Court case fallout has Portland considering a tax levy to prop up development

City officials are considering a $15 million property tax levy to offset the expected loss of urban renewal funds after an Oregon Supreme Court decision that limits the tax-raising power of urban renewal districts.

That option, or dipping into next year's general fund, could replace millions that otherwise would have been raised through a process called tax-increment financing, which is now under a microscope after the December ruling, known as the Shilo decision.

The court overturned a state law that allowed urban renewal funds to be calculated under a tax cap originally intended to benefit schools.

The case, is based on a tax appeal filed by Shilo Inns owner Mark Hemstreet. It also could force the Portland Development Commission, the city's urban renewal agency, to refund up to $30 million in property tax dollars that have already been collected.

'This is not the end of the world for the Portland Development Commission,' Executive Director Don Mazziotti said during a Monday meeting at City Hall. 'We've been challenged before.'

PDC, with backing from the city, Multnomah County and the Oregon Department of Revenue, intends to file a motion asking the Supreme Court to reconsider its decision.

In the meantime, Mazziotti said, the PDC is still determining the amount of taxes the agency will be able to collect. He said he'd be surprised if the reduction in its tax-increment financing exceeded 20 percent, or an estimated $64 million, of PDC's $320 million operating budget.

The amount is anyone's guess.

The state Revenue Department is now calculating an interim tax-increment financing formula that assessors across the state will use to collect funding this year. The 2002 tax bills are scheduled to be mailed out June 1.

'It's safe to say tax revenue will be reduced, but it's uncertain the amount for each district,' said Ken Rust, Portland's director of financial management.

Coping with reduced taxes has become a way of life for public officials since passage of the property tax-limiting Measure 5 more than a decade ago. The latest challenge to PDC comes at a time when critics have questioned the agency's ambitious redevelopment efforts, including its largest urban renewal district off North Interstate Avenue.

Don McIntire, a longtime tax critic who urged Hemstreet to file the original tax appeal, said, 'People don't understand the extent to which urban renewal absorbs tax dollars that would go to essential things that government does, like streets and schools.'

Mayor Vera Katz wouldn't respond to a reporter's question on the political motivation behind the tax appeal. But she said the city needs to be prepared to fill the gap.

'We can't sit back and do nothing,' she said.

For now, most of the PDC's projects are on hold, except those it is legally bound to complete, those that affect health and safety, and those that would be more costly to delay than complete, Mazziotti said.

The agency also has frozen staff hiring.

'It would be difficult for us to go forward,' PDC Chairman Marty Brantley said. 'How much we can do on North Macadam and Interstate is in question now.'

Among the projects that have come crashing to a halt are PDC's share of the $114 million Museum Place project downtown, including a revamped YWCA and housing, and its plans for mixed-income housing and offices in the North Macadam district.

In the 3,771-acre Interstate Corridor Urban Renewal Area, frozen projects include a proposed community garden at Beach School in the Overlook neighborhood, a paint program for historic properties and several storefront renovations.

The Interstate light-rail project, partially financed by $30 million in PDC's tax-increment financing, is moving forward.

Sheila Holden, co-leader of the Interstate Urban Renewal Advisory Committee, said there's concern about what the Shilo decision will mean to the Interstate area.

With rising property values and rent displacing residents, the PDC is putting 'a lot of focus on business development and housing,' Holden said. 'Anyone who had planned to go after storefront projects, all those projects are on hold.'

Options for funding

The city is allowed to collect up to $55 million in taxes for urban renewal without voter approval. At this point, the city collects about $40 million of that cap, Rust said.

Another $15 million could be collected from property owners citywide for use in five urban renewal districts created before 1996: Airport Way, Downtown Waterfront, South Park Blocks, Convention Center and Central Eastside. That money is not subject to the Supreme Court decision.

'The plan right now is to levy another $15 million, and it would be authorized by council,' Rust said. 'If they decide to levy more, they would have to decide for next year's budget. They'd have to do it no later than June.'

The City Council also could set aside money in the general fund for PDC projects, but that could be a long shot given that the council already is looking at $18 million in budget cuts.

'Can the city afford it?' Rust said. 'The answer is no. It would have to compete against a lot of other projects for any additional funding.'

Contact Kristina Brenneman at This email address is being protected from spambots. You need JavaScript enabled to view it..

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