Kelly Kenoyer
Compression rates have gone down significantly in Sweet Home, which means the recently passed police and library levies will likely generate a lot more revenue than previously expected.
Originally, the city asked for levies based on an expected compression rate of 18%, but the compression rate fell by 3 percent after those levies were set. That’s because home prices are rising rapidly in Sweet Home, which has a big impact on compression.
“We did not anticipate that property tax values would increase as much as it did for market value,” Finance Director Brandon Neish said. Market values have increased by more than 6%, he added, which was unexpected and drove down compression.
“The levies were set that high due to the compression in a bid to combat some of that compression, knowing full well that we would end up getting less than that,” Neish said. “Most properties in Sweet Home don’t pay those full tax rates,” he added, which are $7.85 per thousand dollars of value for the police levy and $1.17 for the library.
Compression is a strange phenomenon: In Sweet Home, all the districts that impose taxes – the city, the school district, Sweet Home Fire and Ambulance District, cemetery district and the county’s general property tax – impose a total tax rate of $24.70 per $1,000 of assessed property value ($2,470 per year on a home assessed at $100,000).
The assessed value of property, established by the County Assessor’s Office, is typically lower than real market value. After calculating a property tax bill based on assessed value, the amount is compared to real market value and reduced to a combined maximum of $15 per $1,000, or $1,500 per year on a home assessed at $100,000. Compression varies significantly by property, but the average property in Sweet Home pays 14% less in taxes each year due to compression, Neish said.
That cap leads to compression: For every dollar above that $15 threshold, the local option levies are reduced by an equal percentage until they fall below it. Levies are the first to fall, followed by permanent tax rates.
Permanent rates are set by the state constitution, but as jurisdictions increase local option levy rates (such as Sweet Home’s police and library), the main effect on compressed properties is to redistribute the proportion received by each jurisdiction.
When the county increases its local option rate, for example, it shifts tax dollars that were going to city law enforcement to the county government, rather than causing an increase in property taxes.
While in compression, property tax bills may increase when real market property values increase faster than assessed values, which are limited to 3-percent growth annually. Over the past several years, local real market values have increased significantly.
Because compression has fallen, Linn County is now predicting $3,441,508.19 in total tax revenue, which is around $300,000 more than was originally budgeted, but still more than $600,000 less than the stated tax rates would have generated if it weren’t for the $15 per $1,000 cap.
That doesn’t mean the city will take the money and run, though.
Neish said, “We’re allowed to tax up to that $7.85, but we don’t have to.”
He suggested the city could take the tax rate down a dollar or two if revenues are indeed that high, especially after developing a bit of reserve and managing equipment.
“It’s up to the Budget Committee and the council to decide if we drop that tax rate, or do we keep it.”