Property Tax Inequity: A Modest Proposal

When future bond measures pass, each property owner’s share should be based on what their property is actually worth.

In Oregon, as in most places, people like to complain about the tax system. Business groups complain about our high income taxes. Liberals complain about the bizarre “kicker.” And there is always a group of folks who ask “Why the heck don’t we have a sales tax?”

But there is one feature of Oregon’s tax system that people don’t complain about enough. That would be the ridiculously unfair property tax system, under which many rich people in gentrified neighborhoods pay far too little and many non-rich people in never-gentrified neighborhoods pay too much. I last wrote about this issue for the Portland Tribune (which has done a good job of periodically covering the topic) in 2018; since nothing has changed, I might as well do so again, borrowing liberally from my Tribune piece.

The problem requires some explanation. Measure 50, passed in 1997, provides that the assessed value of a property, for tax purposes, can’t increase by more than 3 percent a year, no matter what happens to the real market value. Over time, that means that people who own properties in areas that have dramatically gentrified since 1997, like inner Northeast Portland, pay much less than their fair share of property taxes because their real market value wildly exceeds their assessed value.

Meanwhile, owners of properties in areas that haven’t gentrified – like much of Outer East Portland - pay more than their fair share. A random example: according to Zillow, 3040 NE 143rd in Portland is currently listed for sale at $412,900, and its owners paid $3,819 in property taxes last year. In contrast, 5045 NE 10th has an estimated real market value of $856,000, and its owners paid $2,469 in property taxes last year. Think about that. The house on 143rd is worth less than half as much, but its owners paid 54 percent more.

As a Portlander, I’m familiar with the Portland housing dynamics. But the rules are the same everywhere. No matter where you are in Oregon, people whose homes have skyrocketed in value since 1997 are paying too little, and people whose home values have stagnated are paying too much.

Why do so few politicians pay any attention to this problem? One reason is that few voters are aware of it (despite the periodic efforts of some newspapers, like the Oregonian and the Tribune), so politicians don’t hear people complain about it.

Another reason is that the local governments that get money from property taxes have no power over the statewide system. And, the Legislature, which could initiate a change, doesn’t get money from property taxes, so they don’t think about them very much.

A third reason is that fixing the problem would be hard. It would take a voter-approved constitutional amendment, and polls have indicated that several of the options that have been suggested – like the California system of re-setting the assessed value to real market value when the property is sold – would be difficult to pass.

But none of these reasons excuse the fact that the politicians haven’t even tried to fix a blatantly unfair system. Local government leaders should demand that the Legislature send reforms to the ballot. Legislators should give the voters an opportunity to fix the problem, even if the odds seem low. Over the years, very few legislators – former State Senator Mark Hass being a noble exception – have even tried to highlight the issue.

In 2018, I suggested that the Legislature at least try to pick some low-hanging property tax fairness fruit. I’ll renew that suggestion now.

Bond measures are an especially problematic part of this unfair system. Many people in Outer East Portland (for example) don’t pay extra taxes when a tax levy passes because they are already paying the maximum allowed by Measure 5, which limits each property’s levy bill based on real market value. But the Measure 5 limit doesn’t apply to bonds.

When a bond measure passes, rich people in gentrified neighborhoods get off easy. But the non-rich people in non-gentrified areas get hammered. (A few rich people get hammered too; Portland’s West Hills were already expensive in 1997, and those homes haven’t increased in value like Inner East homes, so they pay more than their share too.)

That’s why I suggested a ballot measure that simply says that when future bond measures pass, each property owner’s share should be based on what their property is actually worth, rather than the Measure 50 value. That would not immediately affect anyone, and would not raise the overall tax level. It would just mean that when future bond measures pass, the bill would be divided fairly. (When local governments seek bond measures, they generally decide how much money they need, and build a campaign around what services the bond will buy and what a ‘typical’ homeowner would pay; all my proposal would do is make it easier to accurately define what ‘typical’ is – there is no reason to think it would affect the amounts local governments would seek.)

An advantage of this approach is that I don’t know who the heck would oppose it. Realtors would campaign against “reset on sale” because they fear it would cool off the housing market. Any broad measure to start basing everyone’s taxes on real market value, even if it were revenue-neutral, would raise taxes on a lot of people, and the usual anti-tax crusaders could make hay with that. (It would also cut taxes for a lot of people, probably more people – in the Portland area, at least. The last time the Oregonian looked, 57 percent of Metro-area homeowners were paying more than their fair share and 43 percent were paying less. But it’s much easier to convince people that a change will raise their taxes than that it will cut them.) But I don’t know who would have a vested interest in opposing my modest proposal.

I’m not saying it would be a slam dunk. In fact, I know it wouldn’t. At my request, DHM actually polled on my suggestion in 2018 – using the kind of ballot-title language I think the Oregon Supreme Court would approve. The poll showed the proposal with a 7-point lead, 40 to 33 percent. That’s not much – but it’s enough to make the effort worth it. The media has generally been good on this issue; I think they’d welcome the chance to explain the unfairness of the current system. And unions should support it. Doing so would demonstrate that they care about tax fairness for its own sake, even if it doesn’t mean more money for services.

It’s not a comprehensive solution. And it might not pass. But after decades of increasing unfairness, isn’t it worth a try?

Steve Novick is a former Portland City Commissioner. The opinions here are his own; he does not speak for his current employer.

Photo credit: "portland houses" by MrLunch is licensed under CC BY-SA 2.0