OLD-AGE AND SURVIVOR INSURANCE SYSTEM TAX LEVY - HISTORY

The Employee Benefits Programs Committee is considering a bill at the request of the North Dakota Association of Counties which would allow political subdivisions to pay Public Employees Retirement System employee contributions from the old-age and survivor insurance tax levy authorized in North Dakota Century Code (NDCC) Section 57-15-28.1(5). This memorandum discusses the history of the old-age and survivor insurance tax levy.

The Old-Age and Survivor Insurance System (OASIS) was created by the Legislative Assembly in 1947. Section 8C of 1947 House Bill No. 182 authorized political subdivisions to levy a tax sufficient to meet their obligations under the OASIS over and above any levy limitations then prescribed by law for political subdivisions. In 1973 the Legislative Assembly amended NDCC Section 52-09-08(C) to provide that political subdivisions could levy a tax sufficient to meet their obligations under the OASIS up to a maximum levy of 40 mills on each dollar of the net assessed taxable valuation of the political subdivision. The Legislative Assembly also provided at this time that any obligations under the OASIS over and above the amount raised by the maximum levy permitted must be paid out of the general fund of the political subdivision. As introduced, the bill would have limited the levy to 20 mills, but the limitation was increased to 40 mills.

The legislative history for 1973 House Bill No. 1295, which established the levy limitation, notes that the taxable base in some localities was so low that it required a high mill levy in order to raise sufficient funds to pay for the OASIS. Proponents of the bill testified that the high levy placed a heavy tax burden on a few landowners, and the bill was intended to place a reasonable limit on the levy and to address concerns that the levy would increase as high as any levy in the state if a limit was not placed on it. Finally, it was pointed out that under the bill any obligations over and above the amount raised by the maximum levy must be paid out of the general fund of the political subdivision. Thus, it was felt that even with the levy limitation, political subdivisions would still be able to meet their OASIS obligations from the general fund of the political subdivision.

In 1983 various tax levies and limitations that were located throughout the North Dakota Century Code were consolidated in Section 57-15-28.1. In 1987 the Legislative Assembly allowed political subdivisions, except school districts, multidistrict special education boards, and center boards of a multidistrict vocational education center, to levy a tax not exceeding four mills for comprehensive health care insurance employee benefit programs duly established by the governing body. At this time, the Legislative Assembly also reduced the old-age and survivor insurance tax levy from 40 mills to 30 mills. Testimony submitted by the North Dakota Association of Counties indicated that it was no longer necessary to have the flexibility to levy up to 40 mills because school districts were no longer included as a political subdivision that could levy a tax under the authorization, and thus the limitation was reduced to 30 mills. A schedule showing county mill rates in 1986 is attached as Appendix A.

In 1997 the Legislative Assembly amended Section 57-15-28.1(5) to provide that the OASIS tax levy could be used for Social Security or for an employee retirement program established by the governing body or for any combination of these purposes. At this time, the Tax Department prepared a fiscal note that stated there was no fiscal impact for state general or special funds, counties, cities, or school districts. However, the North Dakota Association of Counties did submit information on the OASIS and Social Security tax levy levied by each county at that time. A copy of this schedule is attached as Appendix B.

Following the 1997 Legislative Assembly, the Tax Commissioner determined that another statutory change was necessary to accomplish the goals of the North Dakota Association of Counties. Under state law, the source of funds for the employee's share of the Public Employees Retirement System contribution, if paid by the employer, must come from the same source of funds as their compensation. Thus, the Tax Commissioner advised county auditors that the OASIS levy was only available for the employer's contribution and could not be used for the employee's contribution. As a result, Employee Benefits Programs Committee Bill No. 53 has been submitted to allow employers to pay employee contributions under the Public Employees Retirement System from the levy provided in Section 57-15-28.1(5). Thus, if this bill is enacted by the Legislative Assembly, political subdivisions could use the OASIS tax levy to pay both employer and employee contributions under the Public Employees Retirement System.

ATTACH:2