Oregon House Passes Hidden Property Tax Increase

Real Estate and Land Use

5/26/2017 by Michael Mangan

Oregon House Passes Hidden Property Tax Increase
The Oregon House of Representatives just passed a bill (now headed to the Senate) that will significantly increase property taxes in some Oregon cities. House Bill 2088 allows cities to pick the method for determining a property's taxable value after a change occurs to that property, e.g. a remodel or addition. Although you cannot tell from reading the Bill, the practical effect will be a hidden property tax increase.
The taxable value of a property that undergoes a change (called a "changed property") is calculated based on a complex formula, called the Changed Property Ratio. The formula is partly based on property values within a geographical "area," which has historically been the county where the property is located. HB 2088 would allow a city to use the city itself – and not the entire county – as the "area." Of course, a city will only use the new method if it results in an increase in the taxable value and tax liability for any "changed property" within that city's boundaries.
The City of Gresham has told me that it is sponsoring this Bill because it wants to address the high levels of "horizontal inequities" between properties within city limits. I will explain horizontal inequities in my next post. The City believes that this Bill will make property taxes in Gresham fairer for all owners in the City. But as the Bill solves one inequity, others are created – and increased. And, of course, the City stands to benefit from the additional revenue that's generated if the Bill passes.
The Association of Oregon Assessors, which opposes the Bill, has testified that the tax liability for "changed property" could increase as much as 50 percent in cities opting to change the formula. These Assessors fear that the Bill will drive down new home prices and slow or stop development inside city limits.
They also oppose HB 2088 because it will increase inequities between property owners inside and outside of city limits. For example, informed homebuilders and developers would be incentivized to select buildable parcels just outside city limits to avoid these tax increases. But, owners already inside city limits who can't pay the additional taxes will be unable to update their properties.
This hidden property tax increase will hurt property owners, and it will hurt cities opting for the increase. Property owners who object to the increase can call or write to their state Senators and ask them to vote no on HB 2088. If the Bill becomes law, property owners – particularly those who live in Gresham – may want to call or write to their city councilors and ask them not to change their Changed Property Ratio.