Finance: Property tax revenues shaping up to deliver greater-than-expected compression

Sean C. Morgan

Property tax compression increased this year, as expected, following an increase in property tax rates for library and police services; but it increased more than the city budget projected, based on tax information released this month by Linn County.

“Property tax bills are coming out,” said city Finance Director Pat Gray as she reported the information to the City Council last week. “Bad news and good news. Our value went up. The unfortunate part of going up with a larger rate is it actually caused a larger compression.”

The total general government tax rate for Sweet Home increased from $15.07 per $1,000 of assessed value to $16.73 per $1,000, a total increase of $1.66. The police levy increased by $1.45 per $1,000, and the library levy increased by 35 cents per $1,000 based on a vote in November.

The total increase was offset about 14 cents by a decrease in the 2006 Sweet Home Fire and Ambulance District bond, which will be paid off this fiscal year. Bond levies are exempt from property tax limitations.

The council proposed the police and library tax increases last year to offset larger amounts of compression partially caused by growing tax rates elsewhere in Linn County, including the Sheriff’s Office levy.

Anyone whose properties are in compression – and most Sweet Home property has been in compression – will see a tax increase based on the growth of their assessed value regardless of whether the taxes were passed, but a larger percentage of the taxes collected would go to Sweet Home services.

Compression is the result of property tax limitations. Property taxes are calculated based on value established by the County Assessor’s Office. Those values are allowed to grow a maximum of 3 percent per year, in most cases. The total is then compared to real market value and limited to $10 per $1,000 of valuation for general government – education taxes are limited to $5 per $1,000.

If assessed value and real market value were each $100,000, a homeowner would pay a rate of $10 per $1,000 of real market value – $1,000 in total general government taxes. The rate of $16.73 per $1,000 would provide $1,673 in property taxes without the property tax limitation. The difference between those two numbers is called “compression.” The larger the gap between the two valuations, the lower the compression.

To meet the limitations, local option levies, like those that fund Sweet Home’s police and library services, are reduced or “compressed” before permanent rates, like the tax levies that fund basic city services and the fire district. Only when those rates are compressed to zero are permanent rates compressed.

Gray has anticipated an increase in compression because the tax rate was increasing. She estimated it at 32 percent. The actual rate of compression is 38 percent, which means that property tax limitations are reducing the total imposed tax by 38 percent, a little more than a third.

As a result, local option levy revenue is lower than she budgeted, by $172,500 for police services and $25,700 for library services.

The Police Department will collect some $1.8 million in property taxes this year, an increase from $1.77 million last year but less than budgeted for 2016-17 at $1.98 million. The library will collect $269,000 this year, up from $226,000 last year but less than budgeted for this year at $295,000.

Compression decreased elsewhere in the county as assessed values increased slower than Sweet Home’s and real market values increased faster than Sweet Home’s.

Sweet Home’s assessed value grew by $20.8 million to $442.3 million in 2016, a 4.94-percent increase. It can exceed 3 percent based on new construction and improvements.

Countywide, assessed value grew by 4.13 percent to a total of $9.4 billion.

In Sweet Home, real market values increased by $32.7 million, 6.39 percent, to $543.9 million. Real market value is a county estimate based on the market.

Countywide, real market values grew by 9.27 percent to $13.2 billion. The larger gap in growth, with no increases in property tax rates, drove compression downward outside of Sweet Home.