A proposed constitutional amendment that would make North Dakota the only state in the nation to abolish property taxes would be "the most profound policy change since statehood," a county commissioner said Monday.
The measure, which goes to a statewide vote in June 2012, is stirring controversy in North Dakota, where oil and gas development have contributed to an expanding economy and low unemployment that has largely insulated the state from the nation's economic malaise.
That prosperity has spurred arguments that North Dakota can afford to abolish local property taxes, and that its economy would become more attractive to business expansion if it did so. Critics say the change would force the Legislature to drum up $740 million elsewhere for North Dakota's school districts, counties and cities.
Scott Wagner, a Cass County commissioner, said the amendment would result in a Capitol donnybrook over budget priorities, with local elected officials having no vote on how the fights were resolved.
"This is potentially the most profound policy change since statehood," Wagner said.
A citizens' group critical of rising government outlays got the proposed amendment on the ballot. State general fund spending has doubled from $2 billion to $4 billion since 2005.
If the amendment were to be approved, the Legislature would have to draft a plan to provide replacement money for local governments. North Dakota's school districts, counties and cities rely on those property taxes to finance their services.
No state has abolished property taxes, although a number have attempted to limit their growth, according to the National Conference of State Legislatures in Denver and the National Association of Counties in Washington, D.C.
Jacqueline Byers, research director for the National Association of Counties, said a few local governments have not collected property taxes during good economic years, but have not taken the step of eliminating them.
"They need (property taxes) in their arsenal," Byers said.
Supporters of the property tax ban said it is needed to prevent older homeowners on fixed incomes from being priced out of their homes by rising tax bills.
Vernon Brossart of Williston, in northwestern North Dakota's booming oil-producing area, said rising property values allow local governments to rake in more revenue without raising tax rates.
Property owners who have sold their homes and moved into apartments to avoid property tax bills now are faced with skyrocketing rents, the consequence of strong housing demand from oil workers, Brossart said in an interview Monday.
Local officials also create their own revenue problems by granting property tax exemptions for new and expanding businesses, he said.
"Guess who pays the rest? I do. My next-door neighbor does," Brossart said. "The retired fellow who worked all his life and paid for his house doesn't get (a property tax exemption)."
Wagner spoke Monday at a gathering organized by the North Dakota Association of Counties to discuss the proposal. The group included one supporter of the measure, state Rep. Dan Ruby, R-Minot, and three opponents _ Wagner; state Sen. Dwight Cook, R-Mandan, chairman of the Senate's Finance and Taxation Committee; and Andy Peterson, president of the North Dakota Chamber of Commerce.
Cook predicted a raft of lawsuits from local governments to interpret the extent of state government's obligation to provide revenue to replace property taxes.
The Legislature, which has cut North Dakota's income taxes on individuals and corporations in recent sessions, would be pressured to push those rates up again, he said.
"We will live in a world of uncertainty, and nothing will bring the wheels to a halt quicker than that type of uncertainty," Cook said.
Peterson said North Dakota businesses shared those concerns.
"We need to start looking at a comprehensive model of tax reform, rather than just cut the dog's tail off," Peterson said. "If you have a piece of farm machinery that breaks down, you don't put a hand grenade in the engine compartment and then say we're going to fix it."