Portland is robbing downtown condo owners

by Eric Shierman

What does $14,000 a year in property taxes get downtown Portland condo owners? (not police protection)

As a recent college graduate twelve years ago, landing a job at Morgan Stanley, I thought I had arrived. The ink was still wet on my offer letter when I started looking to buy my own home. I first started looking at condos downtown. I knew the prices would be high for such prime real estate, but my investor’s intuition just could not accept the high property taxes that came along with it.

I bought a much cheaper condo on Sylvan Hill, just outside Multnomah County lines. My property taxes are a fraction of what they would be if I lived just a few hundred meters to the east. It has saved me a tremendous amount of money, and yet if I lived downtown, I would have had to pay even more to the Clean and Safe Service District for basic services like police protection. How did this happen?

In 1988, downtown Portland was not a place anyone would want to either live or start a business. It did not have the population density it does today. Office space was vacant, and it had an ineffective chamber of commerce. A business lobby was formed to shape public policy in downtown business owners’ interests. Originally established as the Association for Portland Progress in the 1970s during Neil Goldschmidt’s term as Mayor. By 2002 it was formally called the Portland Business Alliance.

The Portland Business Alliance created an entity called the Pedestrian Environmental Committee, later known as Clean and Safe that initially hired homeless people to pick up trash and remove graffiti. As it developed into a quasi-government-like authority, its mission began to expand to street ambassadors who gave directions to tourists and retail promotion. These ambassadors got more and more involved in public safety which eventually led to the development of a private, armed police force. Initially supported by downtown businesses on a voluntary basis, Kevin Montgomery-Smith was hired by the Portland Business Alliance to manage the operation after participation was made mandatory in 1998.

To avoid the political process required to raise taxes, the means of raising revenue to pay Downtown Services Inc. was structured as a fee that was assessed on the property’s market value, square footage, and elevator space. The Portland Business Alliance presently contracts this subsidiary’s services to the city for a ten year term that will not be subject for renewal until 2021. This has all carefully been enacted in a way that bypasses property tax laws. The fee looks identical to a property tax to the layman, but the courts have upheld its non-tax status, giving it exemption from measures 5 and 47.

By 2000 the Clean and Safe Service District’s costs had grown substantially, prompting the city to look for more fee payers. Single family residences were allowed to remain excluded, but apartment buildings became included as businesses. In the 1990s, many low income housing developments were lured into building downtown with a ten year property tax break. When their tax breaks expired, rather than start paying taxes, they simply converted into condos. They stopped paying their Clean and Safe fees, and never paid property taxes. As the decade of the 2000s progressed, the city began losing a substantial amount of revenue from these condo conversions. Pressure mounted to start charging downtown condos the fee as well.

Many condo residents, knowing the law excluded single family homes, were outraged by this. In 2001 the KOIN Center’s Fountain Plaza Condo Association, negotiated a deal where downtown condos would pay $10 per month per unit on a voluntary basis. Together, this amounted to $5,280 a year at the KOIN Center. Some residents at the KOIN Center made additional, private donations amounting to $1,000 or more.

By 2008, the program continued to lose revenue for a variety of reasons. The KOIN Center residents were the only property still paying their voluntary contributions at a 100% participation rate. By then many downtown businesses were shutting down due to the recession. The Fountain Plaza Board voluntarily increