Here we go again! Let’s do it right this time.
According to a front page article in The Minot Daily News on July 15th, Minot School Board member Mark Lyman told a local government liaison committee, “Minot voters will have to approve a sizable bond issue (i.e. increase in property taxes) if they want a second high school.” He went on to say, “So the reality is we’re going to have to go out for a bond vote.”
Mr. Lyman noted the bond issue would likely need to be for $40-50 million dollars. He suggested, it was uncertain whether or not state trust fund money might be available, particularly given the current economic times affecting the state budget.
Mr. Lyman noted that design of a high school could take nine months to a year, and then time would be needed for “public engagement and education before a vote.” He stated, “The best way to pass a bond issue is not to raise property taxes right before you do that – by anybody, not just your own entity.”
I agree with Mr. Lyman. One thing that badly needs to be done is, “public engagement and education.” A little education is in order. So, here are some facts the public should consider:
First the North Dakota State Constitution states in Article VIII (Education), Section 2. “The legislative assembly shall provide for a uniform system of FREE public schools throughout the state, beginning with the primary and extending though all grades up to and including schools of higher education, except the legislative assembly may authorize tuition, fees and service charges to assist in the financing of public schools of higher education.”
It is a constitutional mandate that the State Legislature, not other political subdivisions, is responsible to FULLY FUND primary and secondary education.
Second, the North Dakota Constitution states, in Article X (Finance and Public Debt), Section 1. “The legislative assembly shall be prohibited from raising revenue to defray the expenses of the state through the levying of a tax on the assessed value of real or personal property.”
One of the expenses of the state Legislature is to provide for is K-12 education. The state is prohibited from levying of a tax on the assessed value of real property.
Bond issues for the purpose of providing K-12 education is a state obligation, if bonds are used. It is not a local obligation. Fully funding this obligation is prohibited through the use of taxes of real property.
Third, Article IX (Trust Lands) Section 2. This section states in part, “Distributions from the common schools trust fund, … must be faithfully used and applied each year for the benefit of the common schools of the state and no part of the fund must ever be diverted, even temporarily, from this purpose or used for any purpose other than the maintenance of common schools as provided by law.”
Section 11. This section reads in part, “The legislative assembly shall pass suitable laws for the safekeeping, transfer and disbursement of the state school funds…”
The school lands trust fund is NOT impacted by the, “economic times affecting the state budget.” The school lands trust funds stand alone. The largest of these funds is the Common School Trust Fund (for K-12 schools) which constitutes 78% of the total.
The School Lands Trust Funds are managed by the North Dakota Board of University and School Lands. That Board is made up of the (1) Governor, (2) Secretary of State, (3) State Attorney General, (4) State Treasurer and (5) Superintendent of Public Instruction.
As of March 31, 2020, the total value of the funds in this trust was $5,256,249,350. Of that total $4,179,314,796 is to be used for the support of the Common Schools. These dollars are invested in Wall Street securities. We (the taxpayers of North Dakota) pay tens of millions of dollars annually for Wall Street fund managers to manage this money. A review of the funds show that over the past 10 years we have paid out close to a quarter of a billion dollars to manage virtually the same funds each year.
It is interesting to note that prior to 2011 there were virtually no common school funds invested in Wall Street real estate equities. Since 2011 the amount of School Land Trust funds invested in real estate equities went from $395,596,563 in 2011 to $744,591,000 in 2020. The management fees paid on real estate securities are significantly larger than on any other investment funds.
From 3/31/2011 through 3/31/2020 the Common School fund has grown from $1,525,588,116 to $4,179,314,796. This is a growth of 274%. Yet, not a single dime of this fund has been invested in the state of North Dakota let alone a dime in our Common Schools.
Back to the Minot School District and its discussion of building a second high school. The Minot School Board is suggesting that will require a $40 -50 million bond issue secured by and funded through imposition of an increase in property taxes. Note: This assumes a gift of land and building of $20-25 million will be made. In short, the proposed second high school will be valued at between $60-75 million.
There is no reason the provision and maintenance of all common school structures in the State of North Dakota are not fully funded by common school trust fund revenues. In fact, Article IX, Section 2 states these funds are to be used for the maintenance of the common schools.
There are many who claim this trust fund is a permanent trust fund and the funds can’t be touched. We’re told these funds need to be saved for future generations. Apparently those taking this position are unable to understand that our school facilities are built, not just for today’s students, but will also serve future generations of students.
When we invest these funds in our school structures it will not matter what happens to Wall Street securities. We will have our school facilities to use for decades without “mortgage payments.” The fact is there is no better or safer place to invest these trust dollars than in our common school real property assets.
Let’s take at a recent example. Between 3/31/2019 and 3/31/2020 our invested dollars in the Common School Trust dropped from $4,455,951,771 to $4,179,314,796. That was a loss of $276,636,975 or to put it in more tangible terms it would have been enough to build 3.7 – $75,000,000 new high schools and own them all without any mortgage and WITHOUT ANY INCREASE IN OUR PROPERTY TAXES.
The question that needs to be addressed is why aren’t we using the Common School trust funds this way? Superintendent Vollmer is aware of this option. Has he explained it the Minot School Board? If not, why not?
The state is obligated by the ND constitution to fully fund K-12 schools and to do so using its proper funding tools. Those include state sales and income taxes. These income generation sources are to be used first to fund mandated state obligations before not mandated purposes. Common schools come first, not second.
North Dakota Attorney General Wayne Stenehjem, in a Letter of Opinion (2014-L-09, dated June 3, 2014) makes it clear these funds can be invested in our common school real property facilities. This is provided that such investments, “… comply with the prudent investor rule and the constitutional limits of the Fund.”
The use of taxes on property to fund state obligations is specifically prohibited. So why is it being done? Because no one has taken the initiative to see the State meets its obligations properly.
It is interesting that when a school district filed a legal challenge it never made it to court. Instead the state quickly “cut a deal” to placate the school district in exchange for dropping the suit.
It’s time Minot takes the initiative to see the state Legislature fulfills its constitutional obligation to fully fund K-12 school. In addition we should take a serious look at how the University and School Lands Trust Board is managing the Common Schools trust investments.
Minot School Board Member Mark Lyman’s suggestion for, “public engagement and education” is appropriate. Education of the public will serve to more fully enlighten taxpayers as to their rights and protections provided by our state constitution.
It’s time to educate the electorate. It’s time for the electorate to demand the Legislature fully fund our common schools. It’s time to demand the Legislature stop expecting school districts to impose property taxes to fund any common school expenses.
The Minot School District should, if necessary, take legal steps to see the state complies with its constitutional obligations.
The only appropriate condition is that the Minot School District meets the needs assessment criteria of the North Dakota Department of Public Instruction, as required for all new schools.