1. Property Taxes now… League of Oregon Cities Annual Conference
September 24, 2015
Don Hudson
Finance Director
Carol Samuels
Managing Director

2. Oregon Property Tax Timeline
Our tax code can be divided into historic “eras”
Ancient History
“Golden Age”
“California∙ozoic”
November 1990
(Measure 5)
November 1996
(Measure 47)
“Crayon∙ozoic”
“Messy∙ozoic”
May
1997
(Measure 50)
“Ice Age”
Today

3. Ancient History – The Golden Age (who knew?)
Prior to 1990, property taxes were set on a “levy-based” system
A city’s levy was submitted to the County as a dollar amount
Rates were calculated by dividing that amount by the real market value of the property
Some jurisdictions had “tax bases”
authorized levy amounts allowed to increase automatically by 6% annually. Voters could approve unlimited increases in tax bases
Other jurisdictions survived on temporary “serial levies” or permanent “continuing levies” with no automatic inflators
These discrepancies led to wide disparities of tax rates between like jurisdictions and wide discrepancies in funding levels

4. Ancient History – The Golden Age (cont’d)
On average, property taxes accounted for 70% of school operating funding
School districts were divided into “haves” and “have nots” where some were exceptionally well funded, others were constantly threatened with closure. Tax rates varied wildly.
Brookings-Harbor
School District
Pleasant Hill
$ 2,591/Student
$ /$1,000
$ 4,736/Student
$ /$1,000
Source: “Recent History of Oregon’s Property Tax System,” Tom Linhares, December 2011.

5. Ancient History – Tax Calculations
Tax Base
Real Market Value
Rate
City $ 1.5 million
$ 200 million $
County $ 2.0 million
$ 300 million $
Total
$ 14.17
House A
House B
Target
Market Value
$ 50,000
$ 100,000
$ 30,000,000
Tax Rate
X $ 14.17
Tax
$ 708
$ 1,417
$ 425,100
In subsequent years, the “tax base” and related levy authority for City and County would grow by 6%. If value didn’t keep pace with 6% growth, tax rates would rise.

6. Ancient History – Property Tax Increases
Between , although property values rose slowly due to recessionary forces, 6% tax base increases caused much faster growth in property tax bills
The effective tax rate statewide rose
$19.05/$1,000 in
$26.61/$1,000 in
The pot was about to boil over . . .

7. Measure 5 – California∙ozoic Era
Measure 5 was approved in November of 1990 by a 52% margin
14 of 36 counties approved
Multnomah, Washington and Clackamas all voted yes
Although very different in substance, M5 was inspired by California’s Proposition 13
M5 retained the levy-based system but added rate-based limits
$10/$1,000 for local governments
$5/$1,000 for education
The education rate limit was phased in over a five year period, starting at $15/$1,000, declining by $2.50/year

8. California∙ozoic Era (Cont’d)
M5 required the State initially to backfill losses to schools
As a result, K-12 funding shifted largely to the State, leading to other changes (school consolidation, equalization formula)
Today, roughly 70% of education funding comes from the State.
Property tax levies were still divided by RMV; the resulting tax rates were then compared against the limits. Tax bases could still increase by 6% annually
If rates exceeded the limit, levies were “compressed” proportionally until within the limit
For the first time, overlapping jurisdictions “competed” against each other for revenue under the limits

9. Compression Calculation
Measure 5 Property Tax Calculation
Tax Base
Real Market Value
Rate
Compression Calculation
City $ 1.5 million
$ 200 million
$ 7.50
52.93%
$ (2.21)
$ 5.29
County $ 2.0 million
$ 300 million
$ 6.67
47.07%
$ (1.95)
$ 4.71
Total exceeds $10 limit
$14.17
Compressed Rate: $
House A
House B
Target
Market Value
$ 50,000
$ 100,000
$ 30,000,000
Tax Rate
X $ 10.00
Tax
$ 500
$ 1,000
$ ,000
Previous Tax
$ 708
$ 1,417
$ ,100
M5 Impact
$(208)
$ (417)
$ (125,000)

10. Drafters of M5 Dividing Up Property Tax Revenue

11. 1996
Setting the stage:
Rapidly increasing residential real market values caused property tax rates to fall below Measure 5 limits
Compression declined
Taxes rose
Bill Sizemore got a pack of crayons

12. Measure 47 – Crayon∙ozoic Era
Approved by voters in November 1996
Kept Measure 5 limits, but restricted annual tax increases to 3%
Added double majority voter requirements
Measure 68 revised when double majority applies
Legislature concluded that the measure was unworkable and chose to rewrite it and refer a new measure to the ballot
Measure 50 was approved by the voters on May 20, 1997

