How Ballot Measures Affect Your Property Taxes
In the 1990’s, voters passed two property-tax limitation ballot measures that fundamentally changed our tax system.
The first measure, Measure 5, limited growth in tax rates. Specifically, this measure placed an upper limit on the total rates that are used for calculating property taxes. All the local government taxing districts (city, the county, Metro and special districts) that together serve a particular property are limited to charging no more than a total of $10 per $1,000 of the property’s Real Market Value (RMV). All the educational districts that serve that property are limited to charging no more than $5 per $1,000 of RMV. Local option levies for additional operating expenses in these districts are included under the districts’ Measure 5 limits.
The second measure, Measure 50, changed how property taxes are calculated. Because of Measure 50, tax rates are now applied to a property’s Assessed Value (AV), which is usually less than its Real Market Value (RMV). (Measure 50 set Assessed Values at 10% less than their 1995-1996 Real Market Values. When new properties are added to the tax rolls, their Assessed Values also are set lower than their Real Market Values, to give them the same relative tax breaks as similar existing properties.)
In addition, Measure 50 limited the growth of Assessed Values to 3% a year. (It also required that a property’s AV can never be more than the RMV.) This means that the AV of most properties in Multnomah County will grow by 3% a year. Therefore, under most circumstances, property taxes can increase by at least 3% a year.
Measures 5 and 50 work together to keep property taxes from growing too fast. However, when voters pass bond measures or local option levies, property taxes may increase more than 3% a year.
Tax Effects of Approving Bonds
Passing bond measures generally increases property taxes, unless the bonds just replace retiring bonds. This is because Measure 5 made an exception for the taxes that pay the debt on government bonds. Bonds are used for “capital” improvements – new or improved buildings, roads and equipment. Governments ask voters to approve the total funds they need for a capital project. If the bond measure passes, the government finds the best interest rate it can get for borrowing the money. Measure 5 did not limit the rates governments have to pay (and then charge taxpayers) for bond interest and principal payments.
Tax Effects of Approving Local Option Levies
A new local option levy will add a new tax rate to the other tax rates that affect each property. Thus, passing local option levies can increase taxpayers’ property taxes. However, the amount of increase is often different for different properties. Here’s why. Although Measure 50 required that tax rates must apply to assessed values (AV) – not real market values (RMV) – it did not change the way the Measure 5 limits are calculated. The Measure 5 limits still apply to each property’s RMV, not the AV. Because the RMV is usually higher than the AV, the total of the tax rates for a property’s local government taxing districts can be greater than $10 per $1,000 of the AV -as long as it is no more than $10 per $1,000 of the RMV. The difference between a particular property’s AV and its RMV will make a difference in how much the new operating levy increases the taxes for that property. Properties that have a much higher RMV than the AV are likely to pay higher taxes for the levy. When a property’s AV is closer to its RMV, the Measure 5 limits will hold down or “compress” the total tax rate, by limiting the taxes to $10 per $1,000 of RMV for local governments (or $5 for education districts). A chart at the end of this page shows how two different properties would be affected by this “compression.” It also shows the amount of loss of revenue to tax districts from compression.
The Effect of “Compression” on Local Governments and Schools
Although measures 5 and 50 reduced and stabilized property taxes for taxpayers, they also limited the tax revenues that the taxing districts use to provide services. Measure 50 required that taxing districts adopt permanent tax rates that cannot be changed. If a district needs more money for operations, it must ask voters to approve a temporary local option levy. If approved, the new levy’s tax rate is added to the tax rates of the districts and levies serving each property. In many cases, the sum of all the permanent and temporary tax rates exceeds $10 per $1,000 RMV for local government (or $5 per $1,000 RMV for education districts). Because of property tax limits, the taxes for some properties will be compressed. Therefore, the revenue going to all the local option levies also will be “compressed” or reduced proportionally. This means that all the current levies – those previously approved, plus new levies – will receive less money. On the other hand, each levy should gradually receive more revenue each year, as the assessed values of the affected properties increase over the levy’s term.