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Shilo Inns, city call it quits on tax mess

Portland Development Commission waits for word from Salem on permanent funding Þx

The Portland Development Commission has reached a settlement with Shilo Inns in a contentious court case that restricted its tax-increment Þnancing.

PDC general counsel Chip Lazenby said the agency had offered a $100,000 settlement to Shilo Inns, of which $75,000 would go to legal counsel.

'It's important to understand it was never about money but the interpretation of the law,' he told commissioners at Wednesday's meeting. 'It's time to call it a day and get on with the rest of our lives.'

The commission approved the settlement, which will be submitted to Oregon Tax Court for approval in a week, Lazenby said. It would not require approval of U.S. Bankruptcy Court, since Shilo recently emerged from bankruptcy, he said.

Shilo Inns owner Mark Hemstreet could not be reached for comment.

'I don't think I should comment on the suit until it is concluded,' said Gregory Byrne, Hemstreet's lawyer.

Lazenby said the hotel company's bankruptcy Þling did not hasten the end of the court case.

'The cost of litigation is always a factor,' he said. 'At the end of the day everyone decided it would be a waste of money to pursue it. The signiÞcant piece here is Shilo made its point in Supreme Court as to how and when urban renewal funds are calculated.'

Revenue department suggests Þx

If approved, the Þnancial settlement would end a Þve-year court battle that began when Hemstreet Þled a tax appeal contending the city improperly raised urban renewal money through city property taxes. He sought the return of $6,000 in property taxes charged to his Northeast Airport Way hotel.

In a December 2001 ruling, the Oregon Supreme Court agreed the city had violated a property tax-limitation provision in the Oregon Constitution. Two months later, PDC, the city of Portland and Multnomah County Þled for reconsideration of the decision. The Supreme Court declined to reconsider.

Meanwhile, the case was sent back to tax court for review. In June 2002, the Oregon Department of Revenue calculated a new interim rule for dividing property taxes that altered PDC's revenue by $100,000. The revenue department is proposing the rule be made permanent in a bill now pending before the Legislature.

'That's guiding where we are here on out,' Lazenby said. 'We're in the post-Shilo era now, and we and the DOR and other jurisdictions are working with it.'

Agency manages a recovery

PDC Executive Director Don Mazziotti said the net effect of the Shilo case in the last Þscal year was to eliminate access to about $100 million in tax increment bond proceeds because of the new method of calculation required. The Lents and Interstate urban renewal districts were the hardest hit, since they were so new that they had not built up a tax-increment Þnancing base.

'That effect is permanent,' he said. 'We will never recapture that $100 million and its effect on our bond proceeds base. This was a decision that affected all real property jurisdictions, not just PDC.'

He said PDC did not resort to borrowing money from one urban renewal district to another. Those types of loans are allowed, if paid back within Þve years.

'I wouldn't say we'd never do that, but it's not a conventional practice and we don't have any current plans to do that in the near future,' said Mazziotti, who has not done any interdistrict borrowing during his tenure, which began in 2001.

Though PDC initially froze salaries and delayed or reduced about 70 projects in its 10 urban renewal districts, the agency has largely recovered. Its Þscal 2003-2004 proposed budget is for $193 million, up from $190 million last year.

However, Lazenby said local tax collections will never be the same, since there are fewer dollars to share.

'I want to blunt the perception we are going to return to the good old days when there was lots of tax increment Þnancing around,' he said. 'Shilo continues to represent a reduction in our short-term and our long-term tax increment Þnancing. Our ability to grow tax increment Þnancing over a period of time, that curve has been ßattened by the Shilo decision. Lents, Interstate (urban renewal districts) will be hampered in growth possibilities that urban renewal offers.'

Contact Kristina Brenneman at This email address is being protected from spambots. You need JavaScript enabled to view it..