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Published in Print: March 2, 2005, as North Dakota House Passes Aid Overhaul

North Dakota House Passes Aid Overhaul

Bill to Raise Taxes on Sales, Income Faces Senate Fight

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The North Dakota House has approved a bill that would force sweeping changes to the state’s school finance structure and could potentially resolve a 2003 lawsuit by low-wealth districts challenging the school funding formula.

The measure, which passed the Republican-controlled House 49-41 last month, would nearly eliminate local school property taxes and raise the necessary $285 million for the general education fund through a higher sales tax and a surcharge on income taxes.

It is expected to face heated debate this month in the Senate, which is also controlled by the GOP.

Regardless, Gov. John Hoeven, a Republican, said last week that he would not sign any legislation raising sales or income taxes. “We need to hold the line on taxes,” Mr. Hoeven said last week on Prairie Public Television.

While the average tax burden for residents would remain relatively stable under the plan, it would mean significant changes in state funding for some districts.

State school aid would be distributed to districts based on their size, demographic makeup, and financial need. Currently, money is distributed on a per-pupil basis, with the state providing a little more than 40 percent of school funding.

Schools in Bismarck, for example, would receive an additional $1.5 million annually under the new structure, while the Fargo public schools would lose about $10 million, according to Rep. C.B. Haas, a former school administrator and a sponsor of the legislation.

The measure, however, would allow districts to levy local property taxes on a limited basis.

“The education of a child should not be contingent on the value of the property where the child lives,” Mr. Haas said in an interview last week. “The idea is to redistribute all of the money … in a true adequacy formula.”

State Contribution

Republican Reps. Haas and Gil Herbel, a longtime teacher in the Grafton public schools, introduced the bill. The 4,500-student Grafton district is a co-plaintiff in the 2003 lawsuit, which argues that the current property-tax-based formula prevents high-poverty schools from providing an adequate and equitable education for their students.

Mr. Haas was the business officer, and later superintendent, of the 2,600-student Dickinson district, which joined Grafton and several other school systems in challenging the finance structure in 1993. The state supreme court in that case agreed, 3-2, that the formula was flawed, but did not have the four votes necessary to declare the system unconstitutional. Another suit was filed in 2003 by some of the same defendants.

In response to that decision, the state legislature approved additional per-student funding for low-income districts, as well as more money for transportation and special education.

Mr. Haas, however, said that while the state has been tinkering with school funding for more than a decade, dramatic changes are necessary to make the system more equitable.

The state’s contribution to education is only about 41 percent, with the rest made up from local and federal funds, according to Mr. Haas, who also noted that the state’s share has gone down since 1993. His proposal would increase the state contribution to about 80 percent. “We certainly haven’t addressed this problem,” he said.

Uphill Battle

Some of the four plaintiffs in the current lawsuit have indicated they would drop out if the measure is enacted.

“If this bill passed the way it looks now, we would consider dropping our case,” said Steve Swiontek, the superintendent of the 1,850-student Devils Lake district, one of the plaintiffs in the 1993 and 2003 lawsuits. “It provides a lot more adequacy.”

The new formula would give Devils Lake an additional $2.5 million, bringing state funding for the district to $14.5 million.

Opponents of the bill, however, argued that it would significantly raise taxes on middle- and upper-income families and place more of the school finance burden on the state’s few urban areas.

The measure would place a 33 percent surcharge on income tax, which would mean an additional $330 for every $1,000 dollars on personal income tax bills. It also would raise the state sales tax by 2 cents, to 7.5 percent. Critics say the increase could discourage tourists from shopping in the state.

While Superintendent Swiontek acknowledged that the bill faces an uphill battle, he views it as a promising sign that change is possible.

“It’s really encouraged us this time,” Mr. Swiontek said, “that the legislature is finally willing to take a look at changing the antiquated and broken system that we have in North Dakota.”

Vol. 24, Issue 25, Pages 16,18

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