Tuesday, December 17, 2013

Oregon's Recovery Continued in November: Unemployment Falls to 7.3%

Oregon's unemployment fell to 7.3% in November on the strength of 5,400 added jobs (on a seasonally adjusted basis). This drop in the unemployment rate occurred even with the labor force growing.  As the two graphs above demonstrate, we have been in steady recovery mode for an extended period and though we still have some way to go, we are doing well.

So what is the bad news?  Hard to say, the continued weakness in Europe is still a drag be we have moved away from outright crisis there.  Asia appears to have stabilized as well at least for now but the booming BRICS have cooled off.  All this suggests to me both continued slow growth and a evening out at something less than the pre-crash level of employment.  

Wednesday, December 11, 2013

Fred Thompson: The Latest Tax Plan

Fred Thompson checks in again:

Recently, two very able young legislators, Sen. Mark Hass and Rep. Tobias Read, authored a blueprint for state/local tax reform in Oregon. This is quite remarkable. Who can remember a major reform emanating from the sapless branch of our state government, not forced upon it by popular initiative?

The centerpiece of Hass-Read proposal is 5 percent sales tax combined with a substantial cut in personal income tax rates. They claim that adoption of their proposal would create 50,000 new jobs and raise nearly $500 million a year in net tax revenue. Frankly, I believe that the need for and the benefits claimed for this proposal are greatly over estimated. But that isn’t the subject of this blog. There is no need to beat a dead horse; the response to the main part of the Hass-Read proposal has been overwhelmingly negative, albeit largely uninformed. Rather, I want to speak to one of its elements, which has been given a generally positive reception, the $50,000 homestead exemption.

Chuck Sheketoff, executive director of the Oregon Center for Public Policy, for example, claims that Hass and Read “rightly recognize that property taxes take a disproportionate share of income from low- and middle-income households. So their plan includes a long sought-after homestead exemption to lower the property taxes of those with the least ability to pay them.” This claim reflects two very serious misunderstandings: first, that property taxes “take a disproportionate share of income from low- and middle-income households” and, second, that a homestead exemption is a good way to deal with the perceived inequities of property taxes.

No matter how you measure income, if property owners pay the tax, property taxes are inherently progressive. Real property ownership is much more unequally distributed than income. Ten percent of property owners (mostly corporations, which are owned almost entirely by the top quintile of taxpaying households and well over half by the top 1 percent) own 58 percent of the taxable property in Oregon by value (versus 35 percent of taxable personal income). The bottom 10 percent of those who own any property at all, own less than 1 percent of the total property value. Moreover, forty-plus percent of potential taxpayers in Oregon own no taxable property; very, very few have no income (think Phoebe and Joey from Friends rather than June and Ward from Leave It to Beaver).

In response, Chuck observes that “property taxes are not based on ability to pay – thus they are regressive. Two homeowners with homes of the same value and same property taxes … where the homeowners have different incomes make this clear. Exempting the first $50,000 of assessed value of property that is taxpayer’s owner occupied principal dwelling as proposed … would be good for low- and middle-income households. Who says it wouldn't?”

Chuck is clearly confusing horizontal and vertical equity. Tax progressivity is concerned with vertical equity, i.e., the income elasticity of tax payments. Where property taxes are concerned the best evidence is that the elasticity is > 1 (progressive). That the correlation between income (ability to pay) and tax payments is imperfect is a matter of horizontal equity. (Property taxes do poorly on that measure where AGI is the independent variable; they do about as well as income taxes where the Haig-Simons income definition – income equals household consumption plus the change in its net assets, the definition preferred by economists – is used; and somewhat better using permanent or lifetime income. In other words, these definitions affect the degree of covariance of income and property tax payments, but not the slope of the logged relationship, which measures vertical equity.) Besides, given the fact pattern Chuck cites, exempting the first $50,000 of assessed value of property would not affect the progressivity of the property tax. (The proposal could have a positive effect on the progressivity of the property tax, overall. I think there is a good that it would. However, you really cannot tell without running the numbers).

