Editorial: Property tax plan could create new problems

Published Feb 3, 2013 at 04:00AM

Oregon voters succeeded in limiting property tax increases when they passed Measure 50 in 1997. Unfortunately, they also set the stage for substantial tax inequities.

The League of Oregon Cities is proposing a fix for that problem. Unfortunately, the fix could result in substantial tax increases when properties are sold, and it would add another layer of inequity.

Measure 50 set a property’s taxable value at 90 percent of its 1995-96 market value, and it created a complicated process to determine the taxable value of properties built later. Once established, the taxable value could increase by only 3 percent a year. That created a limit to tax increases and a predictability to tax bills. So far so good. But it also created inequities, as two properties with similar sales values ended up with significantly different taxable values.

The league is proposing to solve the problem by having taxable value reset to sales price whenever a property is sold, starting in 2017. Over time, it would gradually eliminate the disconnect between market and taxable value, eliminating the current inequities.

It’s true that over time — a long time — all the properties in a region might sell and have their taxable values reset. In the meantime, though, the plan would add an additional inequity in tax bills between properties that have sold and those that have not.

Properties that have sold would face tax increases if the sales price is higher than the taxable value, which is common, though less extreme than it was before the recession. The Legislative Revenue Office estimates statewide local property taxes would increase by $92 million in just the first year, hitting $1.1 billion over 10 years. While that could be a boon to local governments, it’s not what voters had in mind when they set out to limit increases in their property tax bills.

The league has correctly identified an important problem, but we’re not as sure it has found the best solution. Oregon’s taxing system is a hodgepodge of measures aimed at specific problems that have lead to complex and unintended consequences. Legislators need to examine a variety of possible solutions before sending this one to the voters.