North Dakota lawmakers and supporters of a ballot measure to abolish property taxes argued Wednesday about its economic effects and whether it would force state sales and income tax rates to rise.
Charlene Nelson, chairwoman of the initiative campaign, told a legislative committee that the idea would trim about 12,000 workers from government payrolls, with a similar increase in private-sector employment.
The committee is reviewing the proposal's potential impact, and many of its members are skeptical of the idea.
North Dakotans will vote on the measure in June. It eliminates property taxes, retroactive to Jan. 1, 2012.
It directs the Legislature to approve a plan for replacing the money lost by the local governments - including school districts, counties and cities - that depend on property tax revenue.
The state Tax Department estimated Wednesday that the measure would save North Dakota property taxpayers $773.8 million in property taxes next year, and $857 million in 2013. The initiative would retain property taxes that are being used to pay off bonds until those bonds are retired.
Sen. Dwight Cook,
R-Mandan, said the Legislature may have to consider raising sales and income tax rates, or both, to raise enough replacement revenue.
Doing so would run counter to the Legislature's recent emphasis on cutting income tax rates for individuals and businesses, said Cook, chairman of the North Dakota Senate's Finance and Taxation Committee.
Supporters of the ballot measure commissioned a study by the Beacon Hill Institute, a Boston think tank, which estimated the change would increase each North Dakotan's disposable income by $876, or 3.2 percent, in its first year.
The study also estimated that abolishing property taxes would result in almost $700 million of increased business investment annually.
Nelson asked the committee Wednesday to adopt the Beacon Hill findings or commission its own study of the proposal's potential economic impact.
Nelson said the panel had also made no effort to "identify the cost of implementation, assessment or management of property taxes," which could work in favor of the proposal if the administrative cost of property taxes were known.
Kathryn Strombeck, a state Tax Department analyst, said the agency lacks the computer models needed to estimate the economic effects of doing away with property taxes.
Legislators questioned some of the Beacon Hill study's assumptions, including its projection that North Dakota would shed almost 12,000 state and local government jobs if the measure were approved, with a similar increase in private employment.
Cook quoted the study's conclusion that abolishing the property tax would require state government to make up the revenue difference.
"Should the state decide to compensate for the need to pay for the block grants by increasing the state sales tax, many of the private sector benefits would be tempered or become negative," Cook said, reading from the study.
"I guess I don't understand, as I look at this, how that is not a very possible or likely scenario," Cook said to Nelson.
Nelson said the study also predicted an increase in state income and sales tax collections because of the economic activity generated by the abolition of property taxes.
"With that increase in revenues, there is no need to increase the sales and income tax rates," Nelson said. Raising rates, she said, "is not a given, nor is it necessary, and it would be something we would hope the Legislature would be reluctant to do."