13. Measure 50 – The Messy∙ozoic Era
Fundamental change from levy-based to rate-based system
New “permanent” rates established by:
Calculating 1997 levies, reduced them by 17%, and then dividing by 90% of the RMV (the “Assessed Value”)
Assessed Value growth was limited to 3% per year; it can never exceed RMV
New properties are brought on at county-wide ratio of AV to RMV (the “Change Property Ratio”)
Created voter-approved, temporary, “Local Option” levies
All levies still subject to Measure 5 limits
And so, the ice age began…

14. The Ice Age: Calculating Permanent Rates
City
$ 1.5 million – (17%)
= $ 6.91
$200 million – (10%)
County
$ 2.0 million – (17%)
= $ 6.15
$300 million – (10%)
_______
$13.06
All “Permanent Rates” would now be applied to “Assessed Values” going forward.

15. Require voter approval Levied in addition to permanent rates
Local Option Levies
Temporary property tax levies for additional capital (10 years) or operating (5 years) funds
Can be levied as fixed dollar amount or rate per thousand of assessed value
Require voter approval
Levied in addition to permanent rates
Still subject to Measure 5 limits on a property by property basis, leading to uneven treatment on who pays, and significant volatility in revenues from year to year
Compress to zero before permanent rate levies 14

16. Effective Tax Rates
The net effect of M5 and M50 has been to significantly reduce effective tax rates as a percent of actual market values
Source: “Recent History of Oregon’s Property Tax System,” Tom Linhares, December 2011.

17. Impacts Since the Ice Age Began
Divergence of AV and RMV
Maximum Assessed Value
Created inequities
Permanent rates
Property to property
Neighborhood to neighborhood
Compression 16

18. Impacts of M50: Differences between RMV and AV
Initially after the passage of Measure 50, RMV growth strongly outpaced AV. That began to change in 2008.
County reassessed properties every 5 years

19. Historic RMV, AV and MAV – Deschutes County – Example Account
Impact of M50: MAV limits revenue during recessions
AV can never exceed RMV, but if RMV dips below AV, the previous AV is retained as the “Maximum AV” and stays in place until RMV rebounds
Historic RMV, AV and MAV – Deschutes County – Example Account
AV (Lower of RMV or MAV)
Fiscal Year

20. Inequity – Permanent Rates (Cities: pop. 25k – 40k)

21. Inequity – Permanent Rates (Select Counties)

22. Inequity – Property to Property
Measure 50 inequities not confined to Portland Metro Area
Values and Taxes – Tax Year
RMV AV
Taxes
Difference
$ 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
Bend
Redmond
$ 164,710
$ 99,720
$ 1,846
($1,121)
$ 164,500
$ 2,967
$ 155,590
$ 134,530
$ 2,490
($318)
$ 155,690
$ 2,808
“Horizontal inequities—unequal tax treatment of taxpayers with similarly valued property, are widespread among the four counties (Deschutes, Jackson, Multnomah and Sherman) observed.”
Sisters
$ 277,990
$ 123,220
$ 1,997
($2,105)
$ 276,080
$ 251,520
$ 4,102

23. Inequity – Neighborhood to Neighborhood
Measure 50 locked in AV at 1996 levels
Values and Taxes – Tax Year
Established
This block receives a Measure 50 discount of 13 to 23 percent off their tax rate applied to their RMV.
Block 1
RMV AV
Taxes
9910 SW 61st
$ 269,670
$ 213,930
$ 4,236
9931 SW 61st
$ 270,590
$ 236,110
$ 4,270
9930 SW 61st
$ 279,390
$ 216,920
$ 4,385
9911 SW 61st
$ 311,450
$ 252,070
$ 4,897
Gentrifying
This block receives a Measure 50 discount of 73 to 82 percent off their tax rate applied to their RMV.
Block 2
RMV AV
Taxes
5134 NE 16th
$ 267,870
$ 72,870
$ 1,624
5117 NE 16th
$ 268,480
$ 51,790
$ 1,154
5126 NE 16th
$ 282,140
$ 51,640
$ 1,151
5133 NE 16th
$ 352,530
$ 81,930
$ 1,826

24. Inequity – Neighborhood to Neighborhood
Recent Oregonian Article:

25. Compression

26. Types of Compression Rate Compression Value Compression
Based on Measure 5 limits
Affected by additional tax levies
Local Option Levies
New Special Districts
Value Compression
M5 category limits can be exceeded
Occurs when gap between Market Value and Assessed Value is insufficient to cover rates above the limits
Property tax revenues declining due to reduction of real market values
Not truly compression, but “convergence”
As market values drop, potential for reduced assessed value growth

