Take a look inside West Linn's surprisingly low tax base
In a place as affluent as West Linn — with the median home price hovering just over half a million dollars — one might assume that the city's tax base is on a similar plane.
But reality doesn't always reflect what seems logical, and in fact West Linn has one of the lowest tax bases in the region — in large part due to a permanent property tax rate of $2.12 per thousand of assessed value, which is less than half of neighboring Lake Oswego's $4.97. Community Development Director John Williams says this is key to understanding West Linn's financial situation.
"This totally deserves more attention," Williams said. "I doubt many people in West Linn realize how low West Linn taxes are, and why."
The issue dates back to the 1990s, when Oregon passed Measure 50. The measure put a limit on property tax rates, and two property tax local option levies in West Linn — which generate revenue through a tax increase and must be renewed after five years — had expired just before the measure passed.
"Hence, neither of them rolled into West Linn's permanent tax rate," Finance Director Lauren Breithaupt said. "In March 1997, West Linn voters approved two local option levies which replaced them. However, this election was too late for the permanent tax rate calculation which occurred in late 1996."
And so it was that West Linn ended up with the $2.12 rate, lowest in the region. Tualatin is second lowest at $2.27 per thousand of assessed value, while Lake Oswego, Oregon City and Milwaukie each have rates over $4 dollars per thousand.
"Due to a low tax rate, the City must raise resources in other ways," Breithaupt said. "When resources are generated through other fees or taxes, they are often restricted to a specific fund. Therefore, a low property tax rate may reduce flexibility in types of services provided to citizens."
For instance, service charges for developers or builders go to the City's planning fund.
Further complicating matters is the system by which property taxes are divided. West Linn itself receives just $.13 cents of every dollar paid on a resident's property tax bill; the rest is split between other agencies like the West Linn-Wilsonville School District ($.58 cents per dollar), Clackamas County ($.16 cents per dollar) and Tualatin Valley Fire & Rescue ($.10 cents per dollar). In all, property taxes make up 23 percent of the City's budget, and the majority of the funds are used for public safety.
Some of the raw data can be misleading, though, particularly when it comes to comparisons with neighboring cities. As an example, Lake Oswego City Manager Scott Lazenby points out that the tax rates between his city and West Linn differ in large part because of how they approach one basic service.
"On city taxes, you can't compare because we have a fire department and they have a local district," Lazenby said. "$2 dollars of our (tax rate), $2 dollars per thousand (goes to the Lake Oswego Fire Department)."
Lazenby says that Lake Oswego's property tax rate would be about $3 dollars per thousand of assessed value if you subtracted the fire department — still higher than West Linn, but no longer dwarfing its neighbor.
"Our (rate) isn't particularly high, but we benefit from the high assessed value of houses," Lazenby said.
And indeed, the median home price in Lake Oswego is just under $600,000.
"That's what allows us to have such nice parks, have flowers in the median and things like that," Lazenby said. "It does make a difference."
Of course, it's not just property tax rates that determine the strength of a city's overall tax base. Commercial and industrial development play a role, too, and West Linn lags behind in that regard.
"A different factor that impacts all this is one that really does differentiate West Linn from neighboring cities, and that's the amount of industrial development," Williams said. "West Linn has much less than other cities, and only one industrial business (West Linn Paper Mill). Taxes from industry are generally thought to contribute far more to a city's bottom line than industry demands in services."
Lazenby adds that large business districts like Kruse Way in Lake Oswego provide further support to the city's tax base on a scale that might not be seen in West Linn.
"We do benefit from the Kruse Way Business District assessed value," Lazenby said. He added, however, that West Linn has its own business districts to draw revenue from.
So what might change? Can the City make adjustments to its rates or other changes that would shore up the tax base?
"There is no current method to increase the permanent tax base rate," Breithaupt said. "Assessed values increase up to 3 percent along with any new growth or construction within city boundaries. … There have been many discussions about property tax reform at the legislative level, but no final decisions have been made."
The City is considering the prospects of a general obligation bond of between $15 million and $18 million that would keep in place the current $42 cents per thousand tax that is added to the $2.12 base rate as a result of past levies. Residents would have a chance to vote on that bond in May 2018.
For now, though, the City will bank on decades of practice working within the constraints of its current tax base.