Battle linesdrawn on ADU tax
Shortly after Anne-Louise Vernon moved here to retire last September, she heard about a flap over Multnomah County levying huge property tax hikes on Portlanders who added granny flats on their lots last year.
Multnomah County Assessor Randy Walruff had just mailed 2016 tax bills to more than 100 Portlanders who recently added the small cottages, known as accessory dwelling units or ADUs, and their property taxes doubled, tripled or even quadrupled.
I didnt even know what an ADU was, Vernon says. But the developer who sold Vernon her house in the Brentwood-Darlington neighborhood had converted a 200-square-foot garage into a tiny cottage, so she dialed the county assessors office to see how much her property taxes might rise.
A county staffer told her taxes would shoot up from $3,695 to more than $6,000 on next years tax bill, she says. Its a huge amount of money for a person whos retired and not expecting to make any more income, says Vernon, 61. If I live here another 20 years, itll be another $60,000 out of what I have to live on the rest of my life.
She asked if she could simply remove the tiny kitchen in the converted garage to avoid the tax increase, and was told that would require a permit, and it wouldnt forestall the tax increase.
After widespread complaints, including from Multnomah County Commissioner Loretta Smith, Walruff retracted the tax bills mailed to more than 100 property owners and substituted new tax assessments that were somewhat lower, but still much higher than the ADU owners expected.
That doesnt seem to have mollified many people.
A host of critics, from ADU advocates to lawyers to City Commissioner Dan Saltzman, say the countys new taxation policy is poorly conceived, vague, and could open the door to major property tax increases on other unsuspecting homeowners, diluting the impact of Oregon tax limitations.
Im still fighting this, because its terrible government policy, its intolerably arbitrary, its an administrative nightmare and it creates uncertainty for all kinds of property owners, says Ross Kevlin, a former urban planner whos part of a Google group of 50 to 75 people mobilizing to oppose the county policy.
Walruff declined an interview request because he doesnt think his views will be accurately portrayed, says county spokesman Dave Austin. Nor would County Chair Deborah Kafoury comment on this issue. Shes not going to talk about it because she doesnt have any say; its a (state Department of Revenue) thing, Austin says. We sent out letters to the 103 people who are affected.
Under the Measure 47 and 50 property tax limitations passed by Oregon voters in 1996 and 1997, property tax assessments can rise no more than 3 percent a year, no matter how fast the actual market value rises. Since then, when Portlanders added a new ADU on their lot, Multnomah County added the value of the cottage to the tax assessment, treated like other new construction.
But in 2015, word got out that Walruffs staff would also start reassessing the main house as well when someone added an ADU, essentially valuing the old house as if it were new construction. In an interview, Walruff said those reassessments were allowed by an exemption to Measure 50 written into the Oregon Constitution, for properties that are rezoned and used consistently with the rezoning. Walruff argued that Portland was, in effect, rezoning land by permitting two dwelling units on a single-family lot, and therefore people would lose some of the protection from Measure 50.
State attorneys weighed in, and the Oregon Department of Revenue suggested an alternate approach: Reassess the value of the underlaying land when someone adds a detached ADU, but not the original house. Walruff initially insisted the state Department of Revenue was entitled to its opinion, but it wasnt binding on him, and department officials concurred.
But after a backlash ensued, Walruff backed down and sent ADU owners new tax bills using the Department of Revenues recommended method. That reduced some tax bills by several hundred dollars, but ADU owners say they still are socked with much-larger tax bills than they would have under pre-2015 policies.
Now critics are aiming their fire at Walruff, the county and the state Department of Revenue.
ADU owners filing appeals
Steve Anderson, who operates First Class Property Tax Appeals in Clackamas, says about 50 ADU owners appealed their new tax assessments to the Board of Property Tax Appeals, and hes representing half of them.
These people are very, very, very mad, Anderson says.
The county has already sent new, reduce d bills to at least two people after they appealed, he says, sending them their third tax statements in the space of three or four months.
For some reason, weve got this opaqueness from Multnomah County this year on detached ADUs, Anderson says. I dont think they know what theyre doing; theyre running scared.
