The 2020 U. S. Census will once again report that the small cities in North Dakota are declining in population.

Even before the new census figures were verified, the 2019 estimates indicated that the state had 218 cities with populations under 250 and 132 with populations of less than 100.

As the population declines, so does economic vitality. Retail establishments in most small cities have disappeared; schools and churches have consolidated, the road out of town well-worn and property dropping in value.

Assessors have three basic methods for determining property value – replacement costs, income earned and market value. Since no one in a small town is going to replace property in a declining market and dying main streets have no income to capitalize, assessors are left with the market approach.

But what is the market in a dying community? The standard rule is a willing buyer to a willing seller. In small communities, there are no willing buyers even though there would be willing sellers. In truth, there is no market to be used as the measuring stick for assessments.

In cities experiencing a reasonable number of sales, it is possible to identify a semblance of market value. But there are not enough arms-length sales in small towns to provide a sound base for assessing.

This is not the case in oil country where the flood of workers created a strong market for housing.

McKenzie County Recorder Katie Paulson noted from Watford City that: “We have a unique situation in our county as we had a multitude of sales because of the oil activities so we actually have had enough sales in the last few years to adequately measure our small town assessments in Alexander and Arnegard.”

There are other small cities in oil country that benefited from current sales. In fact, there were situations where property sold at excessive prices because of the oil activity.

For sure, none of the three methods for assessing work in dying communities where values are declining. As a result, assessments from town-to-town, county-to-county must vary widely, raising the question of equal protection under the Fourteenth Amendment to the U. S. Constitution.

According to Professor Christopher Berry at the University of Chicago, who just finished a massive evaluation of property taxes: “the equal protection clause requires that all property of the same class – e.g. residential – be taxed at the same rate.”

So what happens when someone builds a new house in a dying community? By the time the last nail is driven, the value of the house is only a fraction on a market that doesn’t exist. The owner should expect to amortize the investment by living in the house for many years.

The new house could be assessed using the cost replacement method but that would not approach market value because one new house would not change the market and the law requires market value. The market test has to stand up to any kind or quality of residence.

In communities with mixed housing, the residences of the lower income owners tend to be assessed closer to real market than residences of upper income owners. This is true all across the country.

There are two explanations for this inequity. First of all, cheaper houses tend to create more measurable market activity. Secondly, higher valued house do not move fast enough to create a market and people in higher valued houses can be more contentious.

In the 1980s when farm property created a significant number of assessing problems, the Legislature created a system of taxation by productivity instead of market. To be fair to property owners in declining towns, the state should design a new system, probably considering a simpler residual value system.

Lloyd Omdahl is a former lieutenant governor of North Dakota and former political science professor at the University of North Dakota, Grand Forks.