Spot The Differences!

The Meyers and Sallos families live on opposite sides of Portland—and on the unequal ends of Oregon's property-tax divide.

Their two households have much in common. Both are headed by young professionals. Erica Meyers is a business manager at Wilson High School; husband Dan is an architect-in-training. Sol Sallos is a merchandise manager at Nike. Christine, his wife, is a part-time masseuse.

Both families bought a home last year for roughly the same price. The Meyers' Craftsman bungalow at the heart of the Northeast Alberta Street arts district cost $369,000. The Sallos' two-story home in the Southwest Hills cost just a bit more, $380,000.

That's where the similarities end. When their property-tax bills show up in the mail this week, they'll be treated with Oregon's version of discriminatory tax tyranny.

The Meyers household will be taxed $1,734. The Sallos family's bill: $6,356.

Two houses, purchased for roughly the same price last year. Yet one's property-tax bill is more than 3 1/2 times larger than the other.

"It's absolutely ridiculous," says Sol Sallos. "I don't have a problem with paying taxes. But if my home is worth $400,000, and someone else's is worth $400,000, we should be paying something close to the same in taxes."

Not in Oregon.

For Oregonians, this is a week when opening the mailbox can give bigger scares than Halloween. It's property-tax time.

For 950,000 homeowners, it's the biggest check most of us write all year. For many apartment dwellers, next year's rent hike will be determined in part by the size of their landlord's tax bill.

You might think a state as progressive as Oregon would see to it that property tax is levied in a fair fashion. After all, it's a serious chunk of change. Property taxes generate $4.1 billion a year in our state, and it's the keystone of public finance, paying for a portion of virtually every service we expect from local government, from cops to parks to public health.

Yet we have a perverted property-tax system that hits some neighborhoods far harder than others. Depending where you live, you might be paying four times more than another home across town that's worth the same amount.

"It's outrageous, it really is. It's just blatant unequal taxation," says state Sen. Ginny Burdick (D-Portland), chair of the Senate Finance and Revenue Committee.

Even conservative Republicans can agree.

"There's no question in my mind that the system is broken," says state Rep. Tom Butler (R-Ontario), vice chairman of the House Revenue Committee. "That creates huge inequities."

It's enough to make you want to dump your cappuccino in the Willamette in protest. Yet up to now, there's been no public outcry from Portlanders.

"People don't see the tax bills of their neighbors," says Chuck Sheketoff, head of the Oregon Center for Public Policy. "Not to say it won't happen, but in general, that's why it's not."

But as the gap between the lucky and the suckered continues to grow, more homeowners like the Salloses are waking up to a sobering fact—like rented mules, they've been saddled with more than their share of the tax burden. And for the most part, our politicians are doing nothing to stop it.

The exception? Political newcomer Ted Wheeler—the chairman of Multnomah County, who says he'll change the state's property-tax system or go down trying.

"I'm ready to put my reputation on the line to pursue this," Wheeler says.

Whoa, big fella.

First, get in the wayback machine and rewind to 1990. A savvy anti-tax activist and gym owner from east Multnomah County named Don McIntire got voters to agree with him to limit the amount of tax homeowners pay to $15 for every $1,000 their property is worth.

Not unlike capping a sales tax at a certain percentage, the initiative—called Measure 5—sought to restrain government but allow taxes to grow with the economy, measured by the value of property. It was a sensible proposal (to WW at least, which endorsed it), and it had the added benefit of equalizing school funding for rich and poor districts. It passed with 53 percent of the vote.

Six years later, enter Bill Sizemore, a conservative carpet salesman from Clackamas County with a grin like a lighthouse and a handshake as big as a honey-baked ham. He wasn't satisfied with Measure 5, because a property's value could still skyrocket. He argued you had to strap down the value of the home for tax purposes—in other words, limit the growth in what's called the assessed value.

So he got enough signatures to put Measure 47 on the ballot. It didn't change the tax rate. It just rolled back the assessed value of all property to their 1995 levels, minus 10 percent. And it reached into the future, saying assessed values of property can grow no more than 3 percent a year. WW opposed 47, yet somehow it still passed.

One year later, the Legislature tinkered with Measure 47 just enough to make the law workable, and its new version, Measure 50, passed in 1997.