The Department of Revenue is now studying the issue, and expects to hold hearings this spring on new regulations that might resolve the dispute, says agency spokesman Bob Estabrook. If the state adopts new regulations, its guidance on how to tax ADUs would then become binding on Multnomah County and other counties.
But the state revenue department will proceed carefully, because it realizes its a much broader issue than ADUs, Estabrook says. It may boil down to how the constitutional language about Measure 50 exemptions is interpreted, particularly the one about zone changes.
The state Department of Justice attorneys who advised his agency concluded that the city of Portland, by allowing detached ADUs on most single-family lots, effectively rezoned those lots, triggering a Measure 50 exemption. But to become binding, that interpretation may need to be spelled out not just in regulations, but upheld in court.
Opening a Pandoras Box?
Portland and other cities have made numerous land use changes that might be interpreted as rezoning since Measure 50 was placed in the Constitution.
If this is a rezoning, then so are hundreds or thousands of development code changes in Portland and all around the state, Kevlin argues.
City planners say about 2,000 Portlanders have added two-car garages within their homes setback since the city code legalized that after Measures 50 passage, says Kol Peterson, an ADU consultant who has been leading the charge against the county taxation policy. Portlanders also gained a new right to put solar panels on their rooftops. Thereve also been changes in allowable building heights.
In a more recent change, Portland allowed most homeowners, condo owners and even apartment tenants to rent out rooms for the night using Airbnb and similar short-term lodging services. Though hed oppose it,
Peterson says theres more
rationale to consider a zone change than merely converting a garage to an ADU.
At a Multnomah County Board of Commissioners meeting on Jan. 17, Walruff testified that he wouldnt see raising someones property tax assessment for merely adding a garden shed in their yard. However, Walruff said his staff would think differently if a homeowner can make more money from renting out a new ADU on his or her property.
What we look to is, did you increase the financial viability, the return on investment to the property? Walruff said.
That same logic could apply to more than 2,000 Portland Airbnb hosts. There are some people, including on Walruffs own staff, who say privately that the increasing use of ADUs as Airbnb rentals was one reason he raised their tax assessments so much.
Kevlin and others fear the ADU issue sets a precedent whereby the county then seeks to reassess homeowners who took advantage of other city code changes since Measure 50s passage.
It sounds like a can of worms, says City Commissioner Dan Saltzman. That is alarming if this interpretation is correct.
It also would be an administrative nightmare for the county to determine which homeowners have taken advantage of a variety of code changes, Kevlin says.
The countys interpretation of Measure 50 is understandable, says Eric Kodesch, a partner at Stoel Rives law firm who specializes in taxation.
If youre taking advantage of a new zoning rule, then everything gets revalued (for property tax purposes); thats consistent with Measure 50, Kodesch says.
But it probably will revolve around whether the citys ADU policies amount to a zone change or not. He predicts it will have to be sorted out by the Oregon Supreme Court. That could take another two years.
Two tax specialists at the Garvey Schubert Barer law firm in Portland had a different take on the countys position.
We question whether its constitutional, says Cynthia Fraser.
Her colleague Michael Mangan says the city of Portlands liberal allowance for ADUs is akin to an overlay, which guides different uses on certain lands within zones. The question is does an overlay constitute a rezoning and we would say no. Mangan says.
Its an expansion of the allowed uses under the zone, but its not rezoning. That stuff happens all the time.
Some say the county has made matters worse by not being forthright about its policy changes and its interpretations of the Constitution and state regulations.
Nobody at the county is able to give a straightforward answer and they wont put this in writing, Peterson says.
Kafoury has not been willing to make any public statements about this issue, Peterson says. The county is punting and saying the Department of Revenue said we had to do it this way.
Saltzman, who champions more ADUs in Portland, says he has spoken to Kafoury and she maintains the issue is out of her control, up to Walruff and the Department of Revenue.
I do think our assessor can fix the problem, says Saltzman, a former county commissioner. And, he notes, the county chair does hire the assessor.