Property Tax Limitation Reform Improving fairness restoring lost public services

							                       Property Tax Limitation Reform
                   Improving fairness, restoring lost public services
Across Oregon, public services are being reduced or eliminated because the cost of providing the
services is greater than the revenue available. At the same time, some taxpayers are paying
effective tax rates that are three times higher than rates paid by other property owners for the
same services in the same jurisdiction. How can Oregonians reform our property tax system to
increase fairness and provide for the services that we need?
Background
Throughout the history of the State of Oregon, property taxes have paid for our jails, our public
health services, our libraries and dozens of other important public services. Property taxes
represent a significant portion of the funding for our public schools.
Property tax limitation measures passed in 1990 and in 1997 have reduced the amount of
property taxes that can be collected and they have created winners and losers among property tax
payers. The disparate treatment of taxpayers is largely a function of the lengthy and complex
constitutional amendment that was drafted by the Oregon Legislature and presented to the voters
as Ballot Measure 50 in 1997.

What did Measure 50 do?
Measure 50 shifted the basis for paying property taxes away from the real value of property as
determined by the free market to an artificial value calculated by a legislatively created formula.
The effect of this change was dramatized in an article last year in the Willamette Week
newspaper (October 17, 2007). It told the story of two homebuyers in the City of Portland who
bought houses of similar values (one paid $369,000 and the other paid $380,000) but faced
dramatically different property tax bills ($1,734 vs. $6,356.)
Measure 50 mandated that county tax assessors set a Maximum Assessed Value (MAV) for
properties that is based on a 10% reduction from their 1995 Real Market Value (RMV) and
subsequently allowed to increase only 3% per year regardless of changes in the actual market
value of the property. At the same time, home prices in some neighborhoods have rapidly
escalated while in other neighborhoods they have been flat. As a result, homebuyers in some
neighborhoods now pay taxes on less than 30% of the value of their property while in other
neighborhoods homebuyers pay taxes on more than 90% of the value of their property.
At the same time, libraries, jails, health clinics, mental health services, schools and other critical
public services are unable to keep pace with inflation and population growth.

What can Oregonians do?
Because the 104 paragraphs of Measure 50 are now part of Oregon’s Constitution, only a vote of
the people can modify them. Such a measure could be referred to the voters by the Oregon
Legislature or it could be placed on the ballot as an initiative supported by petitions with the
signatures of many thousands of registered voters.

What are the options for reform?
Because Measure 50 made fundamental changes in the ways that property taxes are collected,
reform options are unfortunately quite complicated. Because the impacts of Measure 50 vary
widely between communities, there may need to be a variety of local options that would return
control of local public services to local voters. The following list represents elements of a
possible comprehensive reform strategy.
Reduce unfairness by narrowing disparities
As noted above, some taxpayers are charged based on more than 90% of their property’s actual
value while others pay on less than 30%. Because taxes due are based on the tax rate multiplied
by the assessed value this results in a large disparity in taxes between properties of similar actual
market value, taxed at the same rate, but with very different assessed value.
The disparity in taxes paid could be narrowed by creating a floor and a ceiling for assessment
ratios. For example, Oregon could move to requiring that assessments (which are multiplied by
the tax rate to determine tax due) must be no less than 50% of market value but no more than
80%. Because conditions vary across the state, there could be a local option for setting the floor
and ceiling percentages and the allowed ratios could be different for residential, commercial and
industrial properties.
Create a gradual transition to the new system
Taxpayers could be protected from dramatic year to year changes in property taxes through an
annual limit on value increases that could be higher for those properties that are currently
assessed at a small percentage of their actual value.
Reset assessed value when a property is sold
Many voters have supported property tax limitation measures because of concerns that fixed
income homeowners (particularly retirees) can be taxed out of their homes when the value of
their property rises much faster than their incomes. Homebuyers, on the other hand, are making
choices about their purchases and can afford to pay taxes on a home that they can afford to buy.
Widely varying assessed values also distort the real estate market.
Provide additional tax relief to low-income homeowners
Most states provide targeted tax relief to elderly and low-income homeowners, but Oregon
discontinued the Homeowner and Renter Relief Program (HARRP) more than 15 years ago.
Administered in conjunction with the Oregon income tax, HARRP provided tax relief to those
Oregonians whose property taxes were out of proportion to their incomes. Bringing back
HARRP is a cost-effective way to provide tax relief to those who need it most.

Who is working on tax reform?
The Oregon Legislature has created a Task Force on Comprehensive Revenue Restructuring that
is examining many options for changing Oregon’s tax structure. The Association of Oregon
Counties has created a Tax Policy Committee which has worked with county assessors to study
options for Oregon’s property tax system including some of the ideas that are discussed here.

How can I learn more?
Multnomah County Chair Ted Wheeler is one of the public officials who is committed to
working for property tax limitation reform. A section of Chair Wheeler’s website provides links
to additional background information and will be updated as proposals are developed.