PROPERTY TAX REFORM

Chris FickLeague of Oregon Cities

Cities are struggling

Revenues have declined nearly 4 percent over the last five years

Rainy day funds have plummeted 16 percent 42 percent of cities report being less able to

address their financial needs this year Nearly half of cities believe that their city will be

even less able to meet financial needs next year 49 cities saw property tax revenues decline in

FY2011-12

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* Data from 2012 State of Cities report

Budget Reduction StrategiesEmployed by Cities

Cut road maintenance 38%

Reduced staff and/or operations at city hall 37%

Reduced total operating spending 30%

Decreased planning and permitting services 30%

Reduced number of FTEs 27%

Cut infrastructure spending 25%

Increased employee contribution to healthcare 24%

Decreased overall service levels 16%

Reduced public safety spending 14%

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* Data from 2012 State of Cities report

LOC Board:

Made revenue reform a long-term priority of the League

Primary revenue constraints Measures 5 and 50

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Measure 5 (1990)

Capped property taxes for all general governments (cities, counties, special districts, local option levies) and schools at $10 and $5 respectively per $1,000 of RMV Limits property taxes to 1% of RMV

$300,000 home = $3,000 limit on general government property taxes; $1,500 limit for schools

Measure 5 limits mimic the real estate market

5

Measure 50 (1997)

Set a new taxable value (assessed or AV) level At 10% less than 1995-96 RMV

Capped annual growth in taxable value at 3% annually

Set permanent rates for all taxing districts Shortened the maximum length of a local option

levy from ten to five years

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Two Limitations

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Taxable Value x Tax Rate

= Tax Extended

OR

(Real Market Value ÷ $1,000) x Maximum

Category Rate ($5 schools / $10 general

gov.)= Maximum Allowable Tax

If tax extended is greater than the maximum allowable tax, the difference is

reduced or “compressed” and is not collected by the taxing district(s).

Measure 50 limits

Measure 5 limits

Effects of Measures 5 & 50

Compression Loss of voter control Inequity

Permanent rate Neighborhood to neighborhood

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Compression

Compression under Measures 5 occurs when the value of property taxes on an individual property is greater than $10 for general governments or $5 for schools per $1,000 of RMV More than half of Oregon cities are in compression Revenue lost to compression is increasing

9

FY2008-09 FY2009-10 FY2010-11 FY2011-12

$(30.00)

$(25.00)

$(20.00)

$(15.00)

$(10.00)

$(5.00)

$-

$(10.80)

$(15.60)

$(19.60)

$(28.20)

City Property Tax Revenue Lost to Compression

In m

illions

Compression – Falling RMVs

102009 2012$0

$500

$1,000

$1,500

$2,000

$2,500

$800 $738

$650 $600

$500 $462

$50 $0

Local option leviesSpecial DistrictCityCounty

2009 2012 Difference

RMV $200,000 $180,000 ($20,000)

Measure 5 limits $2,000 $1,800 ($200)

Local Taxes

Local option levies $50 $0 ($50)

Special District $500 $462 ($38)

City $650 $600 ($50)

County $800 $738 ($62)

Revenue lo

st to

co

mpre

ssion

Revenues compressed

Compression Losses for Schools and Counties

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Since FY2008-09 revenue lost to compression has increased:

• 216% for schools, or by $50.9 million• 154% for counties, or by $20.8 million• 161% for cities, or by $17.4 million

FY97-9

8

FY98-9

9

FY99-0

0

FY00-0

1

FY01-0

2

FY02-0

3

FY03-0

4

FY04-0

5

FY05-0

6

FY06-0

7

FY07-0

8

FY08-0

9

FY09-1

0

FY10-1

1

FY11-1

2

$(80,000,000)

$(70,000,000)

$(60,000,000)

$(50,000,000)

$(40,000,000)

$(30,000,000)

$(20,000,000)

$(10,000,000)

$-

CitiesCountiesSchools

Loss of Voter Control

Voters lack the ability to: Make local decisions; Prioritize; or Engage in long-term planning

