Tax Brief - Measures 47 & 50

In Brief...

MEASURES 47 AND 50: OREGON’S CUT AND CAP TAX REFORM by: Todd S. Liebow, MAI

Way back in November 1996, Oregon voters passed Measure 47. This was a constitutional amendment popularly referred to as the "cut and cap" tax reform act. The "cut" aspect of the legislation referred to a reduction in taxes for the 1997-98 tax year calculated as the lesser of the 1994-95 taxes or 90 percent of the 1995-96 taxes. Bonded debt would be exempt from the calculations. The "cap" aspect of the measure restricted growth in taxes to no greater than 3 percent annually after the 1997-98 tax year. Exempt from the calculation were circumstances of new construction, significant renovations/rehabilitation, loss of exemption status, change in zoning, subdivision of the property, and omitted property. When the legislative assembly convened in January 1997, it became evident that, as written, Measure 47 was impractical to implement on an equitable and feasible basis. Measure 50 was the revision of Measure 47 and is the product of a cooperative effort between industry, the petitioner for Measure 47, the Oregon Assessors, the Department of Revenue and the House Revenue Committee. Measure 50 limited the 1997-98 assessed value of each property to the lesser of real market value or the 1995-96 real market value, less 10 percent. Growth in assessed value was limited to 3 percent annually, thereafter. Thus, the 1998-99 maximum assessed value was the 1995-96 real market value, less 10 percent, plus 3 percent. The 1999-2000 maximum assessed value was the 1998-99 maximum assessed value plus 3%, and so on. In addition to the cap on assessed value growth, tax growth was also effectively limited to a 3 percent annual growth rate, although exceptions are permitted under specially approved levies. Similar to Measure 47, assessed values can be increased due to new construction, subdivision, rezoning, omitted property and loss of exemption. When these events occur, the assessor will place the added value on the assessment roll at the maximum assessed value. The maximum assessed value of added value will be determined by estimating the real market value of the change and multiplying it by the ratio of the maximum assessed values of like properties to the real market value of like properties.

TSLCut&Cap1/2009

For example, on December 31, 2007, a new fast serve restaurant was completed. Its real market value is $800,000. The average maximum assessed value for like properties in this class is $600,000 and the average real market value for like properties is $800,000. Therefore, the subject's 2008-09 assessment (maximum assessed value) will be [($600,000/$800,000) x $800,000] $600,000. The process is charted below: Real Market Value (RMV) Subject Property

$800,000

Maximum Assessed Value of Similar Properties (MAV)

$600,000

Real Market Value of Similar Properties

$800,000

(MAV ) RMV of Similar Properties Subject Computation RMV x 75% Ratio $800,000 x 75%

75% $600,000

The 2009-10 assessed value will be ($600,000 x 1.03) $618,000. Measure 50 also provided for establishment of new levies outside the tax rate limits. One interesting aspect of the new levies clause was that the levy request required a 50 percent "turnout" of registered voters for approval. Voters overturned this supermajority requirement in 2008. One significant implication of Measure 50 is the "disconnect" between assessed value and market value. Reliance on assessed value for market-based decision making and matters related to income tax is clearly a phenomenon of the past. There is reason to believe that there will be some level of predictability of future tax obligations based on the growth rate limits. Properties subject to exceptions, particularly new or significantly changed properties, should be monitored closely for their first year values on the tax roll, as these values will dictate the taxable values into the future.

Todd S. Liebow, MAI, is a Principal of PGP Valuation Inc, a National Real Estate Appraisal and Consulting Firm providing Property Tax Appeals/Consultations; Commercial, Industrial, and Special Use Property Appraisals; and Feasibility studies.

PGP VALUATION INC.