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Property Tax Reform

Property Tax Reform. Chris Fick League of Oregon Cities. Cities are struggling. * Data from 2012 State of Cities report. Revenues have declined nearly 4 percent over the last five years Rainy day funds have plummeted 16 percent

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Property Tax Reform

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  1. Property Tax Reform Chris Fick League of Oregon Cities

  2. Cities are struggling * Data from 2012 State of Cities report • 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 2

  3. Budget Reduction StrategiesEmployed by Cities * Data from 2012 State of Cities report 3

  4. LOC Board: • Made revenue reform a long-term priority of the League • Primary revenue constraints • Measures 5 and 50 4

  5. 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

  6. 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

  7. Two Limitations 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 (Real Market Value ÷ $1,000) x Maximum Category Rate ($5 schools / $10 general gov.) = Maximum Allowable Tax Taxable Value x Tax Rate = Tax Extended OR

  8. Effects of Measures 5 & 50 • Compression • Loss of voter control • Inequity • Permanent rate • Neighborhood to neighborhood

  9. 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

  10. Compression – Falling RMVs Revenue lost to compression Revenues compressed

  11. Compression Losses for Schools and Counties • 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

  12. Loss of Voter Control • Voters lack the ability to: • Make local decisions; • Prioritize; or • Engage in long-term planning

  13. 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

  14. 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

  15. 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 “The Gap”

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

  17. Fosters Belief in Bad Government 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. Multnomah County voters approved the renewal of the library levy with 84% of the vote. The Oregonian, Thursday, July 19th, 2012

  18. 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

  19. 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

  20. Inequity – Permanent Rates All Cities:

  21. Inequity – Neighborhood to Neighborhood Measure 50 locked in taxable value (AV) at 1996 levels A Tale of Two Blocks Established This block receives a Measure 50 discount of 13 to 23 percent off their tax rate applied to their RMV. Gentrifying This block receives a Measure 50 discount of 73 to 82 percent off their tax rate applied to their RMV.

  22. Inequity – Property to Property Bend Redmond “Horizontal inequities—unequal tax treatment of taxpayers with similarly valued property, are widespread among the four counties (Deschutes, Jackson, Multnomah and Sherman) observed.” Sisters Measure 50 inequities are not confined to Portland metro area

  23. 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.

  24. 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

  25. 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

  26. City Local Option Levies Warrenton Seaside Milton-Freewater Portland Banks Bay City Hillsboro Happy Valley Lexington Forest Grove Gladstone King City West Linn Union Dayton Canby St. Paul Stayton Albany Lyons Sweet Home Eugene Springfield Bandon Cities that have passed four or more local option levies (11) Port Orford Cities that have passed three local option levies (10) Grants Pass Phoenix Cities that have passed two local option levies (8) Gold Beach Ashland Cities that have passed one local option levy

  27. School District Local Option Levies Administrative Helix Portland Pendleton Beaverton Morrow County Hood River Riverdale Lake Oswego Sherman County Tigard - Tualatin West Linn – Wilsonville Condon Joseph Falls City Colton Corvallis Sweet Home Eugene Sisters Siuslaw Crow-Applegate-Lorane Oakland School districts that have passed four local option levies (3) Camas Valley School Districts that have passed three local option levies (8) School districts that have passed two local option levies (2) Ashland Klamath Falls School districts that have passed one local option levy (13)

  28. County Local Option Levies 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) Baek Dae H Counties that have passed 2 levies (3) Counties that have passed a levy (3)

  29. Questions?Contact Chris Fick at:503-588-6550 orcfick@orcities.org

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