I’ll explain why North Dakota’s property taxes are unnecessarily high, and how we can resolve this travesty.
The federal government conditioned North Dakota statehood on the legislature providing a uniform system of free public schools. (Article VIII, Section 2). This is not an unfunded mandate. The federal government gave North Dakota, in trust, section 16 and 36 of each township; more than 2.5 million acres. The purpose of this “donation” was for the support of the common schools (K-12).
Currently, the trust holds more than 632,000 surface acres and more than 523,000 mineral acres. In addition, it has $3.5 billion dollars in cash and investments. More than 97% of the $3.5 billion is invested in Wall Street assets. Less than 1% is invested in our K-12 schools.
Wall Street investments don’t fund our K-12 schools, instead they fund a well paid lifestyle for Wall Street money managers. These investments provide less than a 2% return. North Dakota should prepare to see significant losses when the market crashes as they did in 2008-09. In that crash the trust lost 40% of its value. Fortunately much of that loss has been recovered over the last 7 years. The market is again poised to crash. Is it reasonable to expect the market recover again? If it does how long will it take and how much will we have lost?
The Board of University and School Lands is comprised of five members: Governor Jack Dalrymple, Attorney General Wayne Stenehjem, Superintendent of Public Instruction Kirsten Baesler, State Treasurer Kelly Schmidt, and Secretary of State Alvin Jaeger.
The Board stubbornly refuses to invest the trust’s cash assets in our school infracture. If these funds were invested in our K-12 infrastructure instead of using property taxes the average property tax bill in North Dakota would decrease by almost 50%.
Our constitution prohibits the legislature from using property taxes to fund state obligations. Clearly K-12 education is a state obligation (Article VIII, Section 2). Article X, Section 1 states in whole, “The legislative assembly shall be prohibited from raising revenue to defray the expenses of the state through the levying of a tax on the assessed value of real or personal property.” With the state constitutionally directed to provide for a, “…uniform system of free public schools…”, and being prohibited from taxing real property to raise revenue to defray state expenses, it follows taxes on real property for the purpose of providing schools buildings or operating costs for K-12 schools is in conflict with our constitution’s directives. The Board arrogantly ignores its constitutional mandates and prudent fiscal management.
Of course, you need to hear the Board’s side of the story. They tell us they can’t use our money for school buildings. Yet, they send hundreds of millions to Wall Street money managers to invest in Real Estate Investment Trusts (REITS), holding title to and mortgages on buildings in states everywhere except North Dakota.
Attorney General Stenehjem has written an opinion arguing these funds cannot be invested in our school buildings and that royalties generated from these lands cannot be spent but must be permanently invested since he considers royalties principal. Readers should read this opinion, hopefully it will make more sense to you than it did to me.
The Board goes to great lengths creating reasons why it can’t use our trust money for our school infrastructure. If only they spent a fraction of the effort figuring out why we can use these trust funds for our schools, property taxes would be substantially lower, our schools would be built in a timely manner, our trust funds would be safe and secure and our schools would be able to focus on teaching, not floating bond issues and building schools.
We currently fund our school infrastructure using bonds. To do so we hire companies that specialize in packaging and selling bonds. The cost to do this is between 5% and 15% of the face value of the bond. The bond holder receives his principal as well as interest. Both are funded by taxes on our homes and all of it goes out of state.
If we funded these bonds with school trust money the Bank of North Dakota could package and service them at virtually no cost, (after all that was one of the reasons North Dakota established a state bank, the only state in the Union with such a bank). In this way 100% of the face value of the bond, not just 85% – 95% would be available for construction. Repayment can be made from income the lands and mineral acres generate annually. Even with low oil prices our trust lands generate more than $250 million dollars in income annually. A $1 billion, 3%, 30 year bond is amortized with a $50.5 million dollar annual payment. This does not “spend” the principal as the Attorney General attempts to suggest. It works exactly as the current Board’s investments in Wall Street IRETS work.
Right now the most prudent investment decision the Board could make would be to cash out a billion dollars of Wall Street investments and purchase every outstanding North Dakota school bond. The total of outstanding school bonds are approximately $1 billion. The sooner we get our money out of today’s risky Wall Street environment the less we stand to lose. The sooner we invest our money in our own schools the sooner we lower our property taxes and repay ourselves instead of out of state investors and money managers.
Every taxpayer, every family, every working person in North Dakota should ask, no – demand the Board explain itself. Demand the Board invest in our schools. Demand the Board get our money out of the volatile and risky Wall Street market (we would be much better off and safer putting our trust money in the Bank of North Dakota at .5% interest, even .25% interest than in Wall Street now). Demand the Board meet its Constitutional mandate and use the billions in trust for our schools and demand it be done now. If they refuse voters should take whatever steps are necessary to see the Board fulfills its fiduciary responsibilities. If not, we should replace them.