Local option takes a hit

Low real estate values mean some homeowners won't pay school levy

When homeowners received their property tax bills this month, some of them may have been surprised to find out that they don't owe any money for the school district's local option levy, which was approved by voters in 2008.

The relief is due to low real estate values. According to Clackamas County Assessor Bob Vroman, 33 percent of properties - both residential and commercial - in the Lake Oswego School District have reached the point of full compression.

Compression is the term used when the assessor must reduce a property's taxes to the legal limit.

A property owner's tax bill is figured with a formula based on the relationship between assessed value, which since 1997 has risen no more than 3 percent each year, and market value, which is the amount a property would sell for on the real estate market and is typically higher than assessed value.

Due to Measure 5, which passed in 1990, property taxes dedicated to education are limited to $5 per $1,000 of real market value. Property taxes for other purposes are capped at $10 per $1,000 of real market value per year.

When the tax - which is based (perhaps confusingly) on assessed value - exceeds the limits set by Measure 5, the taxes are reduced.

The properties with a larger gap between the real market value and assessed value must pay the full levy amount, while other properties may pay a partial amount or none at all.

'First, local option taxes are reduced, possibly to zero,' said Vroman. 'If there are no local option taxes or they have been reduced to zero, the tax from the permanent tax rates for each taxing district are reduced proportionately.'

While the limitation brings relief to property owners, the impact of the recession is creating a resource crunch at government agencies - especially school districts.

The amount of relief given to taxpayers in Clackamas County went from $7.6 million last year to $12.6 million this year. Lake Oswego School District taxpayers saw $1.7 million in tax relief due to Measure 5. The school district should be able to collect $6.7 million, which is about 12 percent of its budget. A few years ago before the impact of the recession was understood, the district reported an estimate of levy earnings for the 2008 voter's pamphlet; it projected its earnings to be $7.2 million for the 2010-2011 fiscal year.

'I had not forecast an increase in compression at that time,' said Stuart Ketzler, LOSD finance director. 'I was merely trying to be conservative.'

In Lake Oswego, the real market value has experienced a drop due to the recession in relatively the same measure that the rest of the Portland metro area has experienced.

Alan Mehrwein, a RE/MAX Realtor who lives in West Linn, said that Lake Oswego's advantage has been that historically demand has driven up the market price, creating a larger gap between assessed and market value.

'Typically Lake Oswego has been a little more expensive than West Linn,' said Mehrwein. 'They're close, but there is a little more caché, if you will, with having a Lake Oswego address.'

Ketzler pointed out that 'compression is always a factor in local option levies as there are a good number of properties, almost all business, where assessed value equals real market value.'

Though compression has contributed to some loss of revenue for the school district, overall, Lake Oswego has weathered the recession better than most communities. Properties in Lake Oswego have a larger gap between market value and assessed value meaning that most taxpayers are still paying the local option levy.

In Lake Oswego School District, the average market value of a single family home this year is $469,194, while the assessed value is $333,943. The amount is even higher in the city limits: $518,332 is the average market value and $366,871 is the assessed value.

In comparison, the neighboring West Linn-Wilsonville School District experienced a narrowing of that gap: $357,226 is the average market value while $297,848 is the assessed value.

The result was a $6 million loss due to compression with nearly 81 percent of properties not paying anything toward the WL-WV's operating levy.

'My understanding of this is that Lake Oswego has had much higher growth in real market values in recent years, yet still has the limitation of a 3 percent annual increase in assessed values,' said WL-WV finance director Doug Middlestetter. 'Because of the higher values, there exists a greater margin that is keeping the amount of compression at bay for a longer period of time. Our margin was slimmer to begin with, so each year we have more properties that are reaching full compression.'

Initially, tax limitations were put in place under Measure 5 with the intent of leveling the financial disparity between school districts with low-income families and school districts with high-income earners. The measure also moved control of the K-12 education fund to the state, and all school districts have a permanent tax rate that contributes to a general pool of money.

Beyond that districts are allowed to levy additional funds within the Measure 5 limits. Previously, school districts were free to levy what they wanted, so schools in wealthy areas had more money.

With the limitation on real market value, many districts with higher-value property were forced to lower their levy. To figure the amount that would be appropriate to levy, school districts look at the total in market value and then calculate what the appropriate rate would be per $1,000 of assessed value. At the time that LOSD set its rate at $1.39, it was the highest amount that could be levied. But as market value decreases, the school district likely could levy more - if voters approved.

'Up until this year (and to a small degree last year) that amount was sufficient to collect near the maximum allowed under the various limits,' said Ketzler.

The district's current levy has been in place since 2004 and expires on June 30, 2015.