Oregon is a case study of what can go wrong when states artificially limit property taxes. Examining the experiences of Oregon and three other states, a new national report from the Center on Budget and Policy Priorities (CBPP) finds that property tax limits hamstring the ability of local communities to fund schools and other services that boost opportunity, while exacerbating racial and economic inequities.
Property taxes in Oregon have tumbled since 1990, when voters enacted Measure 5, the first of three property tax limitations put in place that decade. Property taxes fell from 4.7 percent of personal income in 1990 to 3.2 percent in 2015— a drop of nearly one-third — according to the report.
“Oregon schools have never recovered from the damage wrought by the property tax limits enacted in the 1990s,” said Daniel Hauser, Policy Analyst with the Oregon Center for Public Policy. “The Oregon legislature failed to fully make up for the loss of property tax revenue, and a whole generation of Oregonians have paid the price.”
Oregon is not alone in this respect. Property tax limits began proliferating in the 1970s, and now a majority of states impose some kind of restriction. As this was occurring, state and federal funding was also declining as a share of local revenue, the report explains. This forced local governments to look for other sources of revenue to pay for basic services such as police, fire, and public health.
In the case of Oregon, local governments turned to fees. In 1977, fees and charges made up 16.7 percent of all the revenue that Oregon local governments collected on their own. By 2015, that share had risen to 26.6 percent.
Fees hit low-income residents, who are disproportionately people of color, especially hard because they represent a larger share of their income. A “$50 fee to participate in the school band is harder to pay for a parent working at minimum wage than for a millionaire,” the report explains.
Meanwhile, higher-income and white individuals are more likely to benefit from the limits. The owners of high-value homes, who are more often white, receive the greatest property tax discounts.
“State property tax caps constrain funding for critical local services like schools and roads. That alone should be reason enough for states to repeal or relax these limits,” said Michael Leachman, Senior Director of State Fiscal Research at CBPP. “But it’s even worse, because property tax caps also exacerbate racial and economic inequalities. The good news is there are other, more sensible ways for states to reduce or control property taxes — without leading to dramatic disinvestment in services or increasing inequality.”
State policymakers who want to relieve property taxes, the report recommends, should focus on creating or strengthening “circuit breakers” (which refund households whose property tax payments are deemed unaffordable) or homestead exemptions (which exempt a flat amount of property value from taxation). Those strategies should be coupled with state actions to equitably raise revenue for adequate investment in schools and other critical services.
The Oregon Center for Public Policy (www.www.ocpp.org) is a non-partisan, non-profit institute that does in-depth research and analysis on budget, tax, and economic issues. The Center’s goal is to improve decision making and generate more opportunities for all Oregonians.
