OREGON PROPERTY TAX OVERVIEW Presentation to OCCA November 9, 2012 Carol Samuels Senior Vice President csamuels@snwsc.com Mary Macpherson Vice President mmacpherson@snwsc.com
CAROL SAMUELS, SNW
Property Tax Timeline Oregon s property tax system can be divided into distinct eras November 1990 (Measure 5) May 1997 (Measure 50) Today (Ice Age) Ancient History November 1996 (Measure 47) 2
Ancient History (the Golden Age?) Prior to 1990, property taxes were set on a levy-based system. A municipality s levy was submitted to the County as a dollar amount. Rates were then calculated by dividing that amount by the real market value of the property. Some jurisdictions had tax bases - authorized levy amounts allowed to increase automatically by 6% annually. Voters could approve unlimited increases in tax bases. Other jurisdictions survived on temporary serial levies that had no automatic inflator, or permanent continuing levies, also no inflator. These discrepancies led to wide disparities in tax rates and funding levels between like jurisdictions. 3
Ancient History School District Funding On average, property taxes accounted for 70% of school operating funding. School districts were divided into haves and have-nots where some were exceptionally well funded, others were constantly threatened with closure. Tax rates varied wildly. School District Spending and Tax Rates 1987-88 Brookings-Harbor School District $ 2,591/Student $ 6.65/$1,000 Pleasant Hill School District $ 4,736/Student $ 28.25/$1,000 Source: Recent History of Oregon s Property Tax System, Tom Linhares, December 2011. 4
1988 Ancient History Calculating Tax Rates Levy Authority Real Market Value Tax Rate City $ 0.8 million $ 100 million $ 8.00 County $ 2.0 million $ 400 million $ 5.00 School District $ 1.5 million $ 200 million $ 7.50 Total Rate $ 20.50 In subsequent years, tax bases (levy authority) and related levy authority would grow by 6%. If value didn t keep pace with 6% growth, tax rates would rise. 1989 Levy Authority (+ 6%) Real Market Value (+ 3%) Tax Rate City $ 0.85 million $ 103 million $ 8.23 County $ 2.12 million $ 412 million $ 5.15 School District $ 1.59 million $ 206 million $ 7.72 Total Rate $ 21.10 5
Ancient History Calculating Taxes Tax Calculation in 1989 House A House B Target Real Market Value $ 30,000 $ 60,000 $ 10,000,000 Tax Rate ($/$1,000) X 21.10 X 21.10 X 21.10 Tax $ 633 $ 1,266 $ 211,000 All properties within the same tax code paid the same tax rate A property valued at double the value of a neighbor paid twice as much in taxes 6
Ancient History Property Taxes Increase Between 1981-1991, although property values rose slowly due to recessionary forces, 6% tax base increases caused much faster growth in property tax bills. The effective tax rate statewide rose from $19.05/$1,000 in 1980-81 to $26.61/$1,000 in 1990-91 The pot was about to boil over... 7
Property Tax Timeline Oregon s property tax system enters the compression era November 1990 (Measure 5) May 1997 (Measure 50) Today (Ice Age) Ancient History November 1996 (Measure 47) 8
Measure 5 Measure 5 was approved in November of 1990 by a 52% margin; although only 14/36 counties approved, Multnomah, Washington and Clackamas all voted yes. Although very different in substance, the measure was inspired by Proposition 13 in California. M5 retained the levy-based system but added rate-based limits: $10/$1,000 for local governments and $5/$1,000 for education. The education rate limit was phased in over a five year period, starting at $15/$1,000, declining $2.50/year. 9
Measure 5 Measure 5 s main difference from previous ballot measures was the requirement that the State backfill losses to schools. As a result, K-12 funding shifted largely to the State, leading to other changes (school consolidation, equalization formula). Now, roughly 70% of education funding comes from the State. Property tax levies were still divided by RMV; the resulting tax rates were then compared against the limits. Tax bases could still increase by 6% annually. If rates exceeded the limit, levies were compressed proportionally until within the limit. For the first time, overlapping jurisdictions competed against each other for revenue under the limits. 10
