Property tax limits weaken services in Oregon

August 1, 2018By Daniel Hauser

[This commentary first appeared in The Portland Tribune.]

Oregon is a case study of what can go wrong when states artificially limit property taxes. A new national report finds that property tax limits have hamstrung the ability of local communities to fund schools and other services that boost opportunity, while exacerbating racial and economic inequities. Oregon is no exception.

Property taxes are the principal way for local governments to fund the services their residents care about. They pay for libraries, parks and public safety, for example. And until a couple decades ago, property taxes were the main source of funding for Oregon public schools, though they still account for a significant source of education funding.

Property taxes in Oregon began to tumble in 1990, when voters enacted Measure 5. It was the first of three property tax restrictions 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 a recent report from the Center on Budget and Policy Priorities, a non-partisan research institute based in Washington, D.C.

Oregon schools have never recovered from the damage wrought by the property tax limits enacted in the 1990s. The Oregon Legislature failed to fully make up for the drop in school funding from property taxes, 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 also declined as a share of local revenue. This forced local governments to look for other sources of revenue to pay for basic services.

In the case of Oregon, local governments turned to fees. In 1977, fees and charges made up 16.7 percent of all the revenue local governments in Oregon collected. By 2015, that share had risen to 26.6 percent.

Fees hit low-income residents, who are disproportionately people of color, especially hard because fees 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 new report explains.

Meanwhile, higher-income and white individuals are more likely to benefit from suppressed property taxes. The owners of high-value homes, who are more often white, have received the greatest property tax discounts.

The inequities of Oregon's current property tax system go even further. Measure 50, enacted in 1997, severed property taxes from real market value and tied it to an artificially created "assessed value." The measure set the starting assessed value of a property at its 1995 market value, discounted by 10 percent, and limited increases to no more than 3 percent annually. Over time, neighbors with properties that fetch the same price have ended up paying vastly different property taxes. The big winners have been homeowners — mainly white and affluent — in rapidly gentrifying areas.

Changes to the property tax system are politically difficult. In recent years, there have been sensible proposals to untangle the mess that is Oregon's property tax system. Unfortunately for Oregonians who depend on schools, libraries, and other local services, those proposals have quickly and quietly died.

If Oregonians want local governments that can respond to the needs and aspiration of its residents in an equitable way, we must improve our property tax system.

Posted in Taxes.

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