities, townships, school districts, park districts, fire districts and other entities that currently rely on annual real estate taxes for operations and to provide the services expected by North Dakota citizens.

Measure 2 stalls projects
in Kenmare and Berthold

Local city and school district officials have been watching the issue closely. The city of Kenmare has an annual general fund budget of $298,650.00 and a special revenue fund budget, including the cemetery, police department, fire department, Memorial Hall, recreation, airport and other elements of the city, of $251,101.00.

Deputy city auditor Jan Kostad explained one mill in property taxes for Kenmare currently generates $1744.52. For 2012, the city levies 39.65 mills for the general fund, which brings in just over $69,170.00, or 23 percent of the general fund. The levies 46.00 mills for the special revenue fund, which brings in $80,248.00, or nearly 32 percent of that fund.

If Measure 2 passes, the city of Kenmare would have to rely on the state to replace $149,418.00 to maintain the current budget and services.

Enterprise funds for water, landfill, garbage and sewer make up the final, and largest portion, of Kenmare’s annual expenses at $609,400.00 for 2012. Those funds tend to be self-sustaining through customer rates and fees, although Kostad pointed out bulk water sales to the energy industry have generated some additional revenue for the city in the last two years, much of which has been directed toward the new water tower project and other necessary upgrades to the city’s water system.

Kenmare’s Park District has a separate budget, with the general fund for the Park Board at $41,225 for the current year. Property taxes provide $8500, or 21 percent, of that total, with another $6500 funded by the state.

The recreation fund, also part of the Park District, has a budget of $19,000 for 2012, including $8500 from real estate taxes, or 45 percent of the total, and another $1500 from state funding. Concessions and user fees provide some revenue, as do donations from Kenmare Veterans Club, Inc. and other organizations and individuals. “Last year, the baseball program alone cost $10,000,” Kostad said.

The Park District budgets rely to some extent on carryover funds, and the city council can transfer a portion of the enterprise funds to its general fund. However, if Measure 2 passes, the results would impact all parts of the city’s budget. “We’re looking at parks, recreation, the fire department, everything we have would be affected,” said Mayor Roger Ness. “We’re definitely opposed to this.”

Mayor Lee in Berthold is even more concerned. That city’s general fund runs just over $100,000, with close to $45,000, or about 45 percent, coming from property taxes.

“We’re very nervous if this thing would pass,” he said. “It would be extremely serious for our community.”

Both cities are living with the increased demands for housing, commercial space and other services found in most western North Dakota communities right now. Both mayors said much-needed projects have been stalled while waiting for the outcome of the Measure 2 vote.

“This raises a lot of questions about funding availability,” Ness said. “It could take a lot of time to go to the legislature every time we needed money, and that makes our timetables tough to follow. If Measure 2 passes, it would hamper local development, such as the 12-plexes.”

Kenmare has been working to install water and sewer lines for two new 12-plexes under construction along Division Street and to expand sewer and water lines on the east side of U.S. Highway 52 to the Gooseneck Implement property. The project would make sewer and water service available for new housing proposed for the east side of the highway. The 12-plexes on Division Street were scheduled to be completed by this fall, with a list of renters waiting for the new apartments.

“We’ve delayed the bidding for those water and sewer lines because of Measure 2,” said Ness. “This was a concern we had before we started the [12-plex] project. We extended the call for the bids until the end of June, waiting for the vote.”

He said the 12-plexes would get finished, regardless of the Measure 2 outcome on Tuesday. “The funding aspect of that could change if it’s passed, though,” he added.

Berthold has just increased its tax base with the annexation of the new Enbridge property to the city, but Mayor Lee and the city council are also faced with a proposed housing development of several hundred homes and a proposed sewer upgrade.

“We’re getting a lot of expansion, both in the city and in Berthold Township,” he said. He noted the city collects water and sewer fees and uses sales tax funds for infrastructure projects, but the property tax revenue is critical.

“At the end of the day, without the property tax, we would have the inability to serve the two positions for the city,” he said, referring to the city’s only two employees.

He described the Enbridge annexation as an additional source of property tax revenue to help with the city’s immediate need for sewer and lagoon expansion. “That will allow us to fund infrastructure projects without going to the taxpayers,” he said, “and that’s huge for us. We don’t want to saddle our local taxpayers with all the burden.”

In fact, the city had started engineering work on the lagoon expansion, but the Measure 2 issue stalled further progress. “We had to put that project on hold,” said Lee. “Measure 2 is not allowing us to be proactive with these projects, and every one of our communities in the western part of the state is going through this right now.”

He doesn’t believe small towns would compete well with the state’s larger cities if they had to make funding requests to the state legislature.

“The large cities have the bulk of the population and the ability to send somebody to work with the state legislature,” he said. “We don’t have the expertise or personnel to go the state legislature. “We’d have to find somebody to write up the project for us and somehow find a way to pay for that. That’s a big concern for us, that we’re going down there and stand in line.”

He compared a $200,000 sewer lagoon expansion project for a city the size of Berthold to a multi-million dollar sewer or water project that Minot or Fargo might need. “Our project may not look like much, but on a local level it’s very important,” he said, adding that small communities across the state could face similar situations with volunteer council members and limited city staff members.

Schools may cut staff,
transportation, courses
School districts across the state draw an even larger portion of their budgets from property taxes. The Kenmare School District receives $1,128,000 in property taxes for its general fund and $97,300 for the building fund, which is 30 percent of the district’s $4 million budget for the 2012-2013 school year.

“We are well aware the state is going to have to find some kind of funding for us,” said Kenmare district business manager Renae Murphy. “But it’s unknown how much the state will fund.”

She explained the district currently levies just under 110 mills, which is below the maximum allowed by ND Century Code. “Hopefully, the state would fund at least that amount,” she said.

If Measure 2 is approved on Tuesday, Murphy predicted some immediate changes in the school district’s spending. “Transportation and technology items would take the biggest hit,” she said.

Payroll makes up the largest portion of the district’s budget at over 70 percent, but that would not change until the 2013-2014 school year. “The board would have to look at people and making staff cuts,” said Murphy. “I know this looks good for property owners, but I’m hoping people are realizing all the facts about this measure. It’s not a great deal for schools.”

“We might just have to do our business differently,” said Lewis & Clark School District Superintendent Brian Nelson. “Maybe there would be no busing, or we would just teach math, reading, science and English and cut out all the other stuff.”

Nelson estimated his district would lose about $1.375 million in the general fund, $145,000.00 in the building fund and $73,000.00 dedicated to technology. According to Nelson, the district levies 99.09 mills for the general fund, the maximum 10 mills allowed for the building fund, and 5 mills approved by voters for the technology fund.

“If the state supplies the tax dollars, we’re still funded,” he said.

However, he was concerned about suggestions from some Measure 2 proponents that the state could rely on oil and gas taxes to replace property taxes. “If that funding goes south ever, will people have to vote again to property taxes?” he asked. “People should ask themselves, do they want to take this out of the constitution?”

The Lewis & Clark district is also facing a crowded classroom problem at Berthold Public School, with district patrons narrowly defeating a bond issue in January that would have funded an expansion of that facility. “We have a definite need there,” said Nelson. “We have to start making more room, but the building project is put on hold right now to wait and see what happens with Measure 2.”

Berthold city auditor Penni Miller echoed comments expressed by other city and school officials. “If people don’t understand the measure or know what it’s affecting, they may think it’s just about not having to pay property taxes anymore,” she said. “There’s so much that’s unknown if this measure passes. The state probably doesn’t even know just how much will be affected.”