Now, 10 years later, Oregon enjoys a booming real-estate market—and a property-tax system that's about as fair as the Patriot Act is patriotic. That's because, like a Pleistocene insect suspended in amber, Oregon's base property values are forever frozen in 1995—the year Jerry Garcia died, the Oklahoma City federal building was bombed, and Braveheart won the Oscar for Best Picture.

You don't need to be a progressive to think our property tax system stinks. You can think government ought to have less dough, or the same amount. It's still appalling.

Why? Because real estate doesn't all increase in value at the same rate. Yet our system limits the increase, for tax purposes, to 3 percent a year no matter what.

Consider neighborhoods along Mississippi and Alberta, in Boise-Eliot and elsewhere. Due to rapid gentrification, they've seen property values shoot up like the price of a Hannah Montana ticket. Yet our tax system makes no room for changes in real-world values, and taxes in those neighborhoods are a steal because they still reflect 1995 prices.

Meanwhile, folks in Northwest, on Sauvie Island, in outer East Portland and in the West Hills pay the highest property taxes in the city compared with what their homes are really worth.

Depending where you live, your home could be assessed at 25 percent of its real market value, or 70 percent. And that disparity will continue to grow wider as the years pass and real prices drift ever further from their 1995 levels.

Outside experts call it a perfect example of how not to design a tax code, because it's fundamentally inequitable.

"It undermines taxpayers' faith in the tax system itself," says Nick Johnson, an analyst at the Center on Budget and Policy Priorities in Washington, D.C. "One of the core principles of tax policy is what economists call 'horizontal equity,' which is that similarly situated taxpayers should pay similar taxes. Obviously, this violates that."

Take the Meyers and Sallos families, two households paying wildly different taxes for homes they bought the same year for about the same price.

Because assessed values are stuck in 1995, when Alberta was still a low-income neighborhood, the Meyerses' property today is assessed at just $79,510. The Sallos home in the Southwest Hills, where values were already high in the '90s, is now assessed at $291,910. Rates rise just 3 percent a year, even though the real value of the Meyers home grew far faster and is now equal to the Salloses'.

Confronted with the glaring inequities Measure 47 has produced, Sizemore told WW he still believes it was the right way to reform property taxes. As Sizemore points out, it stopped the big yearly surges that sometimes occurred when taxes were tied to real values. And it lowered everyone's taxes from what they would be otherwise.

As for the new inequities between neighborhoods, "those are the trade-offs you have for bringing predictability to the system," Sizemore says. "I think predictability is of greater value. I wouldn't trade it, and I don't think Oregonians would, either."

Of Sallos and others in the West Hills who feel wronged for paying more, Sizemore notes: "You know what? They may not have voted for my measure, either."

Not only is Sizemore's fix unfair and unequal, it may also be illegal.

"Eventually...you may have a basis for a class-action lawsuit among homeowners who are unfairly penalized," says Tim Nesbitt, Gov. Ted Kulongoski's deputy chief of staff and former head of Oregon's AFL-CIO.

Burdick agrees. "What really surprises me is that no one has sued," she says. "It's something that's always grated on me."

Republicans and Dems can't agree on much in this state. Not on charter schools, land use, or tough-on-crime issues. But many do smoke the peace pipe when it comes to the unfairness of the property-tax system.

Yet for all the talk, nothing's been done. "It's the tar baby that nobody wants to punch," says Butler, the Republican state rep.

That is, until Wheeler came along.

As head of Multnomah County, Wheeler has some political self-interest involved. County governments depend on property taxes to an even greater extent than cities, which get more money from utility fees, business licenses and hotel taxes than counties do. (State government largely runs on income-tax dollars.)

If you could free property taxes from the constraints of our existing system, county government, whose cost of doing business increases 6 percent a year, wouldn't be locked into a system where property can only increase in value 3 percent a year.

But even if you wanted to keep our property tax system "revenue neutral" (a fancy way of saying it would not raise any more money overall), Wheeler says the current system is unfair to many homeowners. And he predicts those inequities will continue to grow.

Wheeler's proposed solution takes a page from California's playbook. In 1978, voters in the Golden State passed Proposition 13, capping rates even more strictly than Oregon's at $10 per $1,000 of assessed value, and slowing growth of assessed value to 2 percent a year. (Oregon is at $15 per $1,000, remember, and 3 percent growth a year.)

