Municipal property tax losses continue growing
Local governments will be unable to collect $212 million this year in property taxes, including almost $100 million specifically approved by voters, because of statewide tax limits.
That is the conclusion of a new report by the League of Oregon Cities, which has been tracking such losses since 2008.
The overall loss this year is 14.6 percent greater than last year, and is almost five times what it was back in 2007-2008.
Among the most dramatic losses noted in the report:
Portlands levy for childrens programs, which voters renewed May 20 for another five years, is limited to $9.8 million of the $20 million authorized for 2013-2014.
West Linn-Wilsonville schools levy is limited to $2.8 million of the $9.8 million authorized for 2013-2014. The levy has one more year to run.
Voters approved or renewed 16 of 21 local-option levies in the May 20 primary election.
But many Oregonians will be surprised to find they wont get what they voted for, said Mike McCauley, the leagues executive director. Its not because of anything the city or school has done. Its because statewide tax caps take power out of the hands of local voters.
The caps cause what is known as compression.
According to the report, about half of Oregons 242 cities, 34 of 36 counties, and 90 percent of 197 school districts are affected by the caps.
In 1990, voters passed limits on property tax rates under Measure 5. One rate of $5 per $1,000 of taxable value covered education; the other rate of $10 was for all other local governments. Bond issues were exempt.
But the 1.5 percent overall limit did not affect the taxable values of property.
In 1996, after population growth pushed up housing prices and property values, voters approved Measure 47. It rolled back taxable values to 1995 levels, reduced them by 10 percent, and capped annual increases at 3 percent. Lawmakers rewrote it and voters approved Measure 50 in 1997.
Over the years, school operating costs were shifted from local property taxes to state aid drawn from the income-tax-supported general fund.
But local governments, including schools, bumped up against the limits. When that occurs, the amount each government can collect in taxes is reduced proportionately to fit under the limit as compression.
School districts, education service districts and community colleges share one pot for education. All other governments are in the second pot.
Up until 2008, tax losses from compression were relatively small, mainly because housing prices and property values continued to increase. But all that changed with the downturn in housing prices starting in 2008.
We are continuing to see a pretty stagnant housing market across the state, other than some rebounds in the metropolitan area, said Chris Fick, policy analyst for the LOC.
Yet voters continue to approve additional levies. They want more money for services, but the housing market has not rebounded as much as people expected.
The league offered proposals in the 2013 legislative session. One would have allowed voters to approve local-option levies that exceed the statewide limits, but only for five years, and would not be retroactive. The other would reset taxable value known as assessed value to the sales price when a home or other property is sold.
Because the limits are in the Oregon Constitution, lawmakers would have to refer changes to voters in a statewide election.
The House and Senate revenue committees heard the proposals but did not advance them.
Tax-limit supporters argued that the proposals would undo the limits.
Despite what local voters may want, we have a state Constitution which controls that, said Greg Howe, a spokesman for the Taxpayer Association of Oregon, which sponsored the 1990 tax limit. The people of this state say there should be some limit on property taxes.
Advocates of broader changes said that focusing on these proposals might thwart public support for a comprehensive overhaul.
But a 2010 report by the Legislative Revenue Office and a recent report by the Northwest Economic Research Center at Portland State University, supported by the league, suggest links between property tax inequities and the values of homeowners in gentrifying neighborhoods. The first study looked at four areas, including Portland; the latest study focused on Portland.
The property tax system creates a hidden subsidy for these property owners, the PSU report said. Some of the burden of funding government and school services is transferred away from these properties. This results in revenue shortfalls, or creates the need for property owners in areas with a smaller increase in real market value to fill the gap.