Values down, Taxes up - Register Guard Editorial - October 26, 2010 
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Most homeowner’s bills unaffected by price slump

Tuesday, October 26, 2010


It’s ancient history now, but Oregon used to have a simple property tax system. Then came Measure 5 in 1990, an echo of California’s property tax revolt a decade earlier. After that came Measure 50 in 1997, the Legislature’s rewrite of a property tax limitation initiative approved by voters a year earlier. The result is a tax system largely divorced from actual property values, one that has the perverse effect of producing higher taxes in times when most people’s properties are worth less than the year before.

These effects will become visible in Lane County this week, when 175,000 property tax bills mailed by the Department of Assessment and Taxation begin arriving in mailboxes. Property taxes will decline in a few taxing districts, including Oakridge, Pleasant Hill and those portions of Eugene inside the Bethel School District. Taxes on properties in most areas, however, will climb by 2 percent to 3 percent. The biggest increase is in Veneta, where taxes will rise by 4.7 percent. 

Some property owners may wonder whether the county assessor somehow missed the news about the bursting of the real estate bubble. Oregon’s tax system, however, prevented property taxes from inflating as rapidly as real estate prices ballooned during the past decade’s period of rising prices. Now it is preventing taxes from falling in a stagnant or declining real estate market. The property tax initiatives of the 1990s were meant to restrain property tax increases — but they also have the unanticipated consequence of keeping taxes from declining. 

Before Measure 5, property taxes were limited only by voters’ willingness to approve them. Schools, cities and other units of local government would obtain voter approval of property tax levies and bonds, and divide the total amount among all taxable properties based on values determined by the assessor. Measure 5 caps property tax rates at $15 per $1,000 of property value, with some exceptions. The result was a property tax rollback — but in later years the $15 rate promised to yield higher taxes as property values rose.

The response was a second initiative that rolled the assessed value of property back to 1995 levels, minus 10 percent, and limited subsequent increases in taxable value to 3 percent a year. Ever since then, county assessors have calculated property taxes from that arbitrary baseline, plus annual increases of up to 3 percent. During most of the period since 1997, the price of real estate has climbed by more than 3 percent a year. As a result, the taxable value of most property is less than its real market value, recent price declines notwithstanding.

Only a steep decline in the market would bring taxable and real property values into line. This has occurred in Bend, where the prices of some properties have fallen by as much as 50 percent from their peak. Owners of these properties will see lower tax bills, but they won’t be celebrating. Lower property taxes are a slender silver lining — property owners in Bend will be wishing a gap between taxable and real property values still existed, as it does in Lane County and the rest of Oregon. 

Until recently, the chief effect of the property tax initiatives of the 1990s has been to shift the cost of public services, particularly schools, to the state. Even with Oregon’s high income tax rates, state government has had a hard time absorbing financial responsibilities that were formerly borne by local property tax payers. The modest growth in property taxes has come at the expense of much faster growth in state income tax collections. 

But now another effect has come into view — a property tax system that, unlike the income tax, is largely immune to the boom-and-bust cycle of the economy. By allowing taxable and actual property values to diverge, Oregonians have given themselves a relatively stable system. The caps and limits that were designed to protect property tax payers against steep increases also work to prevent declines. For all its faults, Oregon’s property tax system has the virtue of stability.


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