The BIG tax story (Warning: Long post ahead)

Readers, remember that time when I said I was doing some major research on property taxes?

Yeah, it was ages ago!

Anyway, City Beat finally got it done so here's the story and the accompanying side bar.

To cut to the chase, I concluded that our taxes are not the highest in the state, but they seem that way because we aren't paid enough. (Check out all the crazy calculations here. Read on if you want to hear about the methodology.)

Rankings for the tax bill are as follows: 1) Bismarck, 2) Fargo, 3) Grand Forks and 4) Minot.

Rankings for income are as follows: 1) Fargo, 2) Bismarck, 3) Grand Forks and 4) Minot.

Compare the tax bill and the income and you get these rankings: 1) Grand Forks, 2) Bismarck, 3) Fargo and 4) Minot.

(Um, boss, I need a raise?)

First, some background.

From the start, I already knew that our tax rates are the highest among the major cities. City leaders have been trying to make excuses for that for years. We're not as high as, say, Devils Lake, they'd say. We have those 11.5 mills dedicated to the dikes, which other cities don't have to pay, they'd say. Our mill levies are way lower compared to a decade ago, they'd say.

I was never quite satisfied with those explanations. So we're lower than DL but why not our peers, like say, Minot?

At first I tried to compare the Grand Forks city budget with those of the other three major cities. I stopped when I realized that people weren't singling the city out, they were complaining about taxes as a whole. That meant analyzing the budgets for the schools, the counties and the park districts of four cities. *Groan*. It's not just tedious to research, it'd be tedious to read.

So I came up with a way to compare the cities that people could relate to: Compare the average tax bill. You know what you're paying and you want to know if you're paying more than the guy in Minot.

What I had to do was find out what the average family paid in taxes in each city.

Methodology-wise, that was a task and a half.

First of all, you have to understand that there are a lot of taxes out there. The main local taxes include property taxes, sales taxes and utility fees. Fees count as taxes because sometimes cities make a profit on utilities and transfer the money to non-utility fees funds to keep property taxes down. Then there are the state taxes, about half of which go back to the cities. There's sales tax, income tax, auto excise tax, tobacco tax, alcohol tax and on and on.

It wasn't too hard to pin down the average property tax bill. Call the city assessor, ask him or her the median value of a residential property and apply the property tax rate. Bam, you've got the median property tax bill. Same thing with utilities. Ask the public works people what the average water usage rate was and apply the utility fees. Bam, you've got average utility bill.

Then comes the sales taxes and all the other consumption taxes. There really isn't any comprehensive study on spending patterns in each of the four cities. How much did the average person in Grand Forks spend on cigarettes? I have no idea. All I found was the average spending pattern of a Midwestern household, to which I applied the relevant taxes: sales, alcohol, tobacco, insurance, cars, etc.

I'm not sure I've got every single one of them, but I think I got most of the big ones.

Add them all up and you've got a close approximation of your average tax bill.

I know there's a few holes. You don't have to tell me. No doubt, the spending pattern of the average household is surely a little different from the spending pattern of the average household that owns a home. But what are ya gonna do when the data's incomplete?

I was surprised when I found that the average Grand Forks tax bill isn't that high when compared with those in Bismarck and Fargo, which are the highest.

What really clinched it was the median assessed value of residential properties. The median simply was higher in the latter cities than in Grand Forks. I'm still wrapping my head around that because everybody says the houses here are more expensive than in Fargo and elsewhere. In fact, one research firm's cost of living index puts Grand Forks slightly ahead of Fargo. I've written about this index and it compares homes that are similar. I suspect that the average household in Fargo, with its higher income, has a fancier home than the average Grand Forks household. That means the Fargo household will pay more property taxes.

The other thing that really jacked up the Grand Forks tax bill were utility rates. Not only are ours higher, they're high enough that, even though the average Grand Forks household uses way less water than its counterpart in Bismarck, the Grand Forks household is paying about the same. Public works director Todd Feland says that's because our wastewater rates are higher, due to cost overruns when the wastewater treatment plant was built.

Even with the higher utility bill, our lower property values and lower income tax kept the tax bill here lower than Bismarck or Fargo.

So far so good until I started thinking about the average household's ability to pay.

I got the state tax department to send me the average household income for the four cities. I then divided the tax bill by the income to see what percentage of income went to taxes. Turns out we're so poor here that even our third-rank tax bill is a tad too high compared to those of our counterparts in other cities.

In retrospect, I shouldn't have been surprised. People have been complaining about low wages here for a long time and city leaders have tried to attract companies that pay higher wages. But I never really connected wages to taxes. Perhaps the reason is I have two somewhat separate beats: economic development and politics/government policy. Wages fall into the econ side and don't cross over into the poli side.

At this point, you could still ask why the tax bill has to be so high.

I did a quick and dirty calculation by taking the 2006 budget of each city and dividing it by the latest population estimate from 2005, which would give you the per capita cost of government.

Rankings are as follows: 1) Grand Forks ($2,400 per resident), 2) Bismarck ($2,211), 3) Fargo ($1,664) and 4) Minot ($1,380).

But that's really rough. Circumstances vary so much that a fair comparison would need a little more in-depth investigation. For example, spending might be higher one year because of needed capital improvements, say a new fire hall is needed. The population estimate might be wrong. And budgeted spending tend to be higher than actual spending, just to be conservative. Grand Forks' budget, for example, assumes it will spend all of its economic development funds, which has never happened.

In the end, I'm afraid that I still haven't been able to reach a definitive conclusion on where Grand Forks really stands compared to the other cities. There's still more work to be done. It's pretty definite, though, that I could use a raise. (That's rhetoric speaking. Don't e-mail the boss. That wouldn't be good for me.)

Update 10:17 p.m., 8/20/06: I just thought of something. It would be a mistake to try and connect the average tax bill with the per capita cost of government. The average tax bill is just what residents pay. But the cost of government is not only borne by residents but also by visitors who pay sales taxes and hotel/motel taxes, among other things. In other words, just because the cost of government is higher doesn't really mean you're getting a bad deal. Your neighbors in surrounding communities are subsidizing your city services.