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Example: Sweet Home, OR

Timber-dependent city in Linn County Measure 50 permanent rate of $1.42 per $1,000

of AV City has funded police and library services with

local option levy since 1986 Voters approved levies with nearly 60 and 55

percent support respectively in 2010

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Sweet Home continued…

However, other taxing districts also have local option levies

Market values plummet $38 million, $34 million, and $18 million over last three years

Result: Revenue loss from compression has doubled, from $300,000 (13% of property tax revenues) in 2009-10 to $824,000 (27% of property tax revenues) in 2011-12

Seven taxing districts in 1997 Possibly eleven taxing districts by 2013

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Loss of Voter Control –“The Gap” and Unintended Consequences

As RMV and AV approach one another, “the gap” in which municipalities can pass local option levies, shrinks or becomes nonexistent

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“The Gap”

When the gap shrinks, the actions of overlapping taxing districts may have a detrimental effect on other districts by causing or worsening compression

Examples: A proposed increase in the 9-1-1 district rate in Deschutes County

would have resulted in the city of Redmond losing $75,000 to compression

A proposed local option levy in Madras would exacerbate compression on Jefferson County’s local option levy for its jail

The proposed permanent library district in Multnomah County would result in the city of Portland losing at least $7 million to compression, and the city’s local option levy losing $1 million

The renewal of a local option levy by voters in 2010 in Linn County increased compression of Albany’s public safety local option levy. Albany then increased its local option levy rate when it was renewed in 2012, worsening Linn County’s compression

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Loss of Voter Control –“The Gap” and Unintended Consequences

Fosters Belief in Bad Government

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Multnomah County's cutbacks in hours and services, tied to Oregon's complicated tax code, caught plenty of library-goers off-guard. Hollywood resident David Sparks is among those who voted to extend levy funding in May on the mistaken assumption that the library would stay open seven days a week.

"So terribly disappointed that what we voted for apparently wasn't," said Sparks, who has four children younger than 12 and brings his family to the library weekly.

The Oregonian, Thursday, July 19th, 2012

Multnomah County voters approved the renewal of the library levy with 84% of the vote.

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Voting for local option leviesbut not paying

In many ways, our system really is nuts…

About one third of Portland homeowners don’t have to pay the entire [local option levy], and more than a quarter of all homeowners don’t have to pay anything at all…

Thanks to property tax compression, thousands of Portland homeowners may vote in support of tax hikes from which they are effectively exempt.

[Measures 5 and 50 have] created compression related inequities and distortions in a number of cities… they also tie the hands of local voters.

The Oregonian, Monday, July 30th, 2012

Inequity – Permanent Rates

Permanent Rates vary dramatically $0.59 – Josephine County $0.60 – Curry County $4.34 – Multnomah County $4.50 – Harney County $8.53 – Wheeler County $8.71 – Sherman County

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Inequity – Permanent Rates

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Example: Philomath Phoenix

Population 4,610 4,550

Tax rate per $1,000 RMV $5.30 $3.65

Police dept? Yes Yes

Fire dept? No No

Property Tax Revenues $1,301,749 $923,205

Permanent Tax Rate (in $) per $1,000 of RMV

Number of Cities

Percentage of Cities

None 13 5.4%

$0.01 to $1.00 23 9.5%

$1.01 to $3.00 72 29.8%

$3.01 to $5.00 72 29.8%

$5.01 to $7.00 45 18.6%

$7.01 to $9.00 14 5.8%

$9.01 to $12.00 3 1.2%

All Cities:

Inequity – Neighborhood to Neighborhood

Measure 50 locked in taxable value (AV) at 1996 levels

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Block 1 RMV AV Taxes

9910 SW 61st $ 269,670 $ 213,930 $ 4,236

9931 SW 61st $ 270,590 $ 236,110 $ 4,270

9930 SW 61st $ 279,390 $ 216,920 $ 4,385

9911 SW 61st $ 311,450 $ 252,070 $ 4,897

Block 2 RMV AV Taxes

5134 NE 16th $ 267,870 $ 72,870 $ 1,624

5117 NE 16th $ 268,480 $ 51,790 $ 1,154

5126 NE 16th $ 282,140 $ 51,640 $ 1,151

5133 NE 16th $ 352,530 $ 81,930 $ 1,826

This block receives a Measure 50 discount of 73 to 82 percent off their tax rate applied to their RMV.

