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Our tax system needs to be changed

My View: League of Oregon Cities poll finds public unhappy about inequities


Nearly a generation after Oregon imposed statewide limitations on local property taxes, it’s time to examine how to make modest improvements to our byzantine system.

Recent polling indicates that voters are not only open to minor reforms, but they grow increasingly interested in changes after learning about some of our system’s substantial quirks. The two flaws most offensive to voters involve its unfairness and the lack of local voter control. While Oregon’s property tax laws are complex, the system has two shortcomings that are just plain obvious.

First, the will of local voters is often usurped by statewide limits, which cap property taxes for schools, cities, counties and other local governments. Any taxes that exceed statewide limitations are reduced until the limitations are met. Under our system, voter-approved temporary taxes that fund teachers, libraries or police officers or firefighters are reduced first, all the way down to zero before any other collections are affected. As a result, the taxes that local voters approved to levy on themselves are often not collected.

Here in the Portland area, the problem is acute. In Portland, the voter-approved children’s levy, which supports early childhood, afterschool, mentoring and child abuse and violence prevention programs, will collect $9 million less this year because of statewide limits. For Portland Public Schools, these statewide limits cut $27 million from what voters approved to support additional teachers. In the Tigard-Tualatin School District, revenue for its voter-approved levy declined from more than $7 million to less than $3.8 million.

These limitations also allow some property owners to vote for tax measures that they don’t have to pay for. If a property has reached its statewide tax limit, its owner can vote in support of the temporary tax measures but not have to contribute anything towards the services. While it’s unlikely that many property owners even know if their property has reached its tax limits, most voters believe that everyone in the community should contribute more when voters approve money for services.

Assessed vs. market value

According to a poll for the League of Oregon Cities, 84 percent of voters would like to see all property owners contribute to voter-approved levies, and 64 percent are supportive of empowering local voters to exceed statewide limits if their community sees fit. After all, voters in Portland know their local needs better than voters in Pendleton, and vice versa.

The second significant quirk in our system is the method used to calculate our tax bills. Back in 1997, Oregon created an “assessed value” to calculate taxes back. For properties built prior to 1996, the assessed value was pegged at a property’s 1995 market value minus 10 percent, and the rate of growth in assessed value is capped at 3 percent annually.

But by locking in assessed values based on 1995 market values, huge disparities in tax bills have emerged as the value of properties have increased at different rates.

Throughout Portland, homeowners in many neighborhoods often have property tax bills that are a fraction of what homeowners with similar market values pay. This is because in the mid-1990s, those neighborhoods had low market values, and those values still determine the taxes owed today.

Last year, for example, two homes sold in Portland for right around $320,000. But due to assessed value limitations, one had a tax bill of $4,700, while the other paid $1,800 — a difference of $2,900.

Under our system, these inequities will exist in perpetuity, with some properties forever subsidizing the services of others with artificially low assessed values, regardless of how the neighborhoods and owners change.

These inequities are not confined to Portland. A 2010 study from the state’s Legislative Revenue Office found significant inequities in all four counties it examined — Deschutes, Jackson, Multnomah and Sherman.

Fifteen of the 16 other states that have property tax limitations similar to Oregon’s readjust property taxes when a property is sold, recalibrating taxes according to the market’s price — a much better measure of a property’s true value and a potential owner’s ability to pay. Oregon needs to re-establish this link by resetting assessed value to market value at the time of sale.

A whopping 83 percent of those surveyed found inequities among property tax bills to be a negative aspect of our property tax system, and 64 percent were supportive of resetting a property’s taxable value when it’s sold.

These two modest tweaks would empower local voters and restore some modicum of fairness to our property tax system. These are two improvements worth making.

Chris Fick of Northeast Portland is the finance and tax analyst with the League of Oregon Cities.