Representatives from the League of Oregon Cities dropped by our newsroom last week to try to build support for a couple of changes they’re proposing to the state’s tax laws.
You’ll be hearing a lot more about these proposals during this year’s legislative session — and, depending on how they fare in the Legislature, they might be showing up this year or next on a ballot in your mailbox.
One of the proposals deals with this “tax-compression” issue that you’ve been hearing about; recently, city officials from Sweet Home, which has unfortunately become a poster child of sorts for tax compression, testified in favor of the proposal before a legislative committee.
Now, I understand that “tax compression” is one of those phrases that sometimes triggers an involuntary glazing over of the eyes; it is similar in that regard to its close cousin, “tax increment financing.” But, although the details can be mind-numbingly complex, the general idea is relatively simple:
Measure 5, passed more than two decades ago by Oregon voters, slaps a limit on what government entities can levy for each $1,000 of real market value. General governments, such as cities and counties, can charge $10 for every $1,000. Schools can add an additional $5 for every $1,000 of real market value.
In other words, say you have a parcel that has a real market value of $250,000. That means the total amount you can be taxed by the city and county and any other special districts is $2,500 — $10 for every $1,000 of real market value. (Add another $5 for every $1,000 to find the maximum tax levy for schools — in the case of the $250,000 parcel, it works out to $1,250.)
But back now to your $2,500 tax limit for city and county governments. Let’s say you live in a city where voters approve a local-option levy to help pay for law enforcement. And let’s also assume that the additional levy pushes your tax bill above $2,500. What happens then?
Here’s what: Your tax levy gets chopped back — compressed — until your bill again is $2,500. In this case, because the law is specific about which taxes get compressed first, the money from the local-option levy is trimmed until the taxes for the parcel fall within that $2,500 limit. You don’t pay anything above the $2,500.
This is why local option levies sometimes fail to raise the amount of money that organizers expect — this is part of the issue facing Sweet Home. The Corvallis School District is another governmental unit that is severely compressed. But remember that Measure 5 was intended to save on tax bills, and there’s no doubt that it has succeeded in that.
The League of Oregon Cities, the organization which represents the state’s municipalities, is pitching a measure that would allow voters to decide if they want to approve local option levies that would not be constrained by the Measure 5 limits. If legislators approve the measure, it would have to go to voters statewide because it would require a constitutional amendment.
The same is true of the league’s other related proposal, in which a property’s assessed value would reset to its real market value at the time of sale of construction. The difference between the two has grown since the passage of Measure 50 in 1997. In the case of the city of Corvallis, the gap between real market value and assessed value now is more than $1.5 billion — another factor contributing to tough times for local governments.
Both measures could toss a lifeline to struggling local governments.
But, finally, both measures are tweaks to a tax system that requires major overhaul. When we asked the league representatives why they weren’t pushing a broader solution, the answer was to the point: Their polling suggests that voters don’t want that. And you can be sure legislators are taking their cues on this issue from their constituents.
Maybe we can improve our tax system a bit by adopting these measures. If that’s the case, we should do that. But it’s hard to shake the sense that the ship still is going down — even if we do manage to line up the deck chairs in a somewhat more efficient manner. (mm)