Ultimately, the progressivity of the property tax depends upon its incidence, which is debated, and not just the distribution of property ownership. According to the Institute for Taxation and Economic Policy, the bottom income quintile in Oregon pay an average of 4.4 percent of their income in property taxes while the top 1 percent pay only 1.9 percent. ITEP is probably wrong about that. In the first place they assume more of the tax is shifted forward to consumers than do most economists. Second, they ignore most of the property taxes paid by businesses and therefore business owners. I have a great deal of respect for ITEP's "Who Pays?" They have taken on a question nearly everyone else has ducked and I think their relative state rankings are probably pretty much spot on.

But the key issue here is whether property taxes are paid by property owners or by consumers/renters. ITEP assumes that a substantial portion of the tax is shifted forward to renters/consumers. Most of my colleagues do not agree. That doesn't mean ITEP is wrong, but on this point that they are wrong seems more likely than not. As for my second point, given that they were looking at all 50 states using Census and US tax data, I don't see how they had any alternative, but so far as we are talking about a specific state and tax, it’s not right.

There are inequities associated with property taxes, especially where homeowners have low or fixed incomes, cannot deduct their property tax payments from their income taxes, and do not fold their property tax payments into their mortgage payments. But many of the objections to property taxes go to their inconvenience (e.g., property wealth is not easily convertible into disposable income) or sound like special pleading (home ownership is different from owning other assets). As an economist, I would insist that anyone, who owns an asset, can convert it to cash, either by selling it or borrowing against it. I am not persuaded by the claim that if you sell your home, you won't have anywhere to live. If you take the standard deduction on your personal income tax, you are probably financially better off selling and renting (for a business that's comparable to a sale and lease back arrangement); if not, a reverse mortgage is currently a very attractive option, but there are a panoply of mortgage-backed, tax-deductible debt instruments available to property owners.

As for being different from other assets, homes are, but that is an argument for, not against, property taxes. Where residential property is concerned, the implicit cash flow accruing to homeowners, in the form of rents avoided, is exempt from income taxation. This exemption was vouchsafed when the personal income tax was established, in part, because state and local governments had already claimed the property tax base, by subjecting the returns to property ownership, and generally those returns alone, to a wealth tax (in this particular case it is easier to measure wealth, property value, than income, rents avoided, although they pretty much amount to the same thing). Fortunately, nearly everyone concerned avoided the double taxation that would have resulted if the feds had taxed the returns to real property or states/local governments had subjected financial assets to property taxes. The resulting division of tax powers is arguably one of the glories of America’s unique system of federalism.

So, how would I deal with the inequities of the property tax? Rather than exempting the first $50,000 of assessed value of property across the board, I’d address the fairness problem directly by linking the benefit to the personal income tax, which would make it a lot easier to calibrate its distributional properties to the precise ends sought. For example, the state could grant a tax credit equal to $750 (indexed for inflation) multiplied by their property tax assessment ratio (TAV/RMV) to homeowners who take the standard deduction on their personal income tax. Not only would this be targeted at the folks most unfairly treated by the property tax and have better distributional consequences than an across-the-board exemption, it would shift fiscal responsibility to the state where it belongs rather than further depriving local governments of resources.

Friday, December 6, 2013


Yes, a very good jobs report and, yes, still some way to go.  The US Unemployment rate dropped to 7% on the back of 203,000 new jobs created.  There is not much to dislike about this report, only hope that we can finally sustain the momentum.

Still, this graph from The New York Times Economix blog shows how much we lost and how slow we have been to recover…and were aren't there yet.

But even more interesting is the appearance our favorite state economist, Josh Lehner, makes again in the NYT blog for this fascinating graph which suggests that while our recovery might be slow compared to past US recessions, compared to other recoveries from crises, we are not doing too bad at all.

Go Josh!  In fact, bypass the NYTimes in general and go straight to Josh's post with has it all in three beautiful graphs.  

Thursday, December 5, 2013

Nelson Mandela, 1918 - 2013

Extraordinary man. Made the world a far better place.  May he rest in peace.

Monday, December 2, 2013

Oregon's Class Size Problem

As noted by The Oregonian's Betsy Hammond: "Oregon's student-teacher ratios, long some of the highest in the nation, rose to dramatic new highs of about 22 students per teacher in 2012-13, the state reported last week."  Here is the accompanying graphic (pity there are not national averages to compare):

But does this matter?  As with most things in social science the issue will never be entirely settled, but the weight of the evidence is solidly in the 'yes' column, something on which I have written extensively.

In fact the metric I think is probably the most appropriate that is directly ties to funding is the contact hours per student, which is the combination of school days and hours divided by class size.  Both of which appear to be important empirically.

Friday, November 22, 2013

Soccernomics: Timbers are Third Most Valuable Franchise, Who is Laughing Now?

There was some predictable guffawing round about the time Merritt Paulson was contemplating selling the Beavers baseball team and trying to get the city on board with the plan to convert Civic Stadium to a soccer-specific facility.  Soccer, they said, is never going to make it in America, what a stupid investment.

I defended him and the deal at the time and I have never regretted it.  But I was especially offended at the characterization of Paulson as a rich-boy rube that is going to take a bath on the MLS deal and take the city down with him.  Well, it has been a couple of years so let's take a look at where this whole cockamamy MLS-in-Portland thingy stands.

Forbes yesterday released its list of the most valuable MLS franchises and, yes, the predictable ones are at the top, Seattle and Los Angeles, but look which team is number 3:

The Timbers had an estimated revenue of $39 million in 2012 on operating income of $9.4 million.  If memory serves Paulson paid $20 million for the franchise fee for the Timbers, now the franchise is values at $141 million and on Tuesday MLS announced the newest franchise will be Orlando City who will pay $70 million.    Seems like a pretty shrewd investment - the Timbers could probably be easily sold for nine figures today - just four short years and a five fold return on investment (okay, there was a lot of other money spent on the stadium and such but still...).

Oh and on the field?  The Timbers are playing in the Western Conference Finals for a spot in then MLS cup on Sunday.  Go Timbers!

Thursday, November 21, 2013

Picture of the Day: Life Expectancy

Form the OECD via the Wall Street Journal:

The US is a year and a half below the OECD average.  Given how much we spend per-capita on health care, this is surprising, but when you thing about our private system on top of an ever increasing unequal distribution of income, perhaps not.  Plus, we are fat and eat a lot of bad food.

Anyway, the really shocking aspect of this is the abysmal situation in South Africa - 13 years below even India.  

Tuesday, November 19, 2013

Oregon October Jobs Numbers

Oregon lost 500 jobs on a seasonally adjusted basis after posting two very solid monthly gains 3,300 in September and 5,600 in August.  Government employment continues to drag on the overall recovery with government jobs declining by 1,000.

The Oregon unemployment rate fell to 7.7% (there was a loss of over 9,000 from the labor force) which is only slightly above the national rate of 7.3%.

So, not much new to say, Oregon has had a sustained recovery for quite a while now but the recovery can't seem to get out of second gear.  The sequester, dysfunctional federal government and continues weakness in Europe are not helping.  But at least the trehttp://www.olmis.org/pubs/pressrel/1113.pdfnd is upward....

Friday, November 15, 2013

Commuting Alone: The Answer

Last week I posted a graphic from the Wall Street Journal about how much commuting alone has increased in the US since 1980.  This struck me as at odds with the narrative of the new urbanism and the reclamation of urban cores in the 21st century.   I lamented not seeing the 2000 numbers and posited that the big move in the graph was more about 1980s and 1990s sprawl.

Well, fortunately, friend of the blog Josh Lehner looked it up and...sure enough the big jump was in the 80s and 90s.  In fact, the public transportation percentage has actually increased since 2000 as has the telecommuters.

So now you know.  Thanks Josh.

Tuesday, November 12, 2013

Econ Careers: Mergers and Acquisitions

This AP story, picked up by OregonLive, made me think of the oft asked question from prospective Econ majors: "what can I do with an econ degree?"  The story is about how the US Dept. of Justice has reversed course and is now ready to give its blessing to the US Airways - American Airlines merger:
The Justice Department says it has reached an agreement to allow American Airlines and US Airways to merge, creating the world's biggest airline.

The agreement requires the airlines to scale back the size of the merger at Washington's Reagan National Airport and in other big cities.

In August, the government sued to block the merger, saying it would restrict competition and drive up prices for consumers on hundreds of routes around the country.

The airlines have said their deal would increase competition by creating another big competitor to United Airlines and Delta Air Lines, which grew through recent mergers.

The settlement reached Tuesday would require approval by a federal judge in Washington. It would require American and US Airways to give up takeoff and landing rights or slots at Reagan National and New York's LaGuardia Airport and gates at airports in Boston, Chicago, Los Angeles, Dallas and Miami to low-cost carriers to offset the impact of the merger.
What happened in the interim? Well, a lot of economists made a lot of money.  You see every big M&A gets scrutinized by the government and a lot of economists employed by the DOJ analyze the impact of the proposed deal on consumers and the companies themselves hire big economics consulting firms like NERA to do their own analysis.

In the end lots of economists and lawyers get involved and try to hash out a compromise.  Some times they can't and they try and hash it out in court, but usually this happens: the economists and lawyers agree to a plan that satisfies the DOJ that there will not be undue impacts on consumers.

Clearly in this case there DOJ was concerned that the merger would leave quite a few markets with too little competition and so a remedy was agreed on.

The economic consulting business is booming and the salaries are fantastic - something to think about if you are considering the Econ major.

Tuesday, November 5, 2013

Picture of the Day: Commuting Alone in a Car

The Wall Street Journal has a fascinating look at commuting trends.  Here is the graphic that shows how much driving alone has increased since 1980 and how much public transit has fallen (despite all the fixed rail investments during this period).  But the really striking decline is in carpooling - I wonder why?:

I wish, however, this graph was done for the period 2000 to 2012 as well.  I would like to know how much is 80s and 90s sprawl and how true is the theme of new urbanism  in reality.  Anyone want to link to such data?

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.

Monday, October 21, 2013

Is Economics a Science?

Yes, says Raj Chetty:
But the headline-grabbing differences between the findings of these Nobel laureates are less significant than the profound agreement in their scientific approach to economic questions, which is characterized by formulating and testing precise hypotheses. I’m troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

That view is unfair and uninformed. It makes demands on economics that are not made of other empirical disciplines, like medicine, and it ignores an emerging body of work, building on the scientific approach of last week’s winners, that is transforming economics into a field firmly grounded in fact.
He then compares economics to medicine, which is a good example of another field fueled by scientific inquiry but with similar probelms of using 'social' data where cause and effect are hard to isolate.
Health researchers have worked for more than a century to understand the “big picture” questions of how diet and lifestyle affect health and aging, yet they still do not have a full scientific understanding of these connections. Some studies tell us to consume more coffee, wine and chocolate; others recommend the opposite. But few people would argue that medicine should not be approached as a science or that doctors should not make decisions based on the best available evidence.
He then goes on to talk about the advances in empirical economics that are driving the quest to find answers to these questions.

I think he is mostly correct though he overstates our ability to isolate causal links in data and over-sells the promise of economics experiments like those of Esther Duflo that are a lot different than in medicine as they are always in a specific context where the generalizablilty can easily be questioned.  [For example, you can easily question how applicable a specific educational intervention is to the rural northeast India villages in which it was conducted but the results of a test of a new drug among the same population is much harder to question]

On the other hand I think we are much easier to accept the limited evidence we have for health issues and act on the best available evidence.  In economics we suffer the delusion that we can find the real answer and only when we convince ourselves that we have do we feel comfortable to offer policy advice.

Monday, October 14, 2013

Are Asset Markets Rational? The Economics Nobel

Eugene Fama, Lars Peter Hansen and Robert Shiller are this year's Nobel Prize winners in economics [insert here the snark about how economics Nobels are not real Nobels].  From The New York Times:  
Three American professors — Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller — were awarded the Nobel Memorial Prize in Economic Science on Monday for competing theories about the movements of asset prices. The three men, who worked independently, were described as having collectively illuminated the financial markets by showing that stock and bond prices moved unpredictably in the short term but with greater predictability over longer periods. The prize committee said these findings showed that markets were moved by a mix of rational calculus and human behavior.
None of these folks is a surprise but the fact that Fama and Shiller have shared the prize is a surprise becuase in many ways Fama and Shiller are polar opposites. Fama is a died in the wool Chicago efficient markets type (aka freshwater - where markets are rational, forward looking and where bubbles don't exist, Shiller is a real saltwater type that challenges the idea that markets are always rational and efficient.

 That said the two are not contradictory. In large part Fama is correct about markets quickly incorporating information so that if you try to trade on what is on today's Wall Street Journal front page you are a sucker. Shiller's research could be described as challenging the notion that markets are operating with full information not that they process it badly.  For example the speculation on housing prices was part and parcel of a lack of a true understanding of the junky mortgages that were being written and the financial vehicles that were created with them.  In this sense traders might be boundedly rational: doing the best they can with the information available to them but having to make imperfectly informed decisions.

So in many ways it could be said that this Nobel prize is both a recognition of the seminal work of Fama that taught us that markets are incredible efficient at incorporating new information and Shiller's work that taught us to appreciate the lacuna in the informational environment in which markets operate.

Oh and what about Hansen? His contribution is more on the empirical side, allowing us to study asset price movements in data.  But almost all students of economics will have heard of his major contribution: the Generalized Method of Moments (GMM).

Kudos to all.

Thursday, October 10, 2013

Default Would be Bad

From the IGM Forum at the University of Chicago's Booth School of Business a question asked of 36 prominent economists, 31 of whom responded:

Question A: If the United States fails to make scheduled interest or principal payments on government debt securities, even as an unintended consequence of political brinksmanship, US families and businesses are likely to suffer severe economic harm.

[HT: NY Times Economix Blog]

Monday, October 7, 2013

Obamacare a Boon for Small Business?

Yes, or so says James Surowiecki of the New Yorker:
Of the countless reasons that congressional Republicans hate the Affordable Care Act enough to shut down the government, the most politically potent is the claim that it will do untold damage to the economy and cripple small companies. Orrin Hatch has said that Obamacare will be “devastating to small business.” Ted Cruz argues that it is already “the No. 1 job killer.” And the vice-president of the National Federation of Independent Businesses called it simply “terrible.” So it comes as some surprise to learn that Obamacare may well be the best thing Washington has done for American small business in decades.
The point is that private insurance market for health care, plagued by adverse selection was a huge obstacle faced by small businesspersons.  My brother is an example.  He ran is own Silicon Valley business for years until the cost of insuring himself, his wife and his kids was simply too costly to continue so he went to a corporate salaried job that came with an employer-provided health plan.

How big an effect will this be for the US economy?  Hard to say, but Surowiecki claims it will be large:, "our small-business sector is among the smallest in the developed world, and has one of the lowest rates of self-employment."  It is often argued that entrepreneurialism is a key factor in economic growth, if so this could have a substantial impact.  I am not equipped to judge.

To me, this was a interesting little historical tidbit that had heretofore escaped my attention:

The fact that most Americans get their insurance through work is a historical accident: during the Second World War, wages were frozen, so companies began offering health insurance instead. After the war, attempts to create universal heath care were stymied by conservatives and doctors, and Congress gave corporations tax incentives to keep providing insurance. The system has worked well enough for big employers, since large workforces make possible the pooling of risk that any healthy insurance market requires. But small businesses often face so-called “experience rating”: a business with a lot of women or older workers faces high premiums, and even a single employee who runs up medical costs can be a disaster.

I had not read this account of employer-provided health care. Not that it matters much for the current debate - it is pretty clear that we have an inefficient patchwork health care system whatever the origin.

Thursday, October 3, 2013

View from the Ground

A close friend who works for the VA counseling vets with PTSD and other mental health issues sent this outraged text yesterday (edited for content):
I'm working all day at our Portland "Stand Down" outreach for homeless veterans and other disabled veterans in need.  All our Veterans' Benefits counselors are furloughed at home with no pay.  We literally cannot process benefits claims...even for my suicidal patients!  People are going to die.  


Say what you want about the grand bargain it demonstrates what a governor can do when he/she exhibits strong leadership.  After eight years of largely tepid leadership from Ted Kulongoski, John Kitzhaber has shown himself to be a masterful leader.

And yes, there is lots for everyone to dislike in this grand bargain but as a advocate for school funding I am largely pleased (and in saying this I recognize that I have come a long way in accepting the political realities that distort good policy).  Public education in the state needed a strong champion and in Kitzhaber the state has found one.  Kudos.

Tuesday, October 1, 2013

Fred Thompson: Property Tax Assessment in Oregon

Another Dispatch from the desk of Fred Thompson:
Reliance on an ad valorem property tax is, perhaps, the most distinctive feature of the American tax system. Most students of public finance appreciate property taxes. Indeed, our foreign counterparts frequently view the US property-tax system with envy (although not our system of land registration). This is because property taxes are both fairer and more efficient than other taxes and also because high property taxes tend to promote high levels of civic engagement.
Unfortunately the comparative advantages of the property tax depend upon the strength of the relationship between tax payments and real property values. Where the linkage is strong, the tax does a really nice job of matching local tax burdens to the benefits that result from local public spending. Where this relationship is severed, the tax is neither fair nor efficient. Once upon a time, or so the City Club of Portland claims, Oregon had a property tax system that was the envy of the world, but as the result of a series of initiatives and referenda (Measures 5, 47, and 50), it is now a mere shadow of its former self. Is this claim correct? As will be seen, not entirely.
What Measure 5 did was cap property tax bills at 1.5 percent of market value (RMV) and reform the assessment process so that assessments accurately reflected market value. (The measure also shifted responsibility for school funding from local government to the state, but that is another story.) Measure 5 was enacted in 1990 and was scheduled to be fully operational in the 1995-96 tax year. Measure 50 was enacted in 1997,. It rolled residential tax assessments back to whichever was less: the last pre-Measure 5 assessment, that of 1994–95, or 90% of the 1995–96 assessment and limited future increases in tax assessments, except for new construction or additions, to 3 percent per year. We call this quantity ‘Measure 50 assessed value’ (M50AV); it is currently ≤175 percent of 1995 market value, which is on average about 60 percent of current market value. The actual assessment used for tax purposes (TAV) is the lessor of M50 and RMV. Currently the average statutory property tax rate in the state is about 2.2 percent. Consequently, Measure 5 limits are binding only where the ratio of M50AV/RMV is greater than 65 percent.

This is a pretty complicated arrangement and it has obviously attenuated the linkage between local property values and tax burdens (under Measure 5), but like most things the relevant questions are how much and compared to what? Fortunately, every exit is an entrance somewhere else. Oregon’s idiosyncratic property-tax arrangements have left us an extremely accurate system of measuring property values (RMV), a system of assessment that has held relative values constant for 17 years (M50AV), and a cap on property tax bills. These data allow us to answer several important questions: how good are current assessments, why aren’t they better, how fast do assessments degrade in the absence of reassessment and what drives this process?
Moreover, when measure 50 was enacted, it is unlikely that anyone thought about how it would operate in a recessionary environment. Although Oregon’s economy went through a deep slump from 2002-2004, housing inflation continued, steadily widening the gap between M50AV and RMV. But, as in much of the rest of the United States, home prices fell sharply after 2007. This had two effects. It narrowed the gap between M50AV and RMV, but, more importantly, it made Measure 5 limits binding on an increasing portion of homes. At present, Measure 5 limits go into effect when M50AV > 65 percent of TMV. The same data that allow us to understand the dispersion of MAV with respect to TMV over time and the direction and bias associated those measures, also allows us to assess the relationship between market valuation and tax payments over time and from the peak to the trough of the business cycle under Oregon’s property tax system.
Finally, these data would allow us to simulate the effects on dispersion and tax fairness of various policy modifications, including most importantly reassessment to RMV at title transfer, but of other policies as well, although we haven’t done that.
Looking at these data the first thing we learn is that most of the discrepancies between M50AV and RMV were present at the creation. Rolling assessments back to 1994-5 wiped out the gains in assessment uniformity from the more accurate methods mandated by Measure 5, as well as the capitalized increases in market values that Measure 5 triggered. As a result, the discrepancies we see now in TAR/RMV ratios from residence to residence largely reflect discrepancies that existed prior to the implementation of Measure 5. The figure to the right shows average assessment ratios by zip code from 2003 to 2012 (the shallow U shape reflects the fact that the numerator was growing at a more or less constant rate of 3 percent per year, while the denominator grew faster than nominator prior to 2008 and slower after or in many cases actually fell). Clearly the difference between zip codes is greater than the difference within codes, although how clear may not be apparent until you see the next figure). Consequently, it follows that most of the departures from assessment quality wrought by Measure 50 resulted from the rollback and not from post-enactment price movements.
This conclusion is reinforced when we look directly at the variance in the ratio of all TAVs to RMV and the coefficient of dispersion (CD) over time.  Again, the bottom line is that assessment quality didn’t degrade very much between 2003 and 2012 (the period for which we have data in individual residences). The standardized variance was 20 percent in 2003 and 22.5 percent in 2008; it deteriorated only a little faster after 2008, to >27 percent in 2012, Price depreciation has evidently been slightly more uneven than the earlier appreciation, when a rising tide did apparently lift all boats. Using the CD, assessment quality declined overall from 14 percent in 2003, to 18 percent in 2008 and 22.5 percent in 2012. Even so, overall assessment quality in Oregon is not measurably worse by this standard than it was prior to Measure 5 and is much better than in many earlier periods.
Moreover, looking at Multnomah County, the within zip code CDs are remarkably consistent over time and reflect good assessment quality. Across all zip codes, 1997 CDs explain 2/3 of the variation in 2012 CDs. The actual CDs ranged across zip codes from four percent to 26.3 percent in 1997 and from 5.7 percent to 25.7 in 2012. In 1997, CDs in two of 31 zip codes exceeded 15 percent, the standard established by the National Association of Real Estate Appraisers; by 2012 that standard was topped by only five.
The box and whiskers chart (above) shows the mean (the solid bar), the standard deviation (the box), and the range (the whiskers) of residential assessment ratios for each year from 2003 to 2012. Clearly, there was a fair amount of dispersion in assessments and, apparently, after 2008, the dispersion increased. One of the questions raised by this observation is whether or not assessments favor one class of residences or another. The Multnomah zip-code data tell us that there are substantial neighborhood effects. Does this imply, for example, that deviations from mean assessment ratios were or are biased in favor of high or perhaps low-value residences? Property appraisers use an instrument called the price-related differential (PRD) to measure this bias. A PRD equal to 1 indicates no bias; a PRD greater than 1 indicates a bias in favor of higher valued properties. From 2003 to 2010, the PRD was slightly less than 1 (.98 to .99); in 2011 and 2012, slightly greater than 1 (1.006, 1.014). This shift can be seen in the following figure; the assessment ratios of residences in the lowest quartile of value started lower or faster than did those in the higher value quartiles; more recently they have evidently lost value faster.
Note this does not necessarily mean that the owners of low-valued residences face significantly higher effective tax rates (where property taxes are concerned, the effective tax rate is found by dividing the tax bill by RMV) than the owners of higher valued properties. This is because more than half of the owners of low-value residences (the first quartile) are now subject to Measure 5 tax limits. In absolute terms, some have even seen a decrease in their tax bills as the result of Measure 5 tax compression.