AG rules sales tax can help schools

A North Dakota attorney general's opinion issued Friday paves the way for cities to divert sales tax money to school districts.

For Fargo and other cities, which rely mostly on property taxes to pay for education, the ruling could set the groundwork for a major overhaul in how residents pay for schools.

Allowing schools to have a portion of the sales tax means they wouldn't have to depend so heavily on property taxes, said Sen. Tim Mathern,D-Fargo, who requested the opinion.

"I'm concerned about two things: proper funding for schools and the escalating property taxes, which I believe are a problem for Fargo," Mathern said.

While a sales tax proposal could provide a statewide solution to a school funding formula that relies heavily on property taxes, it also could raise a historical bone of contention between Fargo and West Fargo.

Because of how school boundaries were drawn in the 1970s, the West Fargo School District garners taxes on much of Fargo's commercial-rich west side.

"When property taxes become so dramatic, these issues - like where that business is, or where the school boundaries are - drives public policy choice," Mathern said.

But the attorney general's opinion, as well as the school boundary issue, affect more than Fargo and West Fargo.

"This is a question for the whole state," Mathern said.

According to Attorney General Wayne Stenehjem's opinion, a city governed by a home rule charter may grant sales tax revenue to a school district as long as its charter and ordinances authorize it.

Stenehjem's opinion goes one step further and states that with certain restrictions, a city may use sales tax money to establish property tax exemptions.

Mathern said one idea would be to set aside some sales tax money and give it to property tax payers - a rebate of sorts.

But there would be limits on the city.

"A home rule city may establish exemptions from real estate taxes to be funded by sales tax revenues if it does so in connection with a permissible utility, business or enterprise, or for the reasonable support of the poor under the authority of a state statute," the opinion stated.

Mathern said his point in seeking the opinion was to address a broad issue. Though he doesn't have a specific proposal prepared, the opinion opens the door for discussion between the city and the schools, he said.

Fargo City Commissioner Mike Williams agreed. He said he's been talking about this idea for years but has been told by others it may not be legal.

The opinion "just makes it crystal clear," Williams said. "We need to diversify funding for education."

Jim Johnson, president of the Fargo School Board, said using sales taxes to fund schools would allow the district to lower its share of property taxes. The Fargo district has the highest mill levy in the state.

"From our perspective, if we can find revenue from other sources (than property taxes), that would be great," he said.

Chuck Cheney, superintendent of the West Fargo School District, said the opinion could spur interesting conversations between government agencies.

Whether it benefits West Fargo schools depends on the details of potential legislation, he said.

In the past, some advocates for Fargo schools have suggested a sales tax as a way to reap wealth from the city's commercial-rich areas, such as West Acres and 45th Street, Cheney said. Those areas fall within the West Fargo School District boundaries.

Cheney estimates 15 percent to 20 percent of the West Fargo School District's 5,700 students live in Fargo.

"We'd argue that if there would be a city sales tax for children in the city of Fargo, we ought to benefit as well," he said.

Readers can reach Forum reporters Mary Jo Almquist at (701) 241-5531 and Erin Hemme Froslie at (701) 241-5534