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Cities and schools are feeling the fiscal pinch

West Linn, Wilsonville and school district hold joint meeting


It still is premature to say that economic recovery is a sure thing in Oregon.

This is particularly true for the public sector, which continues to deal with the fallout of the collapse of the housing market. Heavily dependent upon property tax revenues, public agencies, school districts and municipal governments still are digging their way out of the mess created by the 2008 mortgage crisis and subsequent Great Recession.

“We really have relied nearly 100 percent on property taxes,” Tualatin Valley Fire & Rescue Chief Mike Duyck said Feb. 20 at a joint meeting of the Wilsonville and West Linn city councils and West Linn-Wilsonville School Board. “So what’s been happening with the economy and property values has been a very important piece for us.”

In Oregon, this has been exacerbated by the state’s property tax structure, which is enshrined in the state constitution in the form of Measure 5 and Measure 50, which were approved by voters in the 1990s. Those measures collectively limit property tax collections and control growth in assessed real estate values.

This and other key issues were at the heart of the meeting, which marked the first time the three bodies have met together in a public setting. In addition to compression, West Linn City Manager Chris Jordan spoke about tentative plans to redevelop the so-called Oregon City-West Linn Arch Bridge district along the west bank of the Willamette River near the West Linn Paper Co., while Wilsonville Mayor Tim Knapp talked about the city’s success over the past two years in attracting a record amount of development in the face of ongoing economic challenges.

Finally, West Linn-Wilsonville School District Superintendent Bill Rhoades spoke about the district’s legislative priorities, the challenges it faces in carving out achievement compacts and long-range district plans for new school facilities.

Compression explained

It was compression, however, that dominated discussion.

Covering parts of nine cities and three counties, the declining property tax growth rates experienced by TVF&R are a good representation of what has been happening around the state in recent years.

Measure 50, approved by Oregon voters in 1997, delinked real market values from assessed valuation, TVF&R Chief Financial Officer Debra Guzman explained. Meanwhile, Measure 5, approved in 1990, limits property tax rates to a maximum of $5 per $1,000 of real market value for school districts and $10 per $1,000 of real market value for general governments.

In addition, Measure 50 required that property taxes no longer be tied to real market values. The measure created new assessed property values set at 90 percent of 1995 real market values. Since then, that artificially depressed assessed value has been used to assess property taxes, while generally limiting growth of assessed value to a maximum of 3 percent annually. In many cases, those two values now have met, with the result that assessed value continues to fall along with market value.

Skyrocketing real market values over the next decade created a significant gap between real market and assessed property values across the state, particularly in older areas of development where market values already were low.

What happened when the housing market collapsed, however, is that assessed values have generally continued to increase at the same time as real market values have fallen.

“As long as assessed value remained below real market values,” Guzman said, “the assessed property taxes kept rising at least 3 percent annually.”

“Those were some pretty good years,” Duyck added. “We managed the finances well. We knew we typically had enough to manage operations and we had a pretty good split between real market and assessed valuation.”

Things now are different, as so-called “compression” has shrunk that gap and left public agencies across Oregon running up against the limits of taxation set by Measure 5.

“Essentially we had that gap, if you will, that buffered us from the immediate effects of the recession,” Guzman said. “But now we’re asking what happens when those lines cross. As real market value comes closer or even reduces assessed value of properties, governments lose those taxes levied due to the assessed value loss.”

In addition, Guzman added, public entities also experienced losses due to limits against real market value, which effectively cancels out the collection of voter-approved local option levies.

This includes the West Linn-Wilsonville. Along with other school districts, which have been hardest hit by compression, West Linn-Wilsonville officials have seen revenue from the district’s 2008 local option levy fall from initial projections of around $7.5 million annually to under $3 million a year ago.

Solutions to all of these problems remain elusive, Duyck said. He noted there are several proposed bills currently circulating in the Oregon Legislature that would address this. One would place local option levy revenues outside existing property tax limits set by Measure 5 (House Joint Resolution 8), while another would “reset” assessed property value to real market value when a property is sold (House Joint Resolution 13).

“One of the biggest things we’ve been trying to do is to educate local government as much as we can,” Duyck said. “We want to find that indicator so we can better manage our budgets and stay out of trouble. We’re all fighting for that 10 dollar limit within that general government box, and we’re all living in that same box.”

At the same time, Duyck admitted, any proposal that raises taxes will likely be a difficult sell.

“If you have a home that’s valued at $200,000; say the assessed value now is $100,000,” he explained. “When I sell it, the assessed value goes to $200,000, so taxes double at that point. Would that be a deterrent on the ability to sell a home? Maybe yes, maybe no, but you’re going to get taxed at the new assessed value and it’s going to equal the real market value rate, so I don’t know that that tests very well.”

Wilsonville City Councilor Scott Starr quickly answered.

“It will be a deterrent,” Starr said. “You then can’t qualify a lot of people; it will take them right out.”

Duyck said many of these options are “Band-Aid fixes” to a larger problem.

“There needs to be a rework of the system, but that will take years,” he said. “I don’t know that anyone has the answer, but they just know the status quo can’t continue to work.”



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  • 20 Oct 2014

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  • 21 Oct 2014

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