1. Wendy Johnson, Intergovernmental Relations Associate
Property Tax Reform
Wendy Johnson, Intergovernmental Relations Associate

2. Presentation Outline Why property tax reform is a League priority
Property tax reform recent activity & big picture
Measure 5 problems and solutions
Measure 50 problems and solutions
Property tax reform- paths to get there
Property tax reform – keys to success
Miscellaneous issues

3. Distribution of Property Taxes by Type of Taxing District
This graph simply shows who receives property taxes. All local governments and schools. It’s the why we care about property taxes slide. $$
Source: Oregon Department of Revenue, Oregon Property Tax Statistics- Fiscal Year report

4. Property Tax Revenues
Property tax revenues are vital to schools and local governments:
Property taxes, on average, represent 60% or more of a city’s revenues. (Often not enough to cover public safety & fire.) $1.2 billion (actual property taxes for )
Property taxes, on average, represent 33% of the K-12 revenues (General Fund dollars make up the rest of the revenue). $3.7 billion (property taxes) + $7.4 billion (GF)= $11 billion budgeted for
This is the how much revenue slide.

5. Broken Property Tax System
1) Inequitable
2) Inadequate/voters can no longer set taxes and pay for services they want
3) Overly complicated

6. Property Tax Reform—Recent Activity
Slide 2
Property Tax Reform—Recent Activity
2011: League proposes referral to permit local option levies outside of compression
2013: League proposes referral to permit local option levies outside of compression and to reset AV at sale
2015: League proposes referral to permit local option levies outside of compression and to reset AV at sale and to statutorily alter the changed property ratio (city-wide rather than county-wide)
Each session, the bills for the above proposals received hearings but did not advance.

7. Property Tax Reform—Recent Activity
Slide 2
Property Tax Reform—Recent Activity
HB 2171 (2015)(Omnibus tax bill) – Passed
Bill directed the state’s Legislative Revenue Office, in consultation with the DOR, to prepare an analysis and report for restructuring Oregon’s state and local government revenue system, due Dec. 1, 2015.
Report available under publications tab at

8. Slide 2
Property Tax Reform
December 4, 2015: LOC Board of Directors adopts reform principles
LOC is now flexible on the details of a reform package but system should be built with the following principles:
Stability/predictability
Fairness/equity
Simplicity/clarity
Adequacy/sustainability
Voter/local option
Home rule protection
Competitive environment to retain/attract business

9. Property Tax Reform– Recent Activity
Slide 2
Property Tax Reform– Recent Activity
SJR 201 (2016) (Sen. Finance and Rev. Committee bill)
Constitutional referral that would have:
Returned to RMV as the basis for assessing property
Provided a new homestead exemption (details not worked out)
Repealed parts of Measure 50 (repealed AV and 3% growth limit)
HB (2016)
Bill that would have:
Directed the Legislative Revenue Office to make recommendations for systematic review and sunset of certain tax expenditures, including property tax deductions and exemptions
(Currently the legislature reviews income tax credits on a schedule but does not review property tax, excise tax or other misc. tax expenditures.)
Above bills both fail, but conversation shifts to comprehensive property tax reform. Hearings have more interest.

10. Property Tax Reform– Recent Activity
Slide 2
Property Tax Reform– Recent Activity
July 2016: League forms property tax work group to make comprehensive recommendations for reform in Hoping to revise and improve upon SJR 201’s provisions, address omissions and provide more details.
Small work group includes LOC, assessors, finance directors, LRO staff, DOR, Governor’s office, and a public finance manager.
Goal is to figure out key technical details so have a workable framework.
Working on both a revised rate system and an alternative levy system.

11. Property Tax Reform– Recent Activity
Slide 2
Property Tax Reform– Recent Activity
August 3, 2016: LOC Board of Directors again adopts property tax reform as priority for 2017 session. Broad components:
Constitutional referral:
To achieve equity, transitions to a market based property tax valuation system
To restore choice, allows voters to adopt tax levies and establish tax rates outside of current constitutional limits
Statutory changes:
To enhance fairness and adequacy, bill that makes statutory changes including altering the changed property ratio provision and the discount for paying taxes by Nov. 15.

12. Measure 5 (1990)
Capped property taxes for all general governments (cities, counties, special districts) at $10 per $1,000 total
Capped schools at $5 per $1,000
If the property taxes on an individual property exceed the Measure 5 limits, the taxes are reduced until the limitations are reached, a process known as compression
Effectively limits property taxes to 1.5% of RMV
What system do we have… quick basics. You all know that property tax calculations are governed mostly by Measure 5 and 50. Measure 5 put limits on RMV. $5 for schools and $10 for local government (per $1000 of real market value)

13. Compression
Based on FY , most taxing districts have reached or are close to the Measure 5 limits. Costs continue to increase– PERS, infrastructure, etc.
For FY : 60% of cities, 97% of counties and
89% of school districts are in compression (exceed limits)
Revenue lost to compression:
FY = $175 million
FY = $212 million

14. Compression Losses
This slide depicts the revenue loss to compression over time. Expect to be consistently over $150 million a year going forward. Schools losing most (grey), followed by cities (blue), then counties (orange) and then special districts (yellow)

15. Reform Needed: Address Measure 5 Limits
SOLUTIONS: We need Measure 5 limits that are-- a) Raised (potentially with a built-in cap adjustment for inflation); or b) Eliminated (back to rates or levies set locally by voters); or c) Replaced with some other type of limit (percentage growth limit, etc.)

