The revenge of Bill Sizemore: How a short-term housing market slide could mean a long-term funding crisis for Oregon
By Scott Johnson of Beaverton, Oregon. Scott is a software engineer (and is sometimes known as "EngineerScotty" in other forums.)
Oregon's thirty-six counties are getting ready to mail out the dreaded forms they mail out every year to homeowners and other owners of real estate -- property tax bills. Nobody likes taxes much, though some of recognize them as the dues of civilization; and property taxes are especially regressive (more so thanks to the Bill Sizemore's and Don McIntyre's of the world).
But this year's tax bills may contain something which is a pleasant surprise for beleaguered homeowners -- and a disaster about to happen for local government: A decrease in your property tax bill.
Property taxes are, of course, pegged to property values -- more or less. When property values go up, so does your tax bill; when they go down, your taxes go down. With the recent decline in property values due to the housing market crash, expect to see assessed values decrease. Also expect many, many challenges to be issued to county assessors from homeowners if the values don't go down as much as they think they should. The end result, of course, is less revenues for local governments, and cutbacks in services.
But it gets potentially worse.
Again, thanks to the "wisdom" of Sizemore and Ballot Measure 47 (1996), as well as its legislative rewrite the following year (Ballot Measure 50) -- increases in assessments are limited to 3% per year (excluding things like rezoning, major improvements, and other non-market adjustments to a parcel's value). There is, however, no corresponding limitation to decreases -- something which hasn't occurred in the Oregon housing market in the 12 years since 47 was passed, until now. Thus if the subprime crisis causes the value of my house to tank 20% (my home is recent construction, and not significantly under-assessed), I can expect a corresponding reduction in my tax bill.
But here's the kicker: Even if the housing market were to somehow stabilize and housing prices to recover to 2006 levels next year -- my reading of the statute is that assessments (and therefore, revenues) cannot return to 2006 levels for quite some time, limited by the 3% per year cap on assessment increases. Measures 47 and 50 contain no high-water-mark provisions to deal with temporary disruptions in the housing market.
Cushioning this blow is the fact that many properties (mainly older construction) are presently under-assessed due to BM47 and BM50; so the potential loss of revenue from these properties will be less, but still -- this represents a significant, long-term reduction in the tax base for local governments.
This only goes to illustrate how shortsighted Oregon voters were in the 1990s and early 2000s. Unlike the Federal Government, which can borrow and print money to get through a market crisis (ideally paying it back in good times, though Washington DC is seldom that responsible), state and local governments have to keep a balanced budget. Government will be shortest of cash when Oregon's residents need its services the most.