This block receives a Measure 50 discount of 13 to 23 percent off their tax rate applied to their RMV.

A Tale of Two Blocks

Esta

blis

hed

Gen

trify

ing

Inequity – Property to Property

Measure 50 inequities are not confined to Portland metro area

$ 164,710 $ 99,720 $ 1,846

($1,121)$

164,500$

164,500 $ 2,967$

155,590 $

134,530 $ 2,490

($318)$

155,690$

155,690 $ 2,808

RMV AV Taxes Difference$

245,250$

136,600 $ 2,080

($1,560)$

245,320$

245,320 $ 3,640$

270,510$

132,630 $ 2,020

($2,060)$

270,480$

270,480 $ 4,080$

285,270$

103,080 $ 1,570

($2,662)$

285,200$

285,200 $ 4,232

Redm

ond

Bend

“Horizontal inequities—unequal tax treatment of taxpayers with similarly valued property, are widespread among the four counties (Deschutes, Jackson, Multnomah and Sherman) observed.”

$ 277,990

$ 123,220 $ 1,997

($2,105)$

276,080$

251,520 $ 4,102

Sist

ers

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Oregon’s Unique Detachment from RMV

On reset at sale: “Of the 18 states that apply their assessment limit to individual parcels, only Arizona, Minnesota, and Oregon do not have this acquisition value feature.”

“With no periodic recalibration of assessed values to market levels, the Oregon system has gone the farthest of any in breaking the link between property taxes and property values.”

Source: “Property Tax Assessment Limits: Lessons from Thirty Years of Experience.” Mark Haveman and Terri A. Sexton. Lincoln Land Institute. 2008.

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Potential Solutions

Voter Control Referral Empower voters to pass local option levies (temporary

taxes) outside of compression Reset at Sale Referral

Reset taxable value (AV) to real market value (RMV) at time of sale or construction

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Statewide Support for Local Option Levies

Since 1997: Voters in 45 cities have approved local option levies Voters in 34 cities have passed the same local option levies

more than once 11 cities have passed four or more levies 10 cities have passed three levies

Voters in 8 cities have passed local option levies for different services

Voters in 26 school districts, 16 counties and 124 special districts have passed local option levies throughout the state

In May 2012, voters passed 18 out of 21 local option levies: City voters passed 6 out of 6 local option levies County voters passed 5 out of 6 local option levies

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City Local Option Levies

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West Linn

Ashland

Eugene

Gladstone

Grants Pass

Hillsboro

Springfield

St. Paul

Sweet Home

Stayton

Warrenton

Cities that have passed four or more local option levies (11)

Albany

Banks

Canby

Forest Grove

Happy Valley

King City

Port Orford

Seaside

Dayton

Cities that have passed three local option levies (10)

Portland

Bandon

Gold Beach

Phoenix

Bay City Lexington

Milton-Freewater

Lyons

Cities that have passed two local option levies (8)

Union

Cities that have passed one local option levy

School District Local Option Levies

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West Linn – Wilsonville

Ashland

Eugene

Riverdale

Sweet Home

School districts that have passed four local option levies (3)

Corvallis

Lake Oswego

Crow-Applegate-Lorane

School Districts that have passed three local option levies (8)

Portland

Hood River

Pendleton

School districts that have passed two local option levies (2)School districts that have passed one local option levy (13)

Sisters

Tigard - Tualatin

Camas Valley

Colton

Helix

Oakland

Beaverton

JosephSherman County

Falls City

Condon

Morrow County

Siuslaw

Klamath Falls

Administrative

County Local Option Levies

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Baek Dae H

Counties that have passed 6 or more levies (2)Counties that have passed 5 levies (5)

Counties that have passed 4 levies (1)

Counties that have passed 3 levies (2)

Counties that have passed 2 levies (3)

Counties that have passed a levy (3)

Questions?

Contact Chris Fick at:503-588-6550 or

cfick@orcities.org

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