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Potential Property Tax Changes

The 2013 legislative session may see the first significant changes to the voter-approved property tax limitations from the 1990’s. In 1990, the voters approved Measure 5, which imposed strict limitations on the amount of tax that general governments, such as cities, counties and special districts, as well as schools could impose on property. In particular, general governments could impose no more than $10 tax per $1,000 of real market value and schools could impose no more $5 per $1,000. In 1997, the voters restricted property taxes even further by passing Measure 50, which re-set the taxable value of all property to 90% of the property’s real market value and then limited further growth in that value to 3% annually.

These limitations had consequences that have hamstrung both general governments and school districts. The League of Oregon Cities has proposed two fixes that would relieve some of the restrictions and could remedy some inequities in the way property taxes are assessed. The two fixes are aimed at two different problems:

The first measure would address compression. As noted above, general government taxes are limited to no more than $10 per $1,000 of taxable value. However, there are several layers of general governments, including cities, counties, Metro (in the Portland area) and a variety of special districts. Moreover, a taxing entity may adopt other taxes, such as operating levies. Although each of the individual taxing districts may levy less than $10/1,000, combined, all of the taxes may exceed that limitation. When that happens, all of the various levies are reduced under a process known as compression. Thus, voters may approve a levy for a certain amount but, thanks to compression, the levy will generate significantly smaller amounts. The first proposal would eliminate compression for certain levies and allow those levies that have been approved by the voters to be fully levied free of compression.

The second issue involves resetting property values at sale. As noted above, Measure 50 set the taxable value of all property at 90% of the real market value and limited future growth to 3% annually. It has now been almost 20 years and areas throughout the state have seen large swings in property values and this limitation has had significant effects. For example, in areas that have “gentrified” since 1995, their property taxes are artificially low compared to more established neighborhoods, because their 1995 value was relatively lower. Similarly, if an area went through an extended period of price increase, followed by a softening of property values, this limitation may result in the odd situation of increasing property taxes on property that has decreased in value. The second proposal would address these concerns by resetting the property’s taxable value to its real market value at the time of sale or construction.

The League of Oregon Cities’ proposal would first have to be approved by the legislature for referral to the voters. If adopted, it would be the first significant change to the voter imposed state’ property tax system from the 1990s. It is difficult to predict how the legislature will react, but these two proposals bear watching.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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