Official Newspaper of Eddy County since 1883

Opinion: Kill the bill, not the income tax

That Legacy Fund sure has the legislature in a tizzy. They look at the balance in the fund, and its earnings over the past few years, and their heads spin. They even bring back proposals late in the session that were killed after thoughtful floor debate. Yes, I’m talking about the plan to use the Legacy Fund’s earnings to offset the income tax.

The House's proposal would divert half of the Legacy Fund's earnings each two-year budget cycle to an “income tax rate reduction fund,” as long as the transfer is at least $50 million. Tax Commissioner Ryan Rauschenberger has said it will take a decade to cut the taxes down to a point where lawmakers could repeal the income tax.

Meanwhile, a revenue forecast adopted by lawmakers last month predicted the state would generate almost $950 million in individual and corporate income taxes in the 2019-21 budget cycle alone.

After passing the House, the bill was killed by the Senate on a 41-4 vote in March. Then House leaders resurrected the proposal by adding it to the Senate’s budget bill. In his comments, House Majority Leader Chet Pollert, R-Carrington, said he expected the debate would land in a joint House-Senate conference before the bill's final passage. The budget bill passed the Senate unanimously in February but is awaiting action in the House.

"We feel strongly about the income tax," Pollert told reporters, noting that "the Senate's adding things that we killed."

Wait a second, Rep. Pollert. As a taxpayer, and someone who voted for the Legacy Fund, I thought that the purpose of the Legacy Fund’s very inception was to save money to fund government programs and services during poor economic times when revenues fell short of expenditures to fund public services.

Therefore, if we are going to instead use the fund to “reduce the tax burden” on our residents, I much prefer a different approach. How about we use the fund’s earnings to improve local infrastructure throughout our state? For example, the City of New Rockford is about to embark on a $10 million water project to finally bring our water quality standards up to a point where we might actually want to drink it out of the faucet. I applaud our local authorities for their work on this project. My only wish is that we wouldn’t have to pay 3.125 percent interest for 40 YEARS in order to pay back USDA-RD the money we are borrowing. This term and interest rate are dictated by the federal program the city has tapped for the project, and from what I understand, is the least cost option for city residents. Yet, if you do the math, we will be paying nearly as much back in interest over time as we are receiving in grant dollars. There is no such thing as free lunch, or a “grant” in this case.

Imagine if the state legislature tried RD’s approach and invested say $500 million per biennium into an infrastructure loan fund. Then, instead of taking 3.125 percent interest, they offered counties and cities 1 percent interest, and said we could decide how many years we needed to repay the loan. The City of New Rockford may have opted to pay off that water project loan in 20 years.

There is a proposal before the legislature that would do just that. Senator David Hogue and Rep. Roscoe Streyle (both Republicans from Minot), introduced legislation that would make 15 percent of the Legacy Fund available to capitalize a revolving loan program for specific types of infrastructure projects:

• Flood control and protection

• Water and wastewater treatment plants

• Regional water supply

• Municipal water supply

• Airport infrastructure and renovation

Per the proposal, the program would start in the 2019 – 21 biennium. The maximum term would be 50 years, and the interest rate would be capped at 1.56 percent. The minimum loan amount would be $10 million, or $1 million on refinancing. The state-owned Bank of North Dakota would be responsible for underwriting the loans. Only 15 percent of the Legacy Fund would be available for this.

This bill is actually a compliment to the highly popular Prairie Dog infrastructure bill, which was signed by Gov. Burgum last month, as it allows for more infrastructure capital projects to be completed.

Lawmakers have said it is also a form of property tax relief, because it provides low interest loans and will save taxpayers millions of dollars.

They have a point. I say the loan infrastructure fund is a great idea, and I’ll double down and add that the Legacy Fund’s earnings should be used, not the principal. Therefore the principal will stay intact until more can agree on what to actually do with it.

So what kind of impact might we see on this proposal? Since it’s too late for New Rockford on the water project, I’ll use a hypothetical $1 million project to make the comparison. A city would pay $1,753,084 total at 3.125 percent over 40 years, with annual payments of $43,827.12.

Take that same $1 million at 1 percent over 20 years, and that city’s overall cost decreases to $1,103,746. The annual payments are higher, $55,187.28, but the cost savings is over $650,000. What city wouldn’t like to complete that project $650,000 cheaper, and pay off its loan in half the time besides? I think it’s important that we give local governments options like this so our local leaders can have meaningful discussions about the cost of projects and the value of early payback.

To make the proposal even better, school infrastructure and roads should be added to the list. The goal is to lessen the burdens of property tax, not remove one of the tools we have to raise revenue.

And in regards to schools maybe a plan like this would encourage school boards to truly plan for the future, and I don’t mean just the next 40 years. There are beautiful public buildings in other parts of the country that are centuries old. Let’s build schools that we can be proud to maintain for generations and afford to put a facelift on when needed, not run them to the ground so we have no choice but to spend millions to rebuild them, leaving empty shells in our communities.

If they really want to reduce the tax burden on our residents, the legislature should take a hard look at the mechanisms used to fund local infrastructure projects, not lower or remove the income tax.

The best part about funding essential infrastructure is that it makes our local munities stronger and paints a better financial picture for the future.