Monday, November 4, 2013

Fred Thompson: Is your Property Tax Bill too High?

NOTE: I am in Brazil again for a short time to put a bow on the dual research projects I have going here - so once again the blog gets short shrift.  Luckily, Fred Thompson is back to save the day...


Recently our property-tax bills arrived. Many Oregonians were stunned by the increase from last year. There were two reasons for this year’s big jumps in property taxes, one legitimate, the other arguably less so. The legitimate reason is that a lot of homeowners (nearly 40 percent in Portland) are subject to Measure 5 compression. (Measure 5 compression sets in where combined statutory property tax rates for general government exceed 1 percent and/or statutory tax-rates for education exceed .5 percent and the property’s assessment ratio ≥ Measure 5 limit/STR.) Where that is the case, property taxes vary directly with real market values. If you’re subject to Measure 5 compression and the value of your home went up fifteen percent this year, your property taxes probably did too. Sorry about that! But your property tax bill is probably still a lot less than it would be if you were paying the statutory rate on your property.



The bad reason lies in how some county assessors have interpreted Measure 50. Among other things, Measure 50 stipulates that your assessment will be the market value of your property or 103 percent of last year’s assessment, whichever is less. You all know what has happened to home prices in Oregon over the last five years. According to the Case-Shiller home price index, median home prices maxed out at 187 in July 2007, dropped to a low of 130 in March 2012, and have subsequently recovered to 155 in June 2013. In many Oregon communities, the fall in house prices led to reductions in assessments.



For example, let’s say that in 2008 your home’s market value was $155,000 and its Measure 50 assessment was $125,000 and in 2009 its value dropped to $130,000. Consequently, your Measure 50 assessment would have increased to $128,750 and your tax bill would have gone up approximately three percent. Now let’s say that its value dropped to $125,000 in 2010 and remained there for three years. In that case, your tax bill would have gone down a bit in 2010 and stayed put in 2011 and 2012. Finally, let’s say your home’s value increased back to $145,000 this year. You would expect, given Measure 50, your assessment would go up three percent from $125,000 back to $128,750 and, therefore, your tax bill would too. That’s what the Oregon constitution says: “For tax years beginning after July 1, 1997, the property’s maximum assessed value shall not increase by more than three percent from the previous tax year.”

However, some assessors interpret the Constitution to mean that the maximum allowable assessment continued to compound at the rate of three percent per annum even when declining market values caused actual assessments to dip below that level. In which case, they reassessed your home to $144,900 and your tax bill went up more than 15 percent this year.

This outcome violates the logic of Measure 5, which sought to stabilize tax bills, fairness, since it penalizes property taxpayers with the highest effective property-tax rates, and the plain language of the law. It’s just not right.

3 comments:

Doug Gabbard said...

Compounding MAV in the manner you describe seems to be a clear violation of ORS 308.146.

Fred Thompson said...

Not really. ORS 308.146 reads: The maximum assessed value of property shall equal 103 percent of the property’s assessed value from the prior year or 100 percent of the property’s maximum assessed value from the prior year, whichever is greater.

Mathematically, this implies MAV is compounded at 103% per year. I just don't think this language is consistent with section 11 of the constitution.

By the way, mine isn't, but yours might be.

Fred Thompson said...

With the help of legislative counsel, the legislative revenue office, and Tom Linhares' Recent History of the Oregon Property Tax, I think I understand what happens to property taxes when market values fall below the Measure 50 cap and then pop back up again. I was wrong, when RMV starts up again, the 3 percent growth cap does not immediately go into effect. Rather, assessments increase with RMV until they reach MAV.

Anyone who believes that MAV continues to grow at a rate of 3 percent per annum is equally wrong. Rather, as Alan Dale, LC, explains ORS 308.146 (“The maximum assessed value of property shall equal 103 percent of the property’s assessed value from the prior year or 100 percent of the property’s maximum assessed value from the prior year, whichever is greater.") means that, "when AV is equal to RMV because RMV is less than MAV, MAV is not going up at all year-to-year, no matter what RMV is doing."

It is not now clear to me that any assessor actually believes that MAV continues to grow at a rate of 3 percent per annum when RMV (AV) is less than MAV. My source for that claim may have been confused. One important fact that I had wrong is that the relevant language in ORS 308.146 was not introduced by the 2007 legislation that amended ORS 308.146, but was there from the original 1997 legislation (Bill 2015) written to flesh out Measure 50.