Oregon's Flawed Property Tax System is a Choice

We can and should elevate property tax reform to part of the ongoing dialog with local and state elected officials.

Oregon’s flawed property tax system persists because legislators have refused to take action. Oregon turned down the path of unequal property taxation in three steps, two of them triggered by initiative petitions. The third step was a legislative fix because what the voters passed in November 1996 just wouldn’t fly legally; the “fix” passed in May of 1997.

"Entering Lonerock" by swainboat is licensed under CC BY-NC-SA 2.0

Often beneath the radar of both community news coverage and state legislators, the property tax system is one of the most significant sources of revenue for over 1,200 local taxing districts in Oregon – from giants like Multnomah County, population 829,560, to the City of Lonerock, population 21, in Gilliam County. (We don’t count Greenhorn these days, a dormant municipality straddling the Baker-Grant County line; at last count it didn’t have any permanent residents but 10 dwelling units are reported by the Census Bureau.)

Steve Novick, a former Portland City Commissioner, suggested incremental change to the property tax system in an August 23 blog posted to the Oregon Way – updating real property value each time local voters approve a bond issue.

The gate-keepers in Salem – the House Interim Committee on Revenue – held a hearing two days later. Tacked on to the bottom of their agenda for reference were four failed legislative efforts to reform Oregon’s property tax system, along with a 2019 attempt to direct the Legislative Revenue Office to study what the bill called “land value taxation.”

Chris Allanach, the Legislative Revenue Officer, when asked after the hearing if any of those past ideas got traction, said it appeared they aren’t going anywhere.

“There are voices out there who want some kind of property tax reform,” he said, but the committee doesn’t have interest in moving forward with these particular proposals.

How did we get in this mess? And it is indeed a mess. As Novick pointed out, we have a system where one Portland house has a market value of $412,900 and paid $3,819 in property taxes while another valued at $856,000 paid $2,469 in property taxes.

It all began in California. Voters in California passed a statewide property tax limit –the infamous proposition 13 – in 1978. Some folks in Oregon, which then had a much different local government revenue system from California, thought a property tax limit ought to work here. They gathered signatures for repeated initiative measures, which Oregonians rejected.

After several tries Oregon voters passed Measure 5 in November 1990, limiting property taxes for schools. At the time, Don McIntyre, a conservative activist, was leading the charge to put initiative measures on the state ballot. He’s credited as the “father” of Measure 5. When it took effect as part of the state constitution, the Legislature had to scramble to pick up a large share of operating budgets for local school districts that then depended on property taxes for much of their operating budgets and for paying off bond issues financing new buildings.

Not content with the limit on schools, property tax foes returned to the ballot in November 1996 with a lid on most property tax rates, this time including municipalities and special districts. The lengthy constitutional amendment had legal problems, so the 1997 Legislature worked to preserve the concept of Measure 47, which voters passed 704,554 to 642,613. The result was Measure 50. Tucked away in the fine print is Oregon’s limit of 3-percent-a-year on the computed “maximum assessed value” of real property. MAV, as it’s called, over the years tends to get further away from the current market value of most properties. Measure 50 passed in a May 1977 special election, 429,943 to 341,781.

Local government revenue and financing changed forever after that election—phased in over a few years.

So here we are 24 years after Measure 50. School funding is more-and-more the responsibility of the Legislature with local school boards and their voters in a secondary role. Cities and counties, now limited to “permanent tax rates” and “local option tax” for operating budgets, discovered “user fees” as a means to try to meet their funding means. These fees amount to oftentimes clandestine maneuvers where the governing body tacks an additional charge onto monthly municipal utility bills or transactions, such as taking out a building permit.

The Legislature has consciously decided not to fix this system. In the 2021 legislative session, a constitutional amendment which would have required the ratio of maximum assessed value be at least 75 percent of real market value got out of the House Revenue Committee only to die in the Rules Committee before it could come to a floor vote. The same concept, in a different form died in the 2019 Legislature, along with two related constitutional amendments.

The most sweeping 2019 proposal would have moved all of the 1997 constitutional language from Ballot Measure 50 into statute. Had voters approved that move, the Legislature could then go about changing the law to make things equitable without having to refer every alteration to statewide elections.

Novick conveyed one solution to this flawed system. The Legislature has had plenty of opportunities to adopt such fixes but has opted not to. So, we appear to be stuck with a system that treats similar properties differently depending on whether they were put on the tax rolls in the mid-1990s or if they were built or sold more recently.

Who cares?

We all should. And we all should act. We can and should elevate property tax reform to part of the ongoing dialog with local and state elected officials.