School bond defeat keeps Portland property taxes in check

Portland Homeowner Taxpayer Update: Last Year’s Defeat of School Bond Keeps Property Tax Bill in Check

by Bob Clark

The average property tax bill increased about 2.3% this last November, 2011, relative to prior year’s bill for homeowners residing in the Portland Public School District (Oregon).[i]  This rate of increase is roughly in line with the estimated increase in Portland area incomes (between 2 and 4%), as measured by per capita income (U.S Bureau of Economic Analysis various preliminary reports).  By comparison, if last May’s Portland Public School (PPS) construction bond/tax measure had passed, property tax bills would have instead spiked by more than 10% year-over-year.[ii]

The following graph compares growth in average income versus growth in homeowner property taxes over the past ten years for the PPS area:

 

As shown, the average property tax bill has increased at a rate of about 4% per year over the last ten years, which is faster than the 2.2% average annual rate of increase experienced in PPS area incomes.

Measures 5, 47, and 50 helping to keep property taxes in check

Nearly 20% of PPS area homeowners experienced a decrease in their property tax bill in 2011, up from only 5% experiencing decreases in 2010 and 1% or less in previous years.  These decreases average nearly $400 per affected home in the year 2011 (see graph below).  Measures 5, 47 and 50 (the property tax rate limitations) held down property taxes for these homeowners who also experienced a rapid decline in the market value of their homes, as measured by the county’s market value assessment called real market value (RMV) on tax statements.   Most usually RMV does not enter into the calculation of one’s property tax bill.  RMV becomes a factor in the calculation of one’s property tax bill when local government property tax rates exceed $10 in total per $1k in RMV and/or educational levy rates exceed $5 in total per $1k in RMV (the property tax rate limitations).  What has happen to cause a rising number of homeowners a decrease in property tax bill is (1) increasing local government property tax levies and educational levies, and (2) a sharp decline in home prices of some 20 to 25% (2011 average home price in this subgroup versus its year 2008 average).  The resulting flattening in property tax bill is called “tax compression.”  A key ratio to watch for each homeowner is when the Tax Assessed Value (TAV) of one’s home exceeds roughly 70% of the market value of one’s home (RMV).  For the average home in year 2011 in the PPS area, this ratio stood roughly at around 68%.

It is very possible more PPS homeowners will experience decreases in property tax bills this next November, 2012, because of tax compression.  The S&P Case-Shiller house price index for the Portland Metropolitan area is down about 4% since last year at this time, and tax assessed value is otherwise allowed to increase 3% per year, such that more homes should obtain a TAV-to-RMV ratio of 70% or higher.

The increasing occurrence of tax compression is causing angst among local government and educational leaders.   A skeptic like me would say leaders should be proactive in limiting tax rate increases so as to not run-up against otherwise generous property tax rate limitations when the economy turns down and home prices slump.  Unfortunately, we instead get the Mayor of Gresham, for instance, reportedly asking the Governor to review changing the property tax limitations.

On the Horizon (Multnomah County Library and Portland Public Schools)

The only tax measure filed for this May’s (2012) Multnomah County election ballot is renewal of the existing library levy (89 cents per $1k in Tax Assessed Value).  The County plans to place on this November, 2012, ballot a measure to create a library district which would raise the library levy to $1.21 per $1k in Tax Assessed Value.  An increase in the library levy would likely result in reductions in the funding of other county government services and/or operations, because of the presence of tax compression.  Faced with cutting other government services, government leaders will no doubt plead vigorously for property tax reform and/or other forms of new taxation.

Portland Public Schools (PPS) is currently grappling with when to re-launch its school construction bond/property tax measure.  November, 2012, is under serious consideration.  However, in selecting November 2012, PPS may be competing with other state-wide (income related) tax measures currently being worked by public employee unions through the initiative process; and of course, there is already the aforementioned library district levy.  PPS might very well instead delay its school construction bond/tax measure till the May, 2013, ballot.  Either way, the PPS school construction bond/tax will not show up on property tax bills until November 2013 if approved.  As a sidebar, it is my sense PPS will come back with largely the same property tax rate proposal as last time, at a rate of $2 per $1k in tax assessed value.


[i] Based on a random sampling of approximately 400 homes in the Portland Public School District area; using property tax records available at http://www.portlandmaps.com/ (a city of Portland maintained website), Excel spreadsheet random number generator, and DEX phone book for the city of Portland.  Four hundred tends to be a routine sample size based on experience with other samples, and using the sample size formulae.  Other data from Multnomah County Tax Assessment office suggests the mean and median of this random sample is perhaps a tenth of a standard deviation on the high side.

[ii] Construction bond/tax measures are not subject to the property tax limitations presented in the next section of this article.

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Posted by at 11:00 | Posted in Portland Schools, Taxes | 11 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Just doing the math

    I hope homeowners understand the bonds you vote in
    last nearly a lifetime of debt that you are saddled with.
    This is why I have begun to vote no on every bond. It
    is a debt that does not drop off your property for 20+
    years.

  • Educationman

    Our schools are crumbling and our teachers are underpaid. When will this madness end? The children are our future. Are they not worth some expenditure to insure they get a good education with new lockers, paint, carpet, etc.?
    Who can learn in a dusty old building that is falling down? Who, I ask you?

    • Bob Clark

      I’ve been touring some of the PPS school buildings.  What I find is kind of a mixed bag.  There are schools such as Markham, Hosford, Rosa Parks, and West Sylvan which are in pretty good shape, but in need of routine maintenance (which should come from ongoing school funding and not bond).

      Then there are school buildings like Sunnyside environmental school which are very popular with parents and children, but really need a full scale rebuild.  Jim Bridger school is also kind of lower end built school, and it could probably use a rebuild.  Laurelhurst is busting at the seams with enrollment and limited space.

      I can see some rebuilding needs and therefore, some need for a bond/tax measure.  The problem comes with the way PPS is managed.  In the last bond measure, there didn’t seem to be any relation between facility condition and the decision/priority to rebuild the corresponding school.  In fact, PPS admits the last bond measure used a “peanut butter spread” approach whereby to get buy in from enough neighborhoods it had to spread out a large bond/tax fund throwing out local goodies like artificial turf, landscaping, and playgrounds.  So, a large portion of the measure was not going towards the actual learning building but in trying to buy off voters with less related goodies.

      Something else is pecular about PPS’ bond measure.  PPS wants to finance school construction with a 5 year bond term, and not the more conventional 25 year bond term.  When you finance with the conventional 25 year bond term, you can rebuild as many as three times the number of schools as you can with the 5 year term (keeping property tax rate constant in the first 5 to 10 years).  The need for the peanut butter spread approach goes away if you can rebuild more schools at a faster rate than the slow pace in PPS last bond measure.

      Well anyways, I hope to write another Catalyst article on PPS management, even toying with the idea of writing of the pros and cons of breaking up PPS into three districts (West, East, and North districts).  For instance, it seems bizaar to me Benson High School is being downscaled when demand for its technical programs is very popular even attracting students from outside the district.  Breaking up PPS into three or so districts might introduce enough competition to give Benson High School a chance to flourish again.

      As for educators being overpaid, I don’t think this is true at all.  The average total compensation package for PPS teachers now approaches $100k per year.  There are many just as skilled and experienced professionals, even in state government, who don’t make this kind of a living.  Because compensation is too generous, PPS itself is considering asking teachers to take a cut in pay through the implementation of furlough days.

      • Bob Clark

        That should have been “As for educators being underpaid…”

      • Wondering

        How can they take furlough days? They don’t even work now for half the year.

        • Bob Clark

          You know I am wondering about how furloughs in the teaching arena works to significantly reduce costs.  If a teacher is on furlough, this doesn’t mean does it his/her class of students takes the class off the day furlough?  More likely, a substitute comes in to replace the teacher on furlough day.  But how much would this save?  the furlough teacher still accumulates the same medical benefits alto retirement benefit is possibly reduced.

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