But Proposition 13 had an important catch that our system lacks. It allowed local governments to reassess property back in line with its real market value, if and when the property changes hands.

That protects old ladies from losing their homes as property values rise—if you don't sell, your taxes are capped. But it also gives city and county budgets a boost by allowing them to assess real value on homes that sell in a hot market. Tax disparities arise from home to home if one of them didn't sell, but entire neighborhoods aren't strapped with higher taxes at random the way they are in Oregon.

At the time, Prop 13 became a bête noire among progressives, largely for its effect on funding for schools and social programs. But after a long list of failed efforts to undo it in the courts and the legislature, property taxes are now considered the third rail of Sacramento politics. There's little consensus among California's 37 million residents on whether Prop 13 is a good deal, but opponents have repeatedly failed to gather enough signatures to put competing tax measures on the ballot.

Now Wheeler wants to bring a Prop 13-style safety valve to Oregon, allowing property to be reassessed at market value if it sells. "I'm not asking for anything unreasonable, other than our tax be based on the reality of the market," he says.

Making it happen requires changing the state constitution, a process that would take years and require voter approval. Wheeler says he's starting slowly, meeting with leaders around the state and getting the rest of the Multnomah County commissioners on board.

Jeff Cogen, a new Multnomah County commissioner, likes the plan. "It's definitely worth exploring," he says. "The current system's definitely not working, as far as funding our basic services and with these basic inequities. This would help in both cases."

Even small-town Republicans are ready to sign on. "I think it's actually a pretty good idea," says Klamath County Commissioner Al Switzer.

Wheeler offers no timeline for when an initiative might go before voters. "It's an ambitious goal to assume that we could actually change the constitution," Wheeler says. "I am very willing to take a leadership role in this, but it's going to have to be more than just me."

Burdick, who took over as chair of the Senate Finance and Revenue Committee last month and will head a comprehensive tax reform committee, says she supports Wheeler's idea. "It should have been that way [from the beginning]," Burdick says.

Who’s got it best—and worst?

Multnomah County divides its property-tax map into neighborhood districts.

For low residential property taxes, records show the best neighborhood is No. 163 in inner Northeast Portland—a rectangle bordered by Northeast Killingsworth Street, North Williams Street, Northeast Fremont Street and I-5. On average, homes there are assessed at 24 percent of their real market value, the lowest rate in the county.

The highest residential property taxes are in No. 83, an L-shaped neighborhood in Northeast Portland bordering 148th Avenue, Halsey Street, 160th Avenue and the Banfield Expressway. On average, homes there are assessed at 70 percent of their real market value due to their relatively slow appreciation since 1995.

Source: Multnomah County Assessment&Taxation

EXCEPTIONS

Under Measure 47 and Measure 50, assessed values can grow only 3 percent a year. Properties are not reassessed when they're sold. The only exception is for improvements or new construction. Then the property is reassessed and the new value is added on, using a ratio that shrinks it down to Measure 50 levels rather than what the improvements are actually worth. New homes are assessed as if they'd been built in 1995.

Assessed value: The value of your property as set for taxing purposes—usually less than the real market value. In Oregon, assessed value can grow no more than 3 percent a year under Measure 50.

Real market value: The assumed value of a property if it changed hands from a willing seller to a willing buyer. Your property-tax bill will show this number—even though it has nothing to do with the amount of taxes you pay and in many cases is lower than what a property would actually fetch on the market today.

Property-tax rate: The percentage at which a property's assessed value is taxed.

Measure 5: Passed in 1990, it capped property-tax rates at 1.5 percent, or $15 per $1,000 of assessed value, though local bond measures don't count and may cause the rate to exceed 1.5 percent.

Measure 47: Passed in 1996, it took every property's assessed values back to the levels they were at in 1995, knocked off another 10 percent, and mandated that the growth of assessed values could increase no more than 3 percent a year, thus creating the pickle we are now in.

Measure 50: Measure 47 was badly written and not workable as a law. So without changing its basic provisions, the Legislature rewrote it as Measure 50, which voters approved in 1997.

WWeek 2015