(Oregonian (Portland, OR) Via Acquire Media NewsEdge) March 19--Oregon's quirky property tax rules don't just unevenly discount tax bills, they also affect home sale prices, according to new research funded by the League of Oregon Cities.
The study, conducted by the Northwest Economic Research Center, examined what the uneven property tax discounts established by Ballot Measures 5 and 50 do to sales prices.
Researchers found that central Northeast Portland neighborhoods such as Boise and Eliot were winners, with low taxes leading to high sales prices, while outer Southeast Portland neighborhoods such as Lents and Centennial had higher taxes and lower sales prices.
"Our research clearly indicates that property owners with arbitrarily low property taxes receive a boost in property values," NERC Director Tom Potiowsky wrote in a news release. "Oregon's property tax system creates a hidden subsidy for these property owners and shifts the burden of local services on to others."
The source of the inequities is 1997's Ballot Measure 50, which established an "assessed value" equal to 90 percent of a property's 1995-96 market value. Property taxes are based on the assessed value unless the market value is lower.
Assessed values can grow by only 3 percent each year. In neighborhoods that have seen huge gains in property values over the past 20 years, assessed values are far below market values, offering a tax break relative to other neighborhoods.
In the Boise neighborhood, average assessed value is 28.1 percent of market value. Five miles away in Bridgeton, near the Interstate 5 Bridge, average assessed value is 95.8 percent of market value.
The discount Boise residents get relative to their neighbors leads to higher sales prices as homebuyers compete for houses with low property tax bills.
In one case study, the researchers examined how the tax system could affect the price of a 1,600-square-foot home. In areas where assessed value was 45 percent of market value, the study found the tax discount could add as much as $30,834 to the home's price. In an area where assessed value was 75 percent of market value, the bigger tax bill could reduce the price by as much as $15,417.
The study is the first to prove what Carolyn Weinstein, a principal broker at The Hasson Company has seen play out for years: Buyers conscious of the disparity zero in on inner Northeast Portland homes.
"It's just not equitable," Weinstein said.
Rep. Jessica Vega Pederson, D-Portland, said her constituents in outer Southeast Portland want better parks, sidewalks and jobs. But the property tax system is working against them.
"All of those things are impacted by the willingness and ability of people to buy houses in the neighborhood," Vega Pederson said. "And the current property tax system puts us at a disadvantage."
While the report focused on Portland, property tax valuation is a patchwork mess statewide.
The League of Oregon Cities has been trying to reform the system for years, but voters are wary of accepting changes that could dramatically affect their property tax bills.
During the 2013 legislative session, the league tried to get lawmakers to refer a number of reforms to the ballot, but dismal opinion polling killed the effort.
Chris Fick, a lobbyist for the league, said he hopes that as more people learn about how the labyrinthine tax system affects their bills -- and their home's value -- they may be more willing to consider a fix.
"In the public opinion research we've done, we find that the more people learn about the system, the more they're open to reforms," Fick said.
Gov. John Kitzhaber is working with the state's top labor and business groups to develop a comprehensive tax reform package. Fick said he hopes that effort takes a crack at fixing the property tax system, but the league won't give up on its own efforts.
"If a broader tax reform package doesn't materialize, then we'll probably come back with some more ideas on how to improve this system," Fick said.
-- Christian Gaston
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