Local government officials thronged the Capitol to challenge a proposed limit on their property tax growth, although a state senator believes the Legislature's final property tax measure will include caps.

"If we are to attract new North Dakotans to our communities, we must have the local ability to provide the needed services," Carrington Mayor Donald Frye said in a statement to the North Dakota Senate's Finance and Taxation Committee. "If not, all the efforts to attract people to North Dakota will be for nothing."

More than 150 people, many of whom were city and county officials, packed a Capitol hearing room Wednesday to listen to arguments about the proposed property tax limits.

The contested provision limits revenue growth in property tax collections to 3.5 percent annually, using the highest amount collected in the previous three years as a benchmark.

The value of new property development is not included in the cap. It may be exceeded during emergencies, or if local voters agree to pay higher property taxes.

Jim Lee, a Ward County commissioner, and McKenzie County Commissioner Ron Anderson said voters would not hesitate to throw out local officials they believed were not thrifty with tax money.

"Man, we'd be voted out quicker than anybody if we went crazy," Anderson said.

The property tax limits are part of broader legislation, which the committee examined Wednesday, that would provide a number of tax breaks. The panel's chairman, Sen. Herb Urlacher, R-Taylor, said the bill is likely to be extensively amended.

It includes $116.7 million in state money to finance local property tax cuts, and a separate income tax break for married couples. At present, two single people often pay less in state income tax than they would if they were married to each other.

The bill increases aid for North Dakotans who have low incomes, who are at least 65 years old or are permanently and totally disabled. It is distributed through a program called the homestead tax credit, which helps people who qualify to pay their property tax bills and to continue living in their own homes.

Rep. Wes Belter, R-Leonard, said if the Legislature did not rein in local property tax growth, voters were likely to do so themselves with an initiated measure.

Belter predicted an initiative's property tax restrictions "could be, certainly, a lot tougher to the political subdivisions than we are dealing with here."

Sen. Dwight Cook, R-Mandan, said restrictions in property tax growth would have to be part of the Legislature's final package.

"The natives are a little bit upset with property taxes, and they don't really care who is to blame," Cook said. "When they look at the dollars that they pay, they say it's too much … and they want to do something about it."

Local governments and school districts already have property tax levy limits in state law, Cook said. The legislation gives governing boards the option of seeking increases from their voters if officials believe the situation warrants it.

"I understand there's a fear of caps," Cook said. "But you're living with caps today."

Ronald Krebsbach, a McLean County commissioner, said the proposed limits could crimp the ability of local governments to offer property tax incentives for such projects as ethanol and biodiesel factories.

The caps may have the unintended effect of raising property tax bills. Local governments may decide to collect their allotted 3.5 percent increase, whether or not they need it, Krebsbach said.

"The logical thing to do in the event of caps is to tax to the limit of the cap, in case of snow emergencies or other emergencies in the future," he said.

John Schmisek, the city of Grand Forks' finance director, said local property tax limits could affect interest rates the city pays on its debt.

If debt rates rise by as little as one-quarter or one-half percent, Schmisek said, "the cost to our taxpayers will be huge."

Bill Shalhoob, a spokesman for the Greater North Dakota Chamber of Commerce, objected to a provision in the bill that is meant to deny property tax breaks to commercial and agricultural property if its owner is based outside the state.

"It would be unwise and unfair to exclude a company or a citizen based on residency," Shalhoob said.

Cook said he wondered whether the provision would violate constitutional protections for interstate commerce and said he would offer amendments to remedy the problem.

The bill is HB1051.