Chris Fick League of Oregon Cities

Cities are struggling  Revenues have declined nearly 4 percent over the last five years  Rainy day funds have plummeted 16 percent  42 percent of cities report being less able to address their financial needs this year  Nearly half of cities believe that their city will be even less able to meet financial needs next year  49 cities saw property tax revenues decline in FY * Data from 2012 State of Cities report

Budget Reduction Strategies Employed by Cities Cut road maintenance38% Reduced staff and/or operations at city hall37% Reduced total operating spending30% Decreased planning and permitting services30% Reduced number of FTEs27% Cut infrastructure spending25% Increased employee contribution to healthcare24% Decreased overall service levels16% Reduced public safety spending14% 33 * Data from 2012 State of Cities report

LOC Board:  Made revenue reform a long-term priority of the League  Primary revenue constraints  Measures 5 and 50 44

 Capped property taxes for all general governments (cities, counties, special districts, local option levies) and schools at $10 and $5 respectively per $1,000 of RMV  Limits property taxes to 1% of RMV  $300,000 home = $3,000 limit on general government property taxes; $1,500 limit for schools  Measure 5 limits mimic the real estate market 5

 Set a new taxable value (assessed or AV) level  At 10% less than RMV  Capped annual growth in taxable value at 3% annually  Set permanent rates for all taxing districts  Shortened the maximum length of a local option levy from ten to five years 6

7 Taxable Value x Tax Rate = Tax Extended OR (Real Market Value ÷ $1,000) x Maximum Category Rate ($5 schools / $10 general gov.) = Maximum Allowable Tax If tax extended is greater than the maximum allowable tax, the difference is reduced or “compressed” and is not collected by the taxing district(s). Measure 50 limitsMeasure 5 limits

 Compression  Loss of voter control  Inequity  Permanent rate  Neighborhood to neighborhood 8

 Compression under Measures 5 occurs when the value of property taxes on an individual property is greater than $10 for general governments or $5 for schools per $1,000 of RMV  More than half of Oregon cities are in compression  Revenue lost to compression is increasing 9

Difference RMV$200,000 $180,000 ($20,000) Measure 5 limits$2,000$1,800 ($200) Local Taxes Local option levies$50$0($50) Special District$500$462($38) City$650$600($50) County$800$738($62) Revenue lost to compression Revenues compressed

11 Since FY revenue lost to compression has increased: 216% for schools, or by $50.9 million 154% for counties, or by $20.8 million 161% for cities, or by $17.4 million

 Voters lack the ability to:  Make local decisions;  Prioritize; or  Engage in long-term planning 12

 Timber-dependent city in Linn County  Measure 50 permanent rate of $1.42 per $1,000 of AV  City has funded police and library services with local option levy since 1986  Voters approved levies with nearly 60 and 55 percent support respectively in

 However, other taxing districts also have local option levies  Market values plummet $38 million, $34 million, and $18 million over last three years  Result: Revenue loss from compression has doubled, from $300,000 (13% of property tax revenues) in to $824,000 (27% of property tax revenues) in  Seven taxing districts in 1997  Possibly eleven taxing districts by

 As RMV and AV approach one another, “the gap” in which municipalities can pass local option levies, shrinks or becomes nonexistent 15 “The Gap”

 When the gap shrinks, the actions of overlapping taxing districts may have a detrimental effect on other districts by causing or worsening compression  Examples:  A proposed increase in the district rate in Deschutes County would have resulted in the city of Redmond losing $75,000 to compression  A proposed local option levy in Madras would exacerbate compression on Jefferson County’s local option levy for its jail  The proposed permanent library district in Multnomah County would result in the city of Portland losing at least $7 million to compression, and the city’s local option levy losing $1 million  The renewal of a local option levy by voters in 2010 in Linn County increased compression of Albany’s public safety local option levy. Albany then increased its local option levy rate when it was renewed in 2012, worsening Linn County’s compression 16

17 Multnomah County's cutbacks in hours and services, tied to Oregon's complicated tax code, caught plenty of library-goers off-guard. Hollywood resident David Sparks is among those who voted to extend levy funding in May on the mistaken assumption that the library would stay open seven days a week. "So terribly disappointed that what we voted for apparently wasn't," said Sparks, who has four children younger than 12 and brings his family to the library weekly. The Oregonian, Thursday, July 19 th, 2012 Multnomah County voters approved the renewal of the library levy with 84% of the vote.

