Where are the cuts?

You may have been hearing a lot about “cuts” in the budgets of local governments lately, coupled with some finger-pointing at the Legislature as the cause.

It may come as a surprise that there actually are no cuts. So why all the hand-wringing? 

For the first time, local governments in North Dakota (read cities, counties, school districts, etc.) are being forced to do what every family must do all the time—live within their means and not expect a financial windfall to solve every problem and fund every desire to spend more.

Although the concept has been repeatedly suggested for the past 15-20 years, for the very first time, the Legislature, to its credit, finally decided this year to limit the percentage of growth in the taxation of property that local governments could engage in. The “cap,” as it’s often called, is 3 percent. It’s not a perfect or magic number, but was designed to approximate the rate of inflation, going forward. Perhaps significant recent increases in local political subdivisions’ budgets weighed into the number, as well.

It’s all about property taxes

“Where did this all originate?” you might ask. It all stems from the dissatisfaction from a large and growing number of North Dakota homeowners with the property taxes they’re forced to pay.

This follows many years of debate about how to ease the pain of this tax, which is clearly the one with which most in the state are upset. Few complain about the sales taxes or income taxes they pay (most agree they’re reasonable), but property taxes have long been an issue and many attempts have been made by both the people of the state and those they elect to represent them in the Legislature to solve the problem. We’ll be writing more about that in the days and weeks to come and we’ll also take a longer historical view of the property tax issue but, for now, the focus seems to be on local budgets, as they near their finalization.

In an effort to help ease the pain of property taxes, the Legislature threw more money at it than ever before — a $1,600 state subsidy for each home to offset some of these local taxes—but it did something else which may be even more significant. Legislators put limits on the growth of local government taxation — “caps.”

Cuts? What cuts?

This means that, as these local governments prepare their budgets for the coming year, they’ve had an external limit on spending increases, for the first time, and have had to tighten their belts to meet it. But don’t be misled by all the talk of “cuts”. There are none—only limits to the amount of increased taxation and the spending which results. Even those limits are tempered by allowances for greater taxation increases for new properties coming on the tax rolls (growth).

It’s reminiscent of what legislators had to grapple with for years, particularly when the state was not enjoying as much income (largely as a result of oil production) as it has over the better part of the last two decades. Prior to that, when times were tough, the Legislature would come into a session only to be promptly presented with a governor’s proposed budget, which then became the target document from which to build the state budget.

If, for example, the governor’s budget proposed a 6 percent increase in spending and legislative appropriators, after their painstaking work and analysis, decided that the state could only afford a 3 percent increase, the hew and cry of a 3 percent “cut” could be heard far and wide. Legislators then had to explain to the news media parroting the alarm and to their constituents, back home, that actually there was no “cut” at all. There was simply a reduction in the recommended increase. The budget and government spending was still going up.

This is much the same issue being repeated at the local level these days but don’t let them fool you. There are no “cuts”. The sky is not falling. 

You may just be hearing the refreshing sound of fiscal responsibility echoing throughout the state.