Another contribution from Fred Thompson:
Measure 50, which was enacted in May 1997, did the
following:
1.
Locked existing statutory property tax rates in
place;
2.
Rolled residential property tax assessments back
to whichever was less — assessments for the tax year beginning July 1, 1995,
reduced by 10 percent, or for the tax year beginning July 1, 1994; and
3.
Limited future increases in tax assessments,
except for new construction or additions, to a maximum of 3 percent per year.
4.
Set the maximum assessment equal to whichever
was less: the previous year’s assessment plus three percent or real market
value.
Looking at detailed data from Multnomah County, it is clear
that under Measure 50 assessment quality is deteriorating, with most of the
deterioration occurring after 2008, when, according to the Case-Shiller index,
the median Portland home lost nearly 30 percent of its value.
Unanswered Questions
That assessment quality materially deteriorated in Oregon
after 2008 raises the question: can something be done about it, without at the
same time sacrificing the tax stability and predictability brought about by
Measure 50? The League of Oregon Cities argues that the variance in
tax-assessment ratios is driven primarily by differences in the rates at which
properties have appreciated since 1994 and that this problem could be fixed by
adopting California’s system of resetting assessments to market value upon
resale.
In contrast, Measure 50’s architect, tax-activist Bill Sizemore,
claims that this device, if adopted, would simply make things worse. Oregon’s bien pensants are predisposed to
question anything Bill Sizemore says, but the California data tend to support
his claims.
Oregon’s tax assessors are equally concerned with the
ongoing deterioration in assessment quality and many of them also support
reassessment on resale, but with a twist. When new construction occurs in Oregon,
the property is given an assessed value based on its market value, but County
assessors use what’s they call the “changed property ratio” to calculate the
new assessed value. The “changed property ratio” is simply the ratio of the sum
of the county’s tax-assessed value to the sum of its real market value, i.e.,
the countywide average (or mean) assessment ratio, existing at the tax census
date. Each year, the ratio is updated. A property’s new tax assessment is its
market value multiplied by the changed property ratio. For example, a new
residence built in Multnomah County the 2014-15 tax year would be assigned an
assessed value equal to 73 percent of its market value (as shown in the
following table). Several county assessors have proposed resetting assessment
to market on resale using the changed property ratio to calculate the new
assessment. They argue that this would preserve the benefits associated with
Measure 50, promote assessment quality, and largely forestall the lock-in
problems associated with California’s Proposition 13.
Testing these Claims
My colleagues, Kawika Pierson and Robert Walker, and I
simulated the effects of implementing the League of Oregon Cities’ reset
proposal and of implementing reset using the changed property ratio for all unchanged,
single-family residences in Multnomah County from 2003-2012. We calculated mean
assessment ratios (the ratio of tax assessed value to market value) and
standard deviations for each year and compared the results of the simulations
with actual outcomes. The results are shown in the following table.
This table shows that, during 2005-8, when market values were
increasing faster than three percent per annum, the standard deviation of
assessment ratios actually declined in Multnomah County, when new construction
is excluded (although it increased somewhat relative to the mean assessment
ratio). After 2008, when market values were falling, it increased substantially
(both absolutely and relatively).
Had tax assessments been reset on resale of properties using the changed property ratio, they
would have fallen faster before 2008 and increased more slowly after. Both are
improvements over the status quo.
In contrast, reset to market
would have increased horizontal inequality in tax assessments during both
periods. Much against our inclinations, we have to count this one for Bill
Sizemore. Indeed, if anything this simulation probably underestimates the
effects of reset to market, insofar as it implicitly presumes that tax
assessment would have no effect upon transactions. That is surely not the case.
The evidence from California indicates that lock-in tends to increase with gap
between assessed value and market value, which, if instantiated, would make
worse an already bad outcome.
Bottom line: go with the county assessors’ proposal not that
of the Oregon League of Cities.