18 In many ways, our system really is nuts… About one third of Portland homeowners don’t have to pay the entire [local option levy], and more than a quarter of all homeowners don’t have to pay anything at all… Thanks to property tax compression, thousands of Portland homeowners may vote in support of tax hikes from which they are effectively exempt. [Measures 5 and 50 have] created compression related inequities and distortions in a number of cities… they also tie the hands of local voters. The Oregonian, Monday, July 30 th, 2012

 Permanent Rates vary dramatically  $0.59 – Josephine County  $0.60 – Curry County  $4.34 – Multnomah County  $4.50 – Harney County  $8.53 – Wheeler County  $8.71 – Sherman County 19

20 Example:PhilomathPhoenix Population4,6104,550 Tax rate per $1,000 RMV$5.30$3.65 Police dept?Yes Fire dept?No Property Tax Revenues$1,301,749$923,205 Permanent Tax Rate (in $) per $1,000 of RMV Number of Cities Percentage of Cities None135.4% $0.01 to $ % $1.01 to $ % $3.01 to $ % $5.01 to $ % $7.01 to $ % $9.01 to $ % All Cities:

Measure 50 locked in taxable value (AV) at 1996 levels 21 Block 1RMVAVTaxes 9910 SW 61st $ 269,670$ 213,930$ 4, SW 61st $ 270,590$ 236,110$ 4, SW 61st $ 279,390$ 216,920$ 4, SW 61st $ 311,450$ 252,070$ 4,897 Block 2RMVAVTaxes 5134 NE 16th $ 267,870$ 72,870$ 1, NE 16th $ 268,480$ 51,790$ 1, NE 16th $ 282,140$ 51,640$ 1, NE 16th $ 352,530$ 81,930$ 1,826 This block receives a Measure 50 discount of 73 to 82 percent off their tax rate applied to their RMV. This block receives a Measure 50 discount of 13 to 23 percent off their tax rate applied to their RMV. A Tale of Two Blocks Established Gentrifying

Inequity – Property to Property Measure 50 inequities are not confined to Portland metro area $ 164,710$ 99,720$ 1,846 ($1,121) $ 164,500 $ 2,967 $ 155,590$ 134,530$ 2,490 ($318) $ 155,690 $ 2,808 RMVAVTaxesDifference $ 245,250$ 136,600$ 2,080 ($1,560) $ 245,320 $ 3,640 $ 270,510$ 132,630$ 2,020 ($2,060) $ 270,480 $ 4,080 $ 285,270$ 103,080$ 1,570 ($2,662) $ 285,200 $ 4,232 Redmond Bend “Horizontal inequities—unequal tax treatment of taxpayers with similarly valued property, are widespread among the four counties (Deschutes, Jackson, Multnomah and Sherman) observed.” $ 277,990$ 123,220$ 1,997 ($2,105) $ 276,080$ 251,520$ 4,102 Sisters 22

 On reset at sale: “Of the 18 states that apply their assessment limit to individual parcels, only Arizona, Minnesota, and Oregon do not have this acquisition value feature.”  “With no periodic recalibration of assessed values to market levels, the Oregon system has gone the farthest of any in breaking the link between property taxes and property values.” Source: “ Property Tax Assessment Limits: Lessons from Thirty Years of Experience.” Mark Haveman and Terri A. Sexton. Lincoln Land Institute

 Voter Control Referral  Empower voters to pass local option levies (temporary taxes) outside of compression  Reset at Sale Referral  Reset taxable value (AV) to real market value (RMV) at time of sale or construction 24

 Since 1997:  Voters in 45 cities have approved local option levies  Voters in 34 cities have passed the same local option levies more than once  11 cities have passed four or more levies  10 cities have passed three levies  Voters in 8 cities have passed local option levies for different services  Voters in 26 school districts, 16 counties and 124 special districts have passed local option levies throughout the state  In May 2012, voters passed 18 out of 21 local option levies:  City voters passed 6 out of 6 local option levies  County voters passed 5 out of 6 local option levies 25

26 West Linn Ashland Eugene Gladstone Grants Pass Hillsboro Springfield St. Paul Sweet Home Stayton Warrenton Cities that have passed four or more local option levies (11) Albany Banks Canby Forest Grove Happy Valley King City Port Orford Seaside Dayton Cities that have passed three local option levies (10) Portland Bandon Gold Beach Phoenix Bay City Lexington Milton-Freewater Lyons Cities that have passed two local option levies (8) Union Cities that have passed one local option levy

27 West Linn – Wilsonville Ashland Eugene Riverdale Sweet Home School districts that have passed four local option levies (3) Corvallis Lake Oswego Crow- Applegate -Lorane School Districts that have passed three local option levies (8) Portland Hood River Pendleton School districts that have passed two local option levies (2) School districts that have passed one local option levy (13) Sisters Tigard - Tualatin Camas Valley Colton Helix Oakland Beaverton Joseph Sherman County Falls City Condon Morrow County Siuslaw Klamath Falls Administrative

28 Baek Dae H Counties that have passed 6 or more levies (2) Counties that have passed 5 levies (5) Counties that have passed 4 levies (1) Counties that have passed 3 levies (2) Counties that have passed 2 levies (3) Counties that have passed a levy (3)

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