16. Measure 50 (1997)
Set a new assessed value (AV) level with RMV discount
AV was set at 10% less than 1995 RMV
Gap between RMV and AV has grown—now AV total is 25% less than RMV (average)
Tax rate is applied to discounted AV (but still also must calculate with RMV due to Meas. 5)
Capped annual growth in AV at 3%
Set permanent rates for all taxing districts (froze at arbitrary 1997 rate calculations)
Measure 50 is 18 years old and it created the inequities. Go through bullets. Graph shows gap between AV and RMV. Shows 3% limit in blue line. Gap is continuing to grow again.

17. Measure 50-based property tax system creates
Slide 11
Measure 50-based property tax system creates
winners and losers (no link to RMV anymore)
In September 2015, the Oregonian ran several articles on the problems with the property tax system. The Oregonian even created a database to search properties in the Portland area for winners and losers. There are now more losers than winners… due to Measure 5 and 50…. inequities have gotten worse over time. This map illustrates the problem by showing the difference between assessed values and market values. The folks in dark blue are paying taxes on 50% or less of their property’s real market values. Those in red are paying taxes on 100% of their property’s value.
You can see that the areas of inner North, Northeast and Southeast Portland are the big beneficiaries from the current system. They are paying taxes on a much lower percentage of their property’s value compared to their neighbors to the east or west. Folks further out in east Portland and Gresham, despite often being lower income, are paying taxes on a higher percentage of their property values.
Source: The Oregonian (Sept. 11, 2015)

18. Slide 10
7/26/2012
Due to Measure 50, Major property tax inequities exist between homeowners
Under Oregon’s property tax system, similarly valued homes can often have significantly different property tax bills. The example in this slide shows two homes in Portland – same real market value, yet a difference in property taxes of more than $3,400. One is in SW and one is NE. The latter has the lower taxes because of how the market was in 1997!
So how did this come to pass? In the mid-1990s, the tax system was changed to separate taxable, or assessed, value from market value. Because individual property values have grown at dramatically different rates since then, tax bills for similarly valued properties are often radically different. As you can see in this example, the two homes started out with drastically different real market values – almost $100,000 apart. Assessed values for homes were set in 1997 and based on 1995 real market values, and then limited to 3 percent growth. The house on the right is still paying taxes not far off from it’s 1990s RMV, even though the actual value of the home has increased significantly.
Such discrepancies in taxes put those selling homes on an uneven playing field. A home with lower property taxes may enable a prospective seller to increase the asking price, putting other sellers at a disadvantage and distorting the real estate market.
RMV in 1997: $178,300
RMV in 1997: $98,000
Data obtained from county assessor records 18

19. Inequities are not confined to the
Slide 12
7/26/2012
Inequities are not confined to the
metro region
The problem isn’t specific to Portland. Inequities are all over the state, as seen by this Salem example. The legislative revenue office took a look at the inequities in Multnomah, Deschutes, Jackson and Sherman counties in 2010 and found widespread inequities in all four.
RMV in 1997: $135,050
RMV in 1997: $69,730
Data obtained from county assessor records 19

20. Permanent Rate of Oregon’s 242 Cities:
Need to address the ongoing problems created by Measure 50’s freezing of permanent rates that were in effect in City rates are frozen all over the map. No basis in services provided.

21. Permanent Rate Inequity

22. Reform Needed: Address Measure 50 Problems
SOLUTIONS: Address inequities in taxes between similar property by: 1. Eliminating the AV computation and going back to computation based on RMV only. (SJR 201) 2. Using an RMV average over several years so there is less volatility and more predictability for taxpayers and taxing districts. (SJR 201) 3. Providing a transition period to move existing properties to RMV as the assessment basis.

23. Reform Needed: Address Measure 50 Problems
SOLUTIONS continued: 4. Provide a homestead exemption to reduce the tax increase caused by going from AV to RMV. (SJR 201) a. Homestead exemption should be a % of RMV, with a cap. b. Homestead exemption amount should be phased in over time along with the RMV phase-in. c. Homestead exemption costs should be backfilled with state revenues if exemption results in a net revenue loss to a taxing jurisdiction. (Gross receipts tax?) Assurance needed in Constitution.

24. Reform Needed: Address Measure 50 Problems
SOLUTIONS continued:
5. Address inequities between taxing authorities by addressing arbitrary permanent rate inequities:
Eliminate permanent rates;
Permit limited adjustments of permanent rates;
Permit local option levies outside of compression; or
Go back to a levy based system.

25. Property Tax Reform Paths:
Slide 2
Property Tax Reform
Paths:
Multiple piecemeal initiative amendments to Oregon Constitution; or
Multiple piecemeal constitutional amendment referrals by the legislature (requires majority vote in each chamber); or
Constitutional revision by legislature referred to voters (requires 2/3 vote in each chamber); and
Statutory changes via a companion legislative bill

26. Property Tax Reform Keys to Success:
Slide 2
Property Tax Reform
Keys to Success:
Reform that recognizes that one size doesn’t fit all communities– need flexibility and local options/choice
Restore equity– between properties and between taxing districts
Reform that maintains some assurance that taxes won’t escalate unreasonably over time (provide for some sort of limit)
Carrots (homestead exemption)
Education of the voters and legislature on present system
Grow coalition of interest and participation
Make property tax reform part of state revenue reform discussion

27. Property Tax Reform Miscellaneous Issues: Appeals
Frequency of assessment
Cost of assessment and collection
Exemptions
Nonprofit exemptions
Business- economic development exemptions
Local option exemptions

28. Thank you!
Wendy Johnson, Intergovernmental Relations Associate Contact: website: propertytax101.orcities.org