How Measure 50 Changed the Property Tax System

Measure 47 & 50

Measure 47 was a property tax limitation passed by voters in November of 1996 but repealed by Measure 50 before it was implemented. Measure 47 would have rolled back property taxes (not assessed values) to 90 percent of the 1995-96 level for each property in the state. The legislatively referred Measure 50 was drafted to correct a number of technical problems with Measure 47 while replicating the tax cuts of Measure 47.

The objective of Measure 50 was to reduce property taxes in 1997-98 and control their future growth. It achieved these goals by cutting the 1997-98 district tax levies and making the following three changes:

·A switch to permanent rates
·The reduction of assessed values
·The limitation placed on yearly assessed value growth

*Details of the levy cuts are provided below.

While Measure 5 simply limited the tax rates used in calculating taxes imposed, Measure 50 changed the conceptual definitions of both assessed values and tax rates.

Assessed Values

One of the fundamental changes made by Measure 50 was a change in the definition of assessed, or taxable, value. Assessed value is no longer equal to real market value. For 1997-98, the assessed value of every property was reduced to 90 percent of its 1995-96 assessed value (assessed value and real market value were equal in 1995-96). Because value growth has not been uniform throughout the state, this change has varying impacts. The greatest cuts in assessed value were realized to those properties that experienced the greatest growth during the past two years. For property that did not exist in 1995-96, the assessed value was calculated as a percentage of its market value.
For existing property, Measure 50 limited the annual growth in assessed values to 3 percent, so predicting future assessed values becomes much simpler than in the past. For new property (for example, newly constructed homes), assessed value is calculated as the market value of the property times the ratio of assessed value to market value of similar existing properties. This approach to assigning values to a new property assures that it is taxed consistently with similar existing properties. Measure 50 also stipulates that assessed value may not exceed real market value. As a result, if the real market value of a property falls below its assessed value, the taxable value will be set to the real market value.

District Tax Rates

There are five types of property taxes that taxing districts may impose:

·Taxes from the permanent rates
·Taxes from pension levies
·Taxes from gap bonds
·Taxes from local option levies
·Taxes from bond levies

Only the permanent rates are fixed; they do not change from year to year. For the local option and bond levies, the tax measures are typically voted on in terms of dollars and the rates are calculated as the total levy divided by the assessed value in the district. The rates for pension levies and gap bonds are also calculated by dividing the levy by the district's value.

Permanent Rates

The biggest change in the system is the use of permanent tax rates by the roughly 1,400 taxing districts in the state. With the conversion from a modified levy-based system to a rate-based system, the use of permanent tax rates has become central to the calculation of taxes. These taxes, sometimes referred to as operating taxes, are used to fund the general operating budgets of the taxing districts and account for the single largest component of property taxes.

Strictly speaking, the permanent rates are rate limits, so districts may use any rate below their permanent rate.

Gap Bonds

Gap bonds represent debt obligations that have been funded with the operating taxes of districts. They are not a permanent fixture in the system in that they were only created for purposes of implementing Measure 50. There will be no new gap bonds in the future and the ones that currently exist will become part of the permanent rate for the districts that have them once the obligations are paid in full. gap bonds.

*Yamhill County has no Gap Bonds

Pension Levies

The city of Portland is the only district with a pension levy. It represents an ongoing obligation the city has to its fire and police forces. Unlike gap bonds, the city of Portland pension levy does not have a particular date when it will be paid off. As long as Portland's city charter commits operating funds for police and fire pensions, the pension levy will continue.

Local Option Levies

Local option taxes are an important feature of the new property tax system under Measure 50 because they represent the only way for taxing districts to raise operating revenue beyond the amount from their permanent rate. Because voters at the local level must approve these levies, they represent one aspect of the local control over the level of property taxes. Measure 50 requires that local option levies be approved by a majority of voters in a general election or an election with at least a 50 percent turnout.

Bond Levies

Bonds have remained largely unchanged during this transformation and are used to pay principal and interest for bonded debt. Under the provisions of Measure 50, new bonds, like local option taxes, are subject to a 50 percent voter turnout if the election is not a general election.

Offsets

Some taxing districts receive revenue from the taxation of timber. this revenue is used to reduce, or offset, the amount of revenue they need to raise from their permanent rates, reducing the permanent rate actually used. Only general government districts, not schools, reduce their permanent tax rates when they receive offset payments. Schools do, however, receive offset payments that represent additional revenue because their permanent rates are not reduced.

Measure 5 Rate Limits

A feature of the old system that still exists is the tax limits for individual properties of $5 per $1,000 real market value for school taxes and $10 per $1,000 real market value for general government taxes. It is important to note that while property tax rates are generally discussed in terms of assessed value, the limits apply to real market value. Prior to Measure 50, this distinction was unnecessary, as assessed value equaled real market value. The first step in calculating taxes imposed for a property involves multiplying the consolidated tax rate by the assessed value. Then, to test the tax totals against the limits, the total taxes for schools and general government are each divided by the property's real market value. the results are then compared to the appropriate limit.

If property taxes exceed these limits, then they are reduced, or compressed, to the limits. To accomplish this, the taxes for each taxing district must be reduced. First, local option taxes are reduced, possibly to zero. If there are no local option taxes or they have been reduced to zero, the tax rates from the permanent rat, gap bond, and pensions levies for each taxing district are reduced proportionately. This process is referred to as compression and the revenue loss for the districts is referred to a compression loss.

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