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City free to invest urban renewal money at PSU

Judge rules funds aren't subject to school funding cap

TRIBUNE PHOTO: JONATHAN HOUSE - PSU spokesman Scott Gallagher discusses plans to redevelop the four-acre parcel where University Place Hotel is located, along the new MAX Orange line. A new Tax Court ruling clears the cloud over urban renewal funding for the project. In a big win for Portland State University, a judge tossed out a lawsuit challenging the use of urban renewal funds to develop PSU properties.

Oregon Tax Court Judge Henry Breithaupt ruled recently that Portland urban renewal funds for the PSU projects shouldn’t count as property taxes going to education services, and thus aren’t subject to the school funding cap in Oregon’s Measure 5 property tax limitation.

Attorney Greg Howe, a supporter of Measure 5, had argued that subsidizing PSU projects with urban renewal money should be considered part of the pool of property taxes spent on education, and thus subject to the Measure 5 caps. The suit was brought by schools activist Theresa McGuire and 10 other citizens. If they prevailed, spending by the Portland Development Commission for PSU projects would have triggered reduced property taxes flowing to Oregon public schools, Portland Community College and Multnomah County Education Service District. That could have jeopardized city funding.

“This is great news for PSU and our students, for the south end of downtown, and for Portland,” said Scott Gallagher, PSU communications director.

Mayor Charlie Hales’ policy director for urban renewal, Jillian Detweiler, also hailed the decision.

“We have a comprehensive and, we think, a very strategic development agreement with PSU that furthers the city’s goals for a lively university district, and that agreement has been upheld,” Detweiler said.

In his 13-page ruling, Breithaupt ruled that PDC money spent on PSU properties would be for commercial spaces, not classrooms or other direct educational services. Therefore, any property taxes spent should be classified as “general government” under the Measure 5 caps.

Measure 5, the granddaddy of Oregon’s property tax limitations passed in 1990, capped tax collections at $5 per $1,000 of assessed property value for schools, and $10 per $1,000 for general government, which includes the city and county. That shifted much of Oregon’s school-funding burden from property taxpayers to the state general fund. Schools had to compete for money with human services, public safety, universities and other essential programs, leading to a downward spiral in Oregon school funding that persists today.

Though Howe lost his case in a summary judgment, his watchdog efforts regarding Measure 5 appeared to prompt a change in approach by the city.

The Portland City Council had approved the Education Urban Renewal Area, mostly covering PSU’s campus and surrounding blocks, in 2012 at the urging of then-Mayor Sam Adams. Money was earmarked to redevelop Lincoln High School and subsidize PSU’s business school and other academic buildings.

When Hales took office in 2013, he quickly set about recasting Portland’s patchwork of urban renewal districts, and scrapped the fledgling Education Urban Renewal Area. Some PSU properties were added to the adjacent North Macadam Urban Renewal Area, but Hales deliberately shifted money from academic buildings into the university’s commercial spaces and other investment properties. Much of the money will go to PSU properties along the new MAX line in the south part of downtown, where Hales anticipates increased commercial development.

McGuire said the plaintiffs may have lost in the courtroom, but their actions resulted in changing where PDC is spending tax dollars.

The group has decided not to mount an appeal, Howe said.