The Urhausen v. City of Eugene case is a vital case in stopping local government’ skirting Measure 5 laws.
Three years ago the Eugene and Bethel school districts were already taxing property at the rate of $5 per $1000 of real market value, so those school districts were prohibited from levying more property taxes by the limitation of Measure 5 on property taxes for schools. At the same time, the City of Eugene had room to increase property taxes under the $10 per $1000 of real market value limitation for non-school operations. The Eugene City council decided to use its power to levy property taxes to increase funding for the Eugene and Bethel schools.
Knowing that it could not just levy a school tax because that would obviously run afoul of the $5 per $1000 limit for schools, the City crafted a levy that sent 93% of the revenue to schools and kept 7% for the city.
Tax Court Judge Breithaupt decided that that maneuver was unconstitutional for two reasons. First, the City had argued that since 100% of the revenues weren’t going to the schools, none of the revenues raised should be categorized as going to the schools. The judge didn’t buy that argument and said that the deciding factor in determining whether revenues are raised for schools or not is whether they were raised for and are spent on schools or not. Accordingly, 93% of the revenue raised by the levy would be categorized as raised for schools.
Second, the City had also argued that even though the schools actually got the money, the money shouldn’t be categorized as school money because the money was spent on things that in some way benefited the City. The Judge didn’t buy that argument either since the money was explicitly raised for and spent on elementary school music education, school nurses and school libraries. The City had promised the money would go to the schools when it presented the levy to the voters, and the City promised that the levy would be reduced if the state provided the schools with sufficient funds to operate in the style the City desired.
As a consequence of this decision, the largest part of the revenue raised by the levy cannot be raised in the future. Some revenue could still be raised because not every taxpayer is in a levy area already at the $5 per $1000 limit. If the City continues to levy this or a similar property tax, the rules of compression will insure that no property tax payer in Eugene will pay more than $5 per $1000 of real market value for support of schools.
It is unkonw whether the City will decide to appeal the decision. The decision is well-argued, grounded in precedent, attentive to the facts and emphatically presented. Many people feel an appeal would be futile, if not frivolous. The tax judge should be commended for his right-on-the-button ruling.