27. Hierarchy of Rates Local Option Levies (LOL) reduced first
If more than one LOL is in effect, reductions are made proportionally
If compression amount exceeds all LOL, all other property taxes in that category are proportionally reduced
Urban renewal is compressed with general government permanent levies

28. $160 million in lost tax revenues in FY 14-15
Compression Losses Since
Why is Compression such an issue?!?!?!?
A few other counties have less than $100 of compression
Amount of Revenue lost in is decreasing, but still over $175 million of lost tax revenues due to compression.
Number of Entities in Compression:
Over 57% of Oregon’s 242 Cities
All of Oregon’s Counties, except Curry County
Approx. 92% of all Oregon School Districts
$160 million in lost tax revenues in FY 14-15

29. Tax Code 012-002 / City of Milwaukie
General Government
Education
Taxing Entity
Tax Rate/$1,000 AV
Clackamas County
$2.5035
Clackamas County – Local Option Levy
$0.2480
Clackamas County Lib
$0.3961
County Urban Renewal
$0.1119
City of Milwaukie
$4.0680
Port of Portland
$0.0699
Metro
$0.0962
Metro – Local Option
$0.0960
Clackamas County Fire
$2.3816
N Clackamas Park Dist
$0.5319
Vector Control
$0.0065
Vector Control – Loc Opt
$0.0250
Total $
Taxing Entity
Tax Rate/$1,000 AV
North Clackamas SD
$4.8123
Clackamas Community College
$0.5557
Clackamas ESD
$0.3675
Total
$5.7355
While people may notice this type of list on their property tax statement (if they read it at all), but most don’t realize how their property taxes break down and how they are split up between general government and education.

30. Compression Example Property A Property B
Real Market Value = $200,000
Assessed Value = $170,000
Total Education levy rate = $ per $1,000
Total General levy rate = $ per $1,000
Real Market Value = $200,000
Assessed Value = $195,000
Total Education levy rate = $ per $1,000
Total General levy rate = $ per $1,000
Measure 5 limits (based on RMV)
Education: $5 x $200 = $1,000
General: $10 x $200 = $2,000
Total Tax Burden (based on AV)
Education: $ x $170 = $975
General: $ x $170 = $1,790
Compare Tax Burden to Measure 5 Limits
Both tax burdens are below M5 limit
$975 < $1,000
$1,790 < $2,000
No Compression
Measure 5 limits (based on RMV)
Education: $5 x $200 = $1,000
General: $10 x $200 = $2,000
Total Tax Burden (based on AV)
Education: $ x $195 = $1,118
General: $ x $195 = $2,055
Compare Tax Burden to Measure 5 Limits
Both tax burdens are above M5 limit
$1,118 > $1,000
$2,055> $2,000
Compression exists
$118 for Education
$55 for General Government

31. v City of Sweet Home Permanent rate of $1.42
Compression Impacts to Entities v
City of Sweet Home
Permanent rate of $1.42
Police and Library services funded through Local Option Levies since 1986
Voters reapproved levies in 2010 (nearly 60% and 55%)
Other taxing entities recently passed levies

32. Compression Impacts to Entities
Market values plummeted $38M, $34M and $18M over last three years

33. Compression Impacts to Entities
Revenue loss due to compression
$300,000 (13% of prop. tax revenue) in
$730,000 (31% of prop. tax revenue) in

34. New special districts formed, with their own permanent rates
Compression Creates Competition Between Entities
New special districts formed, with their own permanent rates
Example: Multnomah County Library District
Linn County and City of Albany
Linn County voters passed local option levy in 2010, and renewed it in 2014
Their two local option levies lose $6.3 million to compression
City of Albany renewed its levy rate in 2012, effective in 2014
Raised rate from $0.95/$1,000 to $1.15/$1,000 to compensate for compression
Net of $0.95/$1,000 did not happen

35. City of Sweet Home – November 2015 Election
Compression Creates Competition Between Entities
City of Sweet Home – November 2015 Election
Asking voters to renew Police and Library Levies
Increasing both levies, with hope of keeping more revenue in Sweet Home when compression occurs 34

36. Conclusions and Next Steps
Our property tax system is hard to understand, inequitable, unstable and inadequate. It needs to be changed!
LOC has taken the lead in recent legislative efforts to make modifications:
Placing local option levies outside the limits of M5, which eliminates compression
Having property values ‘reset at sale’
Changed Property Ratio
Unfortunately, these efforts have not been successful…yet
2015 Legislature mandated that LRO produce a comprehensive report on potential reforms by December 2015
We need your help to keep the pressure on to make this a legislative priority

37. Questions? Piper Jaffray - Seattle-Northwest Division
Carol Samuels, Managing Director
City of Tualatin
Don Hudson, Finance Director
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