Sean C. Morgan
As various persons talk about the upcoming library levy election, urban renewal districts and budgets in general, Measure Five compression is often at the top of the conversation.
Measure Five is one of a couple of complications that make property tax revenues difficult to predict, as it limits, on a property-by-property basis, overall taxes.
In one case, a tax increase may impact one property owner while another may see no change in property taxes paid, making it difficult for public officials to say whether a tax increase, like the library levy, will really cause a tax increase or have no effect on the taxpayer.
Measure Five passed in 1990. It limited property taxes to $10 per $1,000 of assessed value for general government, including all types of taxing districts except education. The measure capped property taxes at $5 per $1,000 for education, with education funding backfilled through the state income tax.
In 1996, voters approved Measure 47, which changed the way Measure Five was calculated. Measure 50, a revision of Measure 47, was passed the following year. The measures rolled property taxes back, placed caps on the growth of assessed value and differentiated between assessed value and real market value.
Measure Five limits are now calculated based on real market values while property tax rates are applied to the assessed value.
For Sweet Home taxpayers, all general government taxing districts combine for a rate of $12.81 per $1,000 of assessed value. This does not count general obligation bonds. The rate actually paid for a piece of property depends on its real market value compared to its assessed value.
If the total tax exceeds a rate of $10 per $1,000 of real market value of a particular property, local option levies, like the Linn County Law Levy, the Sweet Home police levy and the Sweet Home library levy, are reduced proportionally until the rate reaches $10. If all local option levies are reduced to zero on the property, permanent tax rates are reduced proportionally until the rate reaches $10.
For example, a home with an assessed value of $100,000 has a tax liability of $1,281 for general government service. If the property’s real market value is $110,000, the Measure Five rate is $11.65. Local option levies must be reduced by $1.65 to meet the $10 limitation. A tax increase may not affect the property at all.
This is called compression, the reduction in taxes to meet Measure Five limitations. The closer real market value, is to the assessed value, the larger the compression effect. Real market value is usually larger than assessed value.
If the sample property’s real market value were $130,000, the Measure Five rate would be $9.85 and would result in no compression. If tax rates were increased on such a property, the property owner could expect his total tax to increase as a result.
Real market value is based on the sale of comparable properties in the area. Assessed value is derived from a baseline established in Measures 47 and 50 and limited to 3-percent growth with growth allowed for new construction.
As real market values increase, compression could be expected to drop away, but in recent years, the compression effect has been increasing.
The City of Sweet Home’s police levy has had compression levels rise from $6,400 in 1996-97 to generally $45,000 over the next four years with the increase of the levy from $810,000 to $1.5 million. Compression levels increased again in 2001-02 to $117,000 with the creation of the Sweet Home Fire and Ambulance District. Compression is estimated at about $175,000 for 2003-04.
The library followed similar trends with nearly $500 in compression in 1996-97. Compression increased to $3,000 to $6,000 over the next five years. In 2002-03 the library lost $11,533 in compression and 2003-04 estimates are for about $14,500 in compression losses should the library pass a levy this fall.
The city’s general fund has generally not had to deal with compression losses. compression in the general fund, based on a permanent tax rate of $1.42, the city lost $1.10 in compression. It is estimating a $5 loss for 2003-04 based on passage of a library levy.
“Compression has been going up the last few year,” Finance Director Pat Gray said. Linn County Sheriff’s Office increased its levy request last November to fight compression losses.
Increasing levies to take compression into account means compression losses in other levies are higher.
The city has not included compression in building its budgets and levy requests, Gray said. “We did ours based on expenditures. If we get into compression, then we just deal with it.”