BISMARCK, N.D. — North Dakota is poised to potentially become the first state to eliminate property taxes on residential properties, thanks to an ambitious proposal from the newly elected Governor, Kelly Armstrong. This initiative aims to merge conservative fiscal principles with the state’s substantial oil revenues, setting the stage for a significant change in the taxation framework.
Armstrong, a Republican, introduced a plan that initiates with $483 million drawn from the state’s general fund, along with a share of the profits from the state’s $11.5 billion oil tax savings, intending to ultimately phase out primary residential property taxes in the coming years. “This plan is aggressive, durable, and responsible,” emphasized Armstrong while addressing the GOP-controlled Legislature last week.
The challenges posed by property taxes are well-known, especially for homeowners living on fixed incomes who often find themselves overwhelmed by significant tax assessments at payment deadlines. However, local governments and educational institutions rely heavily on these taxes to fund critical services for their constituents.
In contrast to many regions where citizens must voice their discontent with property taxes without recourse, North Dakota’s Legacy Fund—generated from oil revenue and approved by voters—produces substantial earnings that are vital for facilitating Armstrong’s property tax relief initiative.
For residents like retirees Pat and Julie O’Dell, who have lived in their duplex in Bismarck for over three decades, Armstrong’s proposal could relieve them of their yearly property tax obligation, which currently exceeds $3,000. This burden is particularly significant for them as they rely on Social Security benefits and a modest pension, prompting Pat O’Dell to express that the state must take action since many others face more challenging financial circumstances.
Armstrong’s strategy is set to enhance an existing property tax credit for primary residences, providing initial relief of up to $1,550 per year, with plans to gradually increase this amount every two years and increasingly depend on the oil tax fund’s earnings for the future. His proposal also includes a 3% limit on future increases in local property tax budgets.
When combined with an expanded property tax credit aimed at qualifying seniors and disabled individuals, this initial relief would effectively eliminate property taxes for a substantial segment of homeowners requiring financial assistance, positioning many primary residences towards potential elimination of property taxes within the next decade.
The surge in property taxes is an issue affecting homeowners across the nation, leading to what has been termed a new property tax revolt, according to experts. This turmoil arises largely due to dramatic increases in property valuations throughout the country.
Jared Walczak from the Tax Foundation noted that while some states have entertained unrealistic tax reform proposals, North Dakota’s voters recently rebuffed an initiative intended to abolish the majority of local property taxes.
Historically, no state has achieved a complete property tax exemption or relief for owner-occupied properties, asserting the uniqueness of North Dakota in this context. Being the third-largest oil-producing state in the U.S., North Dakota has a distinctive advantage in generating enough revenue from severance taxes, which makes the possibility of replacing property tax more conceivable compared to other states. Walczak highlighted that other states, like Nebraska, would face immense challenges in making similar proposals feasible.
Walczak also argued that although theoretically viable, substantial changes in property tax cannot be considered the most efficient tax relief method. Conversations around this proposal stem from North Dakota’s unique revenue situation and the state’s ability to generate significant tax money from its oil and gas resources.
During the current two-year budget cycle, North Dakota has accrued billions from oil and gas tax revenues, surpassing projections by $481 million, marking a remarkable 13% increase. Furthermore, the Legacy Fund’s earnings have eclipsed $600 million in this period.
The 2023 legislative session witnessed an ongoing debate over the preference for cuts to income taxes versus property taxes, leading to new property tax credits and income tax reductions estimated to save $515 million.
Economic experts assert that a lower or nonexistent income tax could yield more substantial economic benefits compared to abolishing residential property tax. Legislators have acknowledged that their constituents express far greater concerns over property tax than income tax issues.
As North Dakota lawmakers prepare for an intense navigation through a multitude of property tax measures amidst their regular budgetary responsibilities, they face a tight legislative session limited to 80 days every two years.
Support has surfaced for Armstrong’s plan among key Republican lawmakers, who have backed a bill that aligns with the governor’s proposals. Armstrong shared his support for this bill during its hearing on Tuesday.
Meanwhile, Fargo’s Mayor Tim Mahoney expressed reservations about the sustainability of Armstrong’s outlined approach, labeling it a promising goal. The mayor pointed out that property taxes account for 40% of the budget for North Dakota’s largest city, stressing the importance of a sustainable strategy that also supports those on fixed incomes.
