North Dakota voters wisely rejected a proposed property tax elimination measure, and by a landslide. One reason was skepticism that, despite being flush with natural resource income, the state would keep local governments whole after they lost more than half of their own-source revenues.
This was also smart. States have a history of holding local governments harmless from local property tax limits by providing enhanced aid, only to yank away these payments later when the going gets tough. This happened in the recent recession, when states cut local aid to balance their own budgets.
With revenues now improving, some states are putting money back in local coffers to help make up for declining property taxes. But, in general, local governments hitch their cart to states at their peril.
The property tax, when properly administered, is ideal for funding local services. Alternatives such as state aid sever the link between taxes paid and services received, and services may suffer as a result. Some say this is what happened to K-12 education after Proposition 13 in California.
A better solution is to use local taxes to pay for local services. States or regional governments may have a role in funding services that benefit a larger area, or in addressing local fiscal disparities. But local governments in need of cash can also look to user fees or more specific property taxes that distinguish between businesses and residents, who use different types and levels of services.
Conversations about the property tax – which after all is a tax on unrealized capital gains on people’s homes – and other changes to local government finances can be tough. But they are worth it if the result is a more prosperous and satisfied community.
P.S.- You can find a roundup of other state and local election results here.