It was simply a discussion item on the September 20 agenda of the Senate Interim Committee on Finance and Revenue, but the fact that the subject of “property tax relief” was there at all shows the determination that Chair Mark Hass has to push a reform plan forward.

He repeated his primary goal of eliminating “horizontal inequities” created by Measure 50 (1997); that is, residential properties of the same real market value being taxed at dramatically different amounts. Maximum assessed value grows 3 percent annually for most properties regardless of what is happening to market value. This means that properties with rapid market value growth over time will be “under assessed” compared to properties with slower market value growth. The differential impact of the residential real estate boom between 1998 and 2006 exaggerated this effect.

Chair Hass would like to maintain the rated-based system created by Measure 5 (1990), but have rates applied to the real market value of the property.

Given the widespread and significant disparity between the assessed value of properties and their higher real market values, property taxes would rise considerably with a straight switch to the tax rate applied to actual values. Chair Hass would like to keep a new property tax system as revenue neutral as practicable by use of a homestead exemption.

Not only will it be difficult to convince voters, who must approve any reforms because Measures 5 and 50 are embedded in the Constitution, but constructing a fair homestead exemption statewide is a knotty task. The median real market value of improved residential property is different in virtually every county. The range is illustrative: $52,000 (Wheeler) to $340,000 (Multnomah).

The general structure of a homestead exemption:

  • Exempts a specified amount or percentage of the home’s assessed value
    from taxation, which can be tailored to geographic conditions.
  • May provide an exemption from all or specified levies, e.g., schools.
  • Is available only to owner-occupied property.
  • Can be targeted to certain groups; e.g., lower income, veterans,
    elderly.
  • Is administered by the county assessor and tax collector, but may
    require an application process.

The other category of means to equalize taxation on real market value is a “circuit breaker.” A circuit breaker provides households with property tax relief that generally increases as household income declines or as the property tax liability increases as a share of household income. For counties and other local governments the appeal of a circuit breaker is that the state, which after all imposed the policy to lower property tax
revenue so vital to local public services, can fund it out of the income tax. Circuit breakers can be made available to homeowners and renters, but may require eligible recipients to apply for it and may even require a new administrative structure. Further, the relief will come later than the property tax liability.

Stay tuned to Oregon Trails to follow developments.

Contributed by: Gil Riddell | AOC Policy Manager