Measure 5 By 1991, 6 percent annual growth in tax bases (levy amount) drove the total tax rate in our example community to the statewide average of $26.61. Levy Amount Real Market Value Rate General Government City $ 1.009 million $ 116 million $ 8.72 County $ 2.524 million $ 463 million $ 5.45 Fire District $ 0.63 Education School District $ 1.893 million $ 231 million $ 8.17 Community College $ 0.365 million $ 463 million $ 0.79 ESD $ 0.161 million $ 672 million $ 0.24 Bonds Elementary School $ 0.051 million $ 76 million $ 0.67 High School $ 0.259 million $ 231 million $ 1.12 City Hall $ 0.095 million $ 116 million $ 0.82 Total Rate $ 26.61 11
Measure 5 In 1992 the additional 6 percent growth in tax bases resulted in a pre-compression tax rate of $27.00. Compression! Of the $27.00, $9.50 exceeded the Measure 5 limits and would be lost to compression: General Government ($10 Measure 5 Limit) Education ($5 Measure 5 Limit) Bonds (Unlimited) City $8.88 School Dist. $8.33 Elem. School $0.65 County 5.55 CC 0.82 High School 1.10 Fire District 0.67 ESD 0.25 City Hall 0.75 Total 15.10 Total 9.40 Total 2.50 M5 Limit 10.00 M5 Limit 5.00 Unlimited Compression (5.10) Compression (4.40) 12
Measure 5 Compression losses are taken proportionally from all levies Compression Calculation in 1992 General Government ($10/$1,000 Measure 5 Limit) Jurisdiction Rate M5 Loss Education ($15/$1,000 Measure 5 Limit) Net Rate Jurisdiction Rate Because the education rate limit was phased in over a five year period (starting at $15, declining $2.50/year), compression losses to school districts, community colleges and education service districts weren t as immediate as general government losses. M5 Loss Net Rate City $8.88 $(2.99) $5.88 School District $8.33 $8.33 County 5.55 (1.87) 3.68 Comm. Coll. 0.82 0.82 Fire District 0.67 (0.22) 0.44 ESD 0.25 0.25 Total 15.10 (5.10) 10.00 Total 9.40 9.40 M5 Limit 10.00 M5 Limit 15.00 Compression (5.10) Compression Compression % 33.7% Compression % 13
Measure 5 Compression losses are taken proportionally from all levies General Government ($10/$1,000 Measure 5 Limit) Jurisdiction Rate Compression Calculation in 1995 M5 Loss Education ($7.50/$1,000 Measure 5 Limit) Net Rate Jurisdiction Rate M5 Loss Net Rate City $8.88 $(2.99) $5.88 School District $8.33 $(1.68) $6.65 County 5.55 (1.87) 3.68 Comm. Coll. 0.82 (0.17) 0.65 Fire District 0.67 (0.22) 0.44 ESD 0.25 (0.05) 0.20 Total 15.10 (5.10) 10.00 Total 9.40 (1.90) 7.50 M5 Limit 10.00 M5 Limit 7.50 Compression (5.10) Compression (1.90) Compression % 33.7% Compression % 20.2% 14
Measure 5 Compression losses are taken proportionally from all levies General Government ($10/$1,000 Measure 5 Limit) Jurisdiction Rate Compression Calculation in 1996 M5 Loss Education ($5/$1,000 Measure 5 Limit) Net Rate Jurisdiction Rate By 1996, compression had reduced property taxes collected for education districts statewide by 40% in 5 years (from $1.6 billion in 1991 to $1.0 billion in 1996). M5 Loss Net Rate City $8.88 $(2.99) $5.88 School District $8.33 $(3.90) $4.43 County 5.55 (1.87) 3.68 Comm. Coll. 0.82 (0.38) 0.44 Fire District 0.67 (0.22) 0.44 ESD 0.25 (0.12) 0.13 Total 15.10 (5.10) 10.00 Total 9.40 (4.40) 5.00 M5 Limit 10.00 M5 Limit 5.00 Compression (5.10) Compression (4.40) Compression % 33.7% Compression % 46.8% 15
General Gov. Measure 5 Tax Calculation in 1992 House A House B Target Real Market Value $ 40,000 $ 80,000 $ 10,000,000 Rate ($/$1,000) X 15.10 X 15.10 X 15.10 Tax Extended 604 1,208 151,000 Limit ($10/$1,000) 400 800 100,000 Compression Loss (204) (408) (51,000) Compressed Tax 400 800 100,000 Education Rate/Tax $ 9.40 376 $ 9.40 752 $ 9.40 94,000 Unlimited Rate/Tax $ 2.50 100 $ 2.50 200 $ 2.50 25,000 Total Tax $ 876 $ 1,752 $ 219,000 16
Setting the Stage Rapidly increasing residential real market values caused property tax rates to fall below Measure 5 limits If a property s real market value increased by a greater percentage than the reduction in the tax rate, the tax bill would increase Compression declined Taxes rose Bill Sizemore got to work 17
Measure 5 Tax Calculation in 1996 House A House B Target Real Market Value $ 80,000 $ 160,000 $ 10,000,000 Rate Comp Tax Rate Comp Tax Rate Comp Tax General Gov. 15.10 (5.10) $ 800 15.10 (5.10) $ 1,600 15.10 (5.10) $100,000 Education 9.40 (4.40) 400 9.40 (4.40) 800 9.40 (4.40) 50,000 Unlimited 2.50 200 2.50 400 2.50 25,000 Total Tax 1,400 2,800 175,000 18
Property Tax Timeline Oregon s property tax system enters the messy ozoic era November 1990 (Measure 5) May 1997 (Measure 50) Today (Ice Age) Ancient History November 1996 (Measure 47) 19
Measure 47 Approved by voters in November 1996 Kept Measure 5 limits, but restricted annual tax increases to three percent Added double majority voter requirements Legislature concluded that the measure was unworkable and chose to rewrite it and refer a new measure to the ballot Measure 50 was approved by the voters on May 20, 1997 20
Measure 50 Fundamental change from levy-based to rate-based system. New permanent rates were established by taking 1997 levies, reducing them by 17%, and then dividing by 90% of 1995-96 Real Market Value. Created Local option levies, which are levied in addition to permanent operating rates. Require voter approval. All levies still subject to Measure 5 limits. Hierarchy of Rates Local Option Levies reduced first. If there is more than one Local Option, reductions are made proportionally After Local Option Levies are compressed to zero, permanent rates are compressed proportionally Urban Renewal counted against General government limit 21
Measure 50 Created new, lower Assessed Value (AV) on which taxes are now levied. 1997 Assessed Values were set at 90% of 1995 Real Market Value. Assessed Value growth limited to 3% per year; it can never exceed Real Market Value. New properties are brought on at county-wide ratio of AV to RMV (the Change Property Ratio ). And so, the ice age began 22
MARY MACPHERSON, SNW
Property Tax Timeline The limits of both Measure 5 and 50 remain in effect today November 1990 (Measure 5) May 1997 (Measure 50) Today (Ice Age) Ancient History November 1996 (Measure 47) 24
Permanent Rates Permanent rates were calculated by taking 1997 levies, reducing them by 17%, and then dividing by 90% of the 1995-96 RMV School District $ 1.8 million (17%) = $ 5.53 $350 million (10%) Community College $ 1.0 million (17%) = $ 1.23 $750 million (10%) ESD $ 0.7 million (17%) = $ 0.74 $900 million (10%) Total Education Rate $ 7.50 25
Ashland Beaverton Bend-La Pine Bethel Canby Centennial Central Central Point Coos Bay Corvallis Crook County Dallas David Douglas Eagle Point Estacada Eugene Forest Grove Grants Pass Greater Albany Gresham-Barlow Hermiston Hillsboro Hood River Jefferson County Klamath County Klamath Falls City Lake Oswego Lebanon Community Lincoln County McMinnville Medford Molalla River Newberg North Clackamas North Wasco County Ontario Oregon City Oregon Trail Parkrose Pendleton Phoenix-Talent Portland Redmond Reynolds Roseburg Salem-Keizer Scio Sherwood Silver Falls South Lane Springfield St Helens Three Rivers Tigard-Tualatin West Linn-Wilsonville Woodburn Permanent Rate ($/$1,000 AV) Permanent Rate Inequities 6 School Districts over 3,000 ADMw 5 4 3 2 26
Blue Mountain Central Oregon Chemeketa Clackamas Clatsop Columbia Gorge Klamath Lane Linn-Benton Mt. Hood Oregon Coast Portland Rogue Southwestern Oregon Tillamook Bay Treasure Valley Umpqua Permanent Rate ($/$1,000 AV) Permanent Rate Inequities 1.50 Community Colleges 1.25 1.00 0.75 0.50 0.25-27
Baker Benton Clackamas (City) Clackamas (Rural) Clatsop Columbia Coos Crook Curry Deschutes Douglas Gilliam Grant Harney Hood River Jackson Jefferson Josephine Klamath Lake Lane Lincoln Linn Malheur Marion Morrow Multnomah Polk Sherman Tillamook Umatilla Union Wallowa Wasco Washington Wheeler Yamhill Permanent Rate ($/$1,000 AV) Permanent Rate Inequities 10 Counties 8 6 4 2-28
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real Market and Assessed Values Oregon Metro Home Prices 1997: Measure 50 Froze Assessed Value at 90% of 1995 Real Market Value and capped growth at 3%/year RMV Eugene Portland Corvallis Medford Bend Salem Salem "Gap" AV 29
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real Market and Assessed Values Oregon Metro Home Prices 1997: Measure 50 Froze Assessed Value at 90% of 1995 Real Market Value and capped growth at 3%/year RMV Eugene Portland Corvallis Medford Bend Salem Bend "Gap" AV 30
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real Market and Assessed Values House A is in hip, up-and-coming neighborhood in NE Portland. Checking in on House A It experienced substantial appreciation from 1997 to 2008 and held up well during the housing market downturn. As a result, it has an AV less than 30% of its RMV RMV House A "Gap" AV 31
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real Market and Assessed Values Checking in on House B House B is in a more established neighborhood in SE Portland. It had a higher value in 1995 which caused it s AV to be set much higher than House A. RMV It experienced substantial appreciation, but saw a greater drop in value since 2008. AV House B "Gap" It has an AV that is 60% of its RMV 32
Tax Calculation House A House B Target Store Real Market Value in 1995 $ 75,000 $ 150,000 $ 10,000,000 Assessed Value in 1997 67,500 135,000 9,000,000 Real Market Value in 2012 350,000 350,000 9,000,000 Assessed Value in 2012 105,163 210,326 9,000,000 AV % of RMV 30% 60% 100% By 2012, our three example properties have very different ratios of Assessed Value (AV) to Real Market Value (RMV). 33
Tax Calculation House A House B Target Store Education Tax Rate $ 7.50 2012 Real Market Value $ 350,000 $ 350,000 $ 9,000,000 2012 Assessed Value 105,163 210,326 9,000,000 AV % of RMV 30% 60% 100% Education Measure 5 Capacity $5.00 x RMV = $ 1,750 $ 1,750 $ 45,000 Permanent Education Taxes Rate ($/$1,000 AV) $ 7.50 $ 7.50 $ 7.50 x Assessed Value 105,163 210,326 9,000,000 Taxes Before Compression $ 789 $ 1,577 $ 67,500 Measure 5 Compression Measure 5 Capacity $ 1,750 $ 1,750 $ 45,000 Less: Permanent Taxes 789 1,577 67,500 Compression Loss 0 0 (22,500) Total Education Taxes Paid $ 789 $ 1,577 $ 45,000 34
Property to Property Inequities Measure 50 inequities not confined to Portland Metro Area Horizontal inequities unequal tax treatment of taxpayers with similarly valued property, are widespread among the four counties observed (Deschutes, Jackson, Multnomah and Sherman) 35
New Properties What if you build a new house?... For Assessed Value purposes, the property is afforded the same relative tax break that existing property is receiving. New construction goes on the rolls at the Changed Property Ratio (CPR) The value of improvements to the property is added at the CPR The CPR is a calculated annually on a county-wide basis By Property Class Tax Rate Average AV Countywide $ 172,618 Average RMV of Same Properties 343,689 Changed Property Ratio 0.5023 36
Inequities for New Properties Use of countywide CPR in establishing assessed values means new properties are treated differently than neighbors and some communities benefit more than others: Communities with AV/RMV ratios higher than the County average end up losing revenue New homes in areas with AV/RMV ratios lower than the County average end up paying higher taxes than their neighbors In Deschutes County, CPR increased 50% between 2010 and 2011; thus, identical properties with the same sale price but that were permitted months apart have completely different tax liabilities 37
Compression Leads to Competition In areas where there is M5 Compression, a new levy for one district can seriously impact revenues collected by overlapping districts. Example: Multnomah County has long had a local option levy in place to fund its library system, which had to be renewed every 5 years. Falling Real Market Values have resulted in dramatic increases in compression in recent years. Because Local Option Levies are compressed first, the Library Levy and the City of Portland s Children s Levy (also a local option) saw the greatest reductions from compression. Multnomah County voters approved creation of a Library District at the November 2012 election. The new Library District will have a dedicated permanent rate, with priority over the City of Portland s Children s Levy. The permanent rate will be compressed proportionally with other permanent rates, causing compression in the permanent rate collections for the City of Portland, City of Troutdale, Metro, and other general government taxing districts. 38
Local Option Calculation What if voters in our example community pass a Local Option Levy? Who pays? Who doesn t?... House A House B Target Store 2012 Real Market Value $ 350,000 $ 350,000 $ 9,000,000 2012 Assessed Value 105,163 210,326 9,000,000 AV % of RMV 30% 60% 100% Local Option Taxes Local Option Rate ($/$1,000 AV) $ 1.50 $ 1.50 $ 1.50 x Assessed Value 105,163 210,326 9,000,000 Taxes Before Compression $ 158 $ 315 $ 13,500 Measure 5 Compression Measure 5 Capacity ($5 x RMV) $ 1,750 $ 1,750 $ 45,000 Less: Permanent Taxes 789 1,577 67,500 Compression Loss 0 0 (22,500) Measure 5 Capacity 961 173 (22,500) Less: Local Option Taxes 158 315 13,500 Compression Loss 0 (143) (13,500) Total Local Option Taxes Paid $ 158 $ 173 $ 0 39
Local Option Inequity Property Tax Quirk Helps Many Voters Hike their Neighbors Taxes The Oregonian, July 29, 2012 Oregonians have heard complaints about the state's property tax system so often that many have probably stopped listening. That's too bad. In many ways, our system really is nuts. The compression of education-related property taxes is a big problem, too, both in Portland and across the state. Here (Portland), for instance, compression sapped the district's local option levy of about $23 million, or roughly 30 percent, in 2011-2012. Because compression occurs on a property-by-property basis, owners of affected properties effectively vote to impose higher property taxes on others than on themselves, though they may not know this when they cast their ballots. 40
Millions Millions Millions Falling Local Option Collections 8 1 6 0 0 1 4 0 1 2 0-0 0 1 Ashland SD Tigard-Tualatin SD Pendleton SD Sisters SD 2009 2010 2011 2012 2013 41
Falling Property Values, Falling Tax Revenues? Because tax bills are calculated on Assessed Values, which in many cases are well below Real Market Values, falling housing prices have in many cases not resulted in falling tax bills. In fact, most property owners have seen year-over-year increases in their tax bills as their Assessed Values increase 3%. Under Measure 50, Assessed Values will increase by 3% until they hit the Real Market Value. Many residential properties still have a substantial gap between AV and RMV. This provided a buffer for local taxing districts In many communities, that buffer is now gone, and further erosion in property values has resulted (or will result) in falling tax revenue 42
Where do we go from here? Many local governments are being strangled Compression is worsening, undermining voter-supported levies and resulting in significant cuts to services Major inequities exist among permanent property tax rates and among property owners with similarly valued property But does the public understand the problem and are they open to reforms? 43
Potential Reforms Voter Control Referral Empower voters to pass local option levies outside of statewide limitations Reset at Sale Referral Reset assessed value (AV) to real market value (RMV) at the time of sale or at construction 44
Potential Reforms Voter Control Voter Control Referral Introduced in 2011 Session as HJR 26. Constitutional amendment that, if approved by voters, would authorize jurisdictions to seek approval of local option levies outside of M5 limits for up to 10 years. Levies would be applied against AV, like GO bonds. No compression. Would allow jurisdictions to reduce levy rate requested to obtain a given amount. Would allow more predictability, stability and equity between properties. Much easier to explain to voters. Would reduce competition between jurisdictions. Gives voters the ability to once again raise their own taxes to support services they desire. Would returns local control to property tax requests. While this measure won t solve revenue issues for everyone, it s a strong first step on longer road to revenue reform. 45
Potential Reforms Reset Reset at Sale Referral Constitutional amendment to reset property s AV to market value at the time of sale or new construction. Would restore some degree of equity by periodically recalibrating taxes based on market value, reducing huge disparities in tax bills. Fifteen of seventeen states with property tax limitations similar to Oregon s readjust property taxes at the time of sale. According to a Lincoln Institute of Land Policy report, Oregon s system has gone the farthest of any [in the country] in breaking the link between property taxes and property values. 46
Questions? SEATTLE-NORTHWEST SECURITIES CORPORATION Carol Samuels, Senior Vice President csamuels@snwsc.com 503-275-8301 Mary Macpherson, Vice President mmacpherson@snwsc.com 503-275-8307 51