July | August 2017

Taxing the Ballot

By Jennifer Horne, CSG Associate Director of Policy and Special LIbraries, and
Jennifer Burnett, CSG Program Manager, Research Services and Special Projects
More than three decades after California voters approved Proposition 13 to limit property taxes in the state, voters in North Dakota had the opportunity to take that concept a step further and eliminate their property taxes altogether.
“There were a lot of property owners that were upset about the growth of their property tax rates and the size of government,” said North Dakota House Speaker David Drovdal.
That led to a ballot initiative in June that would remove the property tax entirely in North Dakota; it would have been the first state in the country to do so. As it turns out, North Dakotans were more worried about the potential consequences of such a move than their bottom lines—more than 76 percent voted against the measure.
The use of ballot initiatives to decide big fiscal issues—like placing limits on tax rates or raising them—has been a popular strategy in recent years, for both legislators who would not have to make possibly unpopular votes and for advocacy groups that see an opportunity to convince voters directly.

Letting Voters Decide

In Arkansas, Rep. Jonathan Barnett cites the “anti-tax mood” of the public to explain why he pushed for a transportation funding initiative to be placed on the November ballot rather than asking legislators to vote for a tax increase in such a politically volatile atmosphere.
“Legislators aren’t willing to make these major tax increase decisions out of a fear of too much fallout at the ballot box,” said Barnett.
Barnett said the need to increase funding for infrastructure improvements outweighed the difficulty of breaching the topic of a tax increase.
“Existing methods of financing highways—the gas tax—are not working anymore. At the same time, the cost of building and maintaining roads has increased,” he said.
The Arkansas measure would raise the sales tax by half a cent, with the revenue used to issue bonds to fund up to $1.8 billion in road construction and improvements, including the creation of a four-lane highway system throughout the state. The measure is projected to raise $160 million annually for state highways and $34 million each for cities and counties.
Barnett worked hard to convince legislators, including his fellow Republicans, to let the people decide whether to increase the tax.
“What’s more American than letting people decide?” he said.
It’s not just legislators who see the value in asking the public to vote on fiscal and tax measures.
After the South Dakota legislature made significant cuts to both education and Medicaid in 2011, advocates drafted an initiative to raise the sales tax by 1 cent, with the additional revenue going to K–12 education and Medicaid providers. Supporters estimate the tax increase would raise $175 million annually.
Andy Wiese, campaign director for Moving South Dakota Forward, the coalition that sponsored the measure, believes the accountability built into the ballot measure will help to increase support among voters. The new revenue is not mingled with the general fund.
“They realize that this revenue is going to go where we intend it to go—to education and Medicaid providers,” said Wiese. “The education money will go directly to school districts on a quarterly basis. The Medicaid money will be distributed directly to providers. This should give voters comfort that the money will only be used for education and Medicaid.”

Starting a Conversation

A positive byproduct of taking budget concerns to the ballot is increased discussion between the public and legislators on fiscal issues. In North Dakota, although the property tax initiative failed, the process started a bigger conversation with the public about property tax issues.
When an initiative is approved to appear on the ballot in North Dakota, the legislature is required to hold hearings and issue a report analyzing the potential impact of the measure.
“We learned from the hearings that one of the reasons that the initiative made it on the ballot in the first place is that people felt that big businesses were getting an unfair advantage over the mom and pop stores from property tax breaks given out at the local level,” said Drovdal. “Based on the feedback from those hearings, we ended up passing legislation to limit some of those tax breaks.”
Reports issued by the legislature also showed that local governments rely heavily on property taxes. If the property taxes were removed, the state would have to step in with funds to replace the lost tax revenue so schools and police departments could continue to function—a fact that ultimately led to the ballot’s failure.
“A large coalition of businesses and residents mobilized to make sure people realized that eliminating the property tax meant taking away a lot of control from local governments and giving it to the state,” said Drovdal.
In Arkansas, Barnett hopes the effort to educate the public on the need for increased transportation funding will spark a greater understanding of the challenges facing the state.
“If the campaign explains what the program does and why it’s important, voters will use that knowledge and get to choose,” he said. “If they choose not to do it, it’s OK, but it’s going to set us back years on highway maintenance and construction, things that desperately need to be done.”
Wiese agrees the ballot process can be used as a platform not just for making decisions, but also for educating the public.
“There is value in taking our message directly to voters and having the opportunity to really talk about the need for increased revenue with the entire state,” he said.