Sean C. Morgan
The League of Oregon Cities is proposing two measures that will improve funding for city governments by allowing local voters to pass local option levies that exceed property tax limitations and resetting assessed property values at the time of sale.
The Sweet Home City Council, during its regular meeting on Oct. 23, viewed a video created by the LOC to explain the two concepts and the problems that it is intended to resolve.
“Oregon cities are struggling,” said Chris Fick of the LOC. “Over the last five years cities have seen revenues decline and rainy day funds plummet. Cities are also understandably pessimistic about being able to meet their financial needs.
“In this last fiscal year, one in six cities actually saw property tax revenues, the largest source of revenue for most cities and supposed to be the most stable, actually decline.”
According to the LOC, revenues have declined nearly 4 percent over the past five years, Fick said. Rainy day funds are down 16 percent. Some 42 percent of cities report being less able to address their financial needs this year, and nearly half of cities believe that their city will be even less able to meet financial needs next year. Forty-nine cities saw property tax revenues decline in the 2011-12 fiscal year.
Cities have employed a number of different strategies to balance budgets, cutting road maintenance, reduced staff, spending on operations and infrastructure and required employees to pick up more of their health care costs, he said. In some cases, cities have cut public safety.
The LOC Board of Directors has made revenue reform a long-term priority, working toward reforms of Measure 5 and Measure 50, Fick said.
Measure 5, passed by voters in 1990, capped property taxes for all general governments, including cities, counties and special districts, at $10 per $1,000 of real market value and schools at $5 per $1,000 of real market value.
The maximum tax on a property valued at $300,000 is $3,000 for general government and $1,500 for schools.
Measure 50, passed by voters in 1997, created a new assessed value by subtracting 10 percent from the 1995-96 fiscal year real market values. It capped the annual growth of assessed value at 3 percent. It set permanent tax rates for all taxing districts and shortened the maximum length of a local option levy from 10 years to five.
Local option levies fund the Sweet Home Police Department, the Public Library and Linn County law enforcement services. A School District 55 local option levy pays for the operation of the swimming pool.
Assessed values increase more slowly than real market values, which increased considerably with the housing bubble, he said. Assessors calculate taxes using the Measure 50 system and then check them against the Measure Five limitations.
This process creates compression, which occurs when the value of property taxes on an individual property, based on assessed value, is greater than $10 for general government or $5 for schools when compared to real market value.
Half of all cities are in compression, and lost revenue is increasing dramatically, he said. Cities have seen it increase 161 percent over the last four years.
Local option levies are compressed first, all the way to zero, before permanent rates are compressed, Fick said. “That means that local voters that approve additional taxes on themselves often can’t receive the services they support.”
Overlapping jurisdictions can have a detrimental effect on other governments, he said. Sweet Home illustrates the problem.
Sweet Home has a permanent rate of $1.42 per $1,000. Voters last renewed local option levies for police and fire services in 2010. The library’s rate increased by 20 cents.
In 2011, Linn County renewed its local option levy for law enforcement.
Along with declining real market values, the county levy increased compression from from $300,000 a few years ago to $824,000 last year.
“As a result, the police and library services the voters voted to support will not be provided at the same levels,” Fick said. The problem isn’t confined to Sweet Home. A change in the 9-1-1 rate in Deschutes County would increase compression in Redmond. A library district would increase compression in Portland. Albany increased its local option levy rate in 2012, increasing compression on Linn County.
Voters may support local option levies they don’t have to pay, Fick said. In Portland, a third of property owners don’t pay the full cost of a countywide local option levy, and another quarter don’t pay anything at all.
Measure 50 bases assessed values on 1995-96 real market values, Fick said. As a result many properties don’t pay their fair share for services.
In Portland, two similar neighborhoods hold different assessed values while sharing similar real market values, resulting in property owners in one neighborhood paying substantially more in taxes.
The real market value of the homes in one area runs between $250,000 to as high as $380,000, while assessed values are $73,000 to $82,000, with tax bills of $1,150 to $1,800.
In the other area, real market values run from $270,000 to $311,000, while assessed values range from about $214,000 to $252,000. Property tax bills there are more than $4,000 per year.
This problem isn’t confined to Portland, Fick said. It appears in cities of all sizes.
Oregon is unique in that its assessed values are not recalibrated when a property is sold, Fick said.
The LOC is pushing for two reforms to the property tax system to address these problems, Fick said. “First, we believe local voters should be empowered to pass local option levies outside of compression and for a maximum length of 10 years.
“Second, we believe property taxes should be reset to market value when a property is sold or reconstructed. The sale of a property is both a market-driven determination of its worth and an owners ability to pay their fair share.”
Voters across the state support local option levies, Fick said. Since 1997, 45 cities have passed local option levies, and 34 have passed them more than once. Sixteen counties have passed local option levies.
The benefits of the two measures the LOC proposes are numerous, Fick said. First, it empowers local voters to pass local levies outside of compression for the services they want.
“Second, it can reduce the unintended consequences, where the desires of additional services in one community can detrimentally harm the services provided in another,” Fick said. Third, the measures improve the fairness of the system by recalibrating values, requiring all property owners to contribute to a levy passed in their communities.
“Neither of these two measures will increase anyone’s taxes,” Fick said.
The video may be viewed at orcities.org by clicking on the “Legislative” link and scrolling down to “New LOC Videos” and “Oregon’s Property Tax System.”
The council took no action related to the video or the LOC legislative concepts.
Present at the meeting were councilors Marybeth Angulo, Jim Gourley, Greg Mahler, Scott McKee and Mayor Craig Fentiman. Absent were Ron Rodgers and Mike Hall.
In other business, the council adopted an ordinance that will require property owners to maintain their properties to specific criteria when they are considered vacant and blighted. Among the requirements, the properties must be secured to prevent access. Boards used to secure the structure must be painted the same general color as the house.
The council also appointed high school students Natasha Benson, freshman; Karson Rodgers, sophomore; and Nelson Rodgers, junior high at-large, to the Youth Advisory Council.
Positions remaining open include a junior and senior representative from the high school, two at-large junior high representatives, an at-large high school representative and three at-large representatives, ages 12-19.
For more information about the YAC, contact the city manager’s office at (541) 367-8969.