Study finds property tax relief can be spotty for homeowners
Homeowners are getting lopsided benefits from Oregon property tax limitations, driving up home prices in North, Northeast and Southeast Portland neighborhoods while driving them down in East Portland and East Multnomah County.
That's the key finding from a study of Portland home sales from 2010 to 2013, commissioned by the League of Oregon Cities.
The study, conducted by Portland State University's Northwest Economic Research Center at a cost of nearly $25,000, found homes sold in North, Northeast and Southeast neighborhoods sometimes sold for tens of thousands of dollars higher than they otherwise would, because of low assessed values that keep property tax bills lower.
Conversely, homeowners in East and Northwest Portland are fetching lower home prices than they otherwise would, because their homes have higher property tax assessments that drive up their tax bills.
"The differences we see in property taxes aren't targeted for those who are most in need of tax relief," says Chris Fick, policy analyst for the League of Oregon Cities. "Instead, our system is just as likely to be giving a tax break to a lawyer buying a home in North Portland and offering no relief to a low-income senior in East Portland."
That same scenario exists in Gresham. The city's property tax rate is one of the lowest in the state, but the same trend as seen in Portland is in effect in the Gresham area, Fick said, and property values are kept low.
"It's the same effect the farther you head east," he said. "Folks in Gresham are paying taxes on a higher percentage of their property's value. According to the research, that's having a negative effect on home prices."
It's common for inner North and Northeast Portland homeowners to pay property taxes based on 40 percent or less of their home's true market value.
Conversely, most East Portland homeowners pay taxes based on assessed values that are closer to their actual home value. "These people are not getting so much of the benefit from the property tax policies," says Tom Potiowsky, director of the Northwest Economic Research Center and former state economist. "It depends on where you bought your house, is how you get your benefit."
The disparities stem from Measure 47, the "cut-and-cap" property tax limitation authored by initiative activist Bill Sizemore and approved by voters in 1996. That rolled back property assessments -- the value on which taxes are based -- to 1995 levels, then cut them another 10 percent. Future increases in assessed values were limited to 3 percent a year.
To remedy glitches in Sizemore's measure, the Legislature referred Measure 50 to voters in 1997, which corrected the glitches but left most of Sizemore's provisions intact. Voters approved the measure.
Inner North and Northeast Portland homeowners scored the biggest bonanza from the two measures. That's because county assessors had just finished walking the streets of that part of town to set new tax assessments house by house, but the physical reappraisal was nullified when values were reset at 1995 levels. So inner North and Northeast Portland assessed values were the most outdated when Measure 47 took effect. Coincidentally, those also had the most gang-afflicted neighborhoods that depressed property values, and later experienced the most gentrification and home price increases.
Property values shot up way more than 3 percent a year in those and other close-in neighborhoods, much faster than the rise in assessed values.
But home prices in East Portland didn't rise much faster than 3 percent a year, so assessed values largely kept pace with market values.
The PSU study found that homeowners selling a typical $313,995 home assessed at 45 percent of that amount saw a sales-price bump of $6,209 to $30,834. The sellers of a similarly valued home assessed at 75 percent of the market value saw their sale price fall $3,104 to $15,417.
The shift in sales price, up or down, could be even greater in many cases. A 2010 study by the Legislative Revenue Office found that Multnomah County had the most inequities in property tax assessments in Oregon. Assessments for about 4,700 Multnomah County homeowners were set that year at less than 20 percent of their homes' market values, while about 1,150 homeowners were assessed taxes on more than 90 percent of their home values.
It stands to reason that unequal property tax assessments can skew home prices. If a homebuyer finds a home he likes in North Portland with property taxes costing $200 a month less than a similarly priced East Portland home, the North Portland home is more affordable, and thus easier to qualify for a home loan.
The PSU study is the first to calculate the impact of those inequities on home prices.
"I think it's pretty evident that our property tax system is manipulating the housing market," Fick says.
Targeted tax relief
The League of Oregon Cities worries that some property owners are now more cautious about approving local government property tax measures. "They're more hesitant to do so because they're going to be picking up an inordinate amount of the taxes," Fick says.
The league wants to educate homeowners about the problem, he says, in hopes of eventually putting forth solutions to end or ease the disparities. The group would be interested in promoting a "more targeted tax relief program," Fick says. Examples might be a homestead exemption that gives people a pass on paying any property taxes on, say, the first $50,000 assessed value of their home, or a rebate on taxes based on need. Another idea would be to let assessed values gradually rise back to actual market values, but limit the annual increases, he says.
The league pushed two proposed constitutional amendments in the 2013 Legislature, both of which would require voter approval. But neither advanced far.
There's still a lot of voter support for tax limitation in Oregon, which dates back to voter approval of the state's first major property tax limitation, Measure 5, in 1990.
That measure, coauthored by Don McIntire, lowered property tax rates to no more than 1.5 percent of assessed value, plus any voter-approved bonds. McIntire, who has since died, often complained that his rival Bill Sizemore messed with assessed values, causing distorted benefits depending on where people live.
But Jason Williams, executive director of the group founded by McIntire, the Taxpayer Association of Oregon, says the League of Oregon Cities likes to blame Measures 47 and 50 for the problem while proposing remedies that whack away at Measure 5, which didn't cause the problem.
Oregon's property tax limitations are the main force keeping public spending in check in local and state government, Williams says.
"If we're going to raise taxes, why can't they fix their spending problem first?" he says. "It's not my grandma that's the problem."
Gresham Outlook reporter Beverly Corbell contributed to this report.