From the Register-Guard
EDITORIAL: Don’t count on lower taxes
Declining property values won’t affect most bills
Posted to Web: Tuesday, Jun 9, 2009 06:01PM
Appeared in print: Tuesday, Jun 9, 2009, page A8
A recent phone conversation drifted into the topic of real estate, with the caller lamenting that the value of her home had declined by tens of thousands of dollars. But she saw a silver lining: “At least my property taxes should go down.”
She shouldn’t count on that.
Oregon’s property taxes are calculated on the basis of assessed value, not real market value. Although the market values of most properties have gone down in the past year, assessed values are allowed to increase by 3 percent annually. Falling real estate prices won’t affect property taxes unless real market values decline below the level of assessed values, which would take a far bigger drop than has occurred to date.
Lane County Assessor Annette Spickard says residential properties’ average assessed values are about 60 percent of their real market values. In a few cases, such as manufactured homes that have depreciated steeply, reductions in property taxes could occur because real market values have slipped below assessed values. For most property owners, however, the gap between real and assessed values is so wide that fluctuations in price have no effect on taxes.
Oregon’s property tax system used to be simple: If the value of property in a taxing district rose, the tax rate would decline, and if the amount of the district’s levy increased the tax rate would go up.
Voters made the system more complicated in 1990 by approving Measure 5. This constitutional change limits tax rates to $5 per $1,000 of property value for schools and other education-related tax districts, and $10 per $1,000 for cities, counties and other districts.
In 1996, voters approved a second property tax limitation initiative, the principles of which were incorporated into a cleaned-up version submitted to the voters as Measure 50 the following year. Measure 50 limits the annual growth of assessed values to 3 percent, putting in place the dual system of diverging real and assessed values. Because what matters for tax purposes is the assessed value, and because taxes are largely determined by the capped rates, fluctuating real estate prices have no effect on most people’s property tax bills.
For the same reason, tax bills don’t go down when a construction boom adds taxable property to the tax rolls: The same rates apply as before. The exception is property taxes collected to repay bonds, which are exempt from the Measure 5 rate caps. New construction allows taxes for a bond measure to be spread more widely, resulting in a lower tax rate. Because taxes for bonds are a minor component of most people’s tax bills, any such reductions are usually modest.
The property tax system is not entirely unaffected by the real estate market. The Measure 5 tax-rate caps apply to properties’ real market values, not their assessed values. When the price of property declines, the property tax rate goes up. And if taxing districts’ combined rates exceed the cap, the rates are reduced proportionately. The situation is known as compression, and it could occur in some local taxing districts. By law, local option levies are the first to be squeezed when compression triggers rate reductions.
But a person who has seen the value of her home shrink by 10 percent should not expect to see a corresponding reduction in property taxes. Oregonians have built a property tax system that is largely divorced from real world property values.
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