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Similar properties, unequal taxes

East of 82nd Avenue, homeowners pay more, while others pay a lot less


by: PORTLAND TRIBUNE FILE PHOTO - East Portland has more than its share of unpaved streets with no curbs or sidewalks, like this neighborhood near Southeast 128th Avenue and Foster Road. When Jean DeMaster sold her Hollywood district home and bought a cheaper house in East Portland, her first property tax bill was a shocker. The new house cost $50,000 less, but property taxes were $600 more.

It turns out that residents east of 82nd Avenue, like DeMaster, routinely pay more property taxes than their counterparts in Southeast, Northeast and North Portland for similarly priced homes. East Portland residents often pay double, triple or four times as much.

82nd Avenue has long been considered an invisible dividing line, a psychological barrier that denotes less-desirable communities to the east. Now, new research by a suburban Portland fire district shows that 82nd Avenue is a demarcation line for property tax disparities as well.

“For the most part, it’s the poor people who are being screwed,” says Jody Wiser, leader of the advocacy group Tax Fairness Oregon. “It means that our current tax system is actually hurting many of our families that are struggling the hardest.”

Unequal property tax bills for same-priced homes is not a new phenomenon in Oregon; it derives from voter approval of Bill Sizemore’s “cut and cap” property tax limitation in 1996.

But the stark contrast between East Portland and closer-in eastside neighborhoods wasn’t so clear until the release of a color-coded map by Tualatin Valley Fire & Rescue last year. The map depicts most of the residential areas of North, Northeast and Southeast Portland in shades of blue, which means homeowners are paying property taxes on less than 60 percent of the true value of their homes. Starting at 82nd Avenue and moving east, neighborhoods suddenly shift to warmer colors, which means residents are assessed taxes on 80 percent, 90 percent or 100 percent of their home’s market value.

After seeing the map, DeMaster had a clearer understanding of why her tax bill went up when she moved from Northeast Portland to East Portland. As executive director of Human Solutions, an East Portland community development agency, she is one of many citizens pressing the city of Portland to address decades of neglect east of 82nd Avenue.

“We receive less services,” DeMaster says, “but it looks like we’re paying proportionally a higher share of taxes.”

In contrast, gentrified neighborhoods in inner North and Northeast Portland are paying the lowest share of property taxes relative to their home values.

“I think it’s outrageous,” says Portland City Commissioner Steve Novick. Many African-Americans and others displaced by gentrification moved to cheaper housing in East Portland, Novick notes. “Now they’re paying higher taxes than the people that displaced them.”

How it happened

Sizemore’s Ballot Measure 47 dropped assessed property values back to 1995 levels, then cut them another 10 percent and capped future increases at 3 percent a year — with little regard for what subsequently happens to neighborhoods or home prices.

As a result, some North and Northeast Portland homeowners only pay property taxes on 5 percent or 10 percent of their actual property value, says Randy Walruff, Multnomah County assessor.

Many of those neighborhoods were tarnished by gang violence in the early 1990s, which depressed home prices. Some empty lots were assessed at only $500 when county assessors walked door to door in 1996 to reset taxable values in inner North and Northeast Portland, Walruff recalls.

When Measure 47 set assessed values back to 1995 levels, that nullified the new values set by county assessors during the 1996 physical reappraisal. And there was no longer a need for assessors to walk door to door to physically reappraise properties every six years; now annual adjustments are principally a matter of adding 3 percent to the prior year’s assessed value.

Consequently, North and Northeast Portland had the most outdated assessed values in the county as Measure 47 took effect. In later years, North and Northeast Portland became more trendy, and Northeast Alberta Street and North Mississippi Avenue redeveloped into thriving commercial corridors. Housing prices skyrocketed.

Gentrified areas aren’t the only Portland neighborhoods where property taxes are relatively low. Many closer-in neighborhoods grew more desirable after 1995. As home prices shot up faster than 3 percent a year — at least until the Great Recession — market values zoomed much higher than assessed values.

In contrast, there’s been an influx of low-income people and immigrants into East Portland since 1995. Home values didn’t climb much faster than 3 percent a year, if that, so assessed values were closer to actual market values.

Home value trends on Portland’s west side were more varied, with no clear pattern. Gresham home values seemed to parallel those in East Portland.

A 2010 study by the Legislative Revenue Office found that Multnomah County had the most inequities in property tax assessments in Oregon. Tax assessments for about 4,700 Multnomah County homeowners were equal to less than 20 percent of their homes’ market values that year, while about 1,150 homeowners were assessed taxes on more than 90 percent of their homes’ value.

Bye-bye to progressive taxes

Oregon has long prided itself on having a progressive tax system, where those with higher means pay higher levels of taxes. Homeowners with more expensive homes paid more for schools and other local services than those with lower-priced homes.

But that’s not necessarily the case any more.

“You have taken the property tax system and turned it into something other than a progressive system,” says Eric Chambers, senior adviser to Gresham Mayor Shane Bemis.

And, as the Portland-area housing market recovers, inequities in property tax assessments will grow, according to economic analysts at the Legislative Revenue Office. “This is because the recovery will likely be uneven, with certain properties, neighborhoods and regions of the state growing more rapidly than others,” analysts concluded in their 2010 report.

Folks in East Portland appear to be getting hurt the most. Gresham, where assessed values also are more in line with home values, has a city tax rate that is close to half of Portland’s, Chambers notes.

“Even the people who are renting there (in East Portland) are having to pay more rent because the taxes are higher,” Wiser says.

One of the constitutional amendments being pushed by the Oregon League of Cities could exacerbate inequities for East Portland residents, Novick says. That amendment would enable residents to vote for local property tax levies that exceed overall tax rate caps set by 1990’s Measure 5 tax limitation. East Portland residents would have to pay the higher tax rate on a larger share of their property’s value than their counterparts elsewhere in the city.

Fueling more gentrification?

The negative ramifications of property tax inequities go beyond East Portland.

“We’re going to continue to see taxpayer confidence in the tax system erode,” says Walruff, the county assessor. “They don’t know why, but from their perception, it’s not fair.”

Unequal property taxes also skew the real estate market.

If a prospective homebuyer encounters a North Portland home with property taxes costing $200 a month less than a comparable East Portland home, the North Portland home is more affordable, and easier to qualify for a home loan.

Eventually, relatively low property taxes can drive up home prices in North, Northeast and Southeast Portland, while relatively high property taxes can drive down prices in East Portland.

“It encourages more rapid gentrification and instability in neighborhoods that used to be more affordable,” says Carl VanderZanden, a Northeast Portland landlord and real estate investor.

In effect, property tax disparities caused in part by gentrification can lead to more gentrification.

“You can argue that it’s somewhat of a self-fueled increase,” Walruff says.

Relatively low property taxes in the inner-east side are great for an investor buying rental houses, VanderZanden says. “You can go in and your property taxes are still minuscule.”

But that can hurt homebuilders, he says, especially those doing in-fill housing. This year, the average Multnomah County home is assessed at 73 percent of its market value, and a new in-fill home would inherit that property tax break. But a competing older home next door might have a much lower taxable value, making the new home a harder sell, VanderZanden says.

“The system is completely irrational,” he says. “I can hardly believe that it’s legal.”


Proposed fixes create new tax inequities

With schools laying off hundreds of teachers, there’s new momentum to loosen Oregon’s property tax limitations.

The Oregon League of Cities is proposing two constitutional amendments that would enable schools and other local governments to collect more taxes, but neither would end inequities in property tax assessments.

One amendment would allow local voters to approve temporary levies that exceed the tax-rate limits set in 1990 by Measure 5, which capped property taxes at 1.5 percent of property value.

The second amendment would reset assessed values at the market value when a property sells, diluting 1996’s Measure 47 and the follow-up Measure 50.

“Inequity is a huge concern,” says Chris Fick, Oregon League of Cities tax and finance analyst. Allowing tax assessments to reset upon sale would gradually erase inequities affecting some communities, Fick says.

Portland City Commissioner Steve Novick says the league’s first proposal would “exacerbate the existing inequities” in East Portland. If voters OK’d a higher levy, East Portland residents would pay the higher rate based on close to their full property value, while many homeowners in North, Northeast and Southeast Portland would pay based on 40 percent to 60 percent of their property value.

Novick proposes a variation. Any levies approved beyond the Measure 5 caps should tax people based on their property’s real market value, he suggests, not its assessed value. That would help ease inequities in East Portland, he says.

Fick says the league is open to that idea.

The league’s measure to bypass Measure 5 would blunt Oregon’s effort to equalize school spending regardless of where children live, as affluent communities vote to raise their school property taxes.

And property tax assessments would continue to vary wildly under the league’s reset proposal. A house that hadn’t been sold for decades would have a much-lower property tax bill than a recently sold neighboring house.

“It introduces a new inequity,” says Tom Linhares, director of the Multnomah County Tax Supervising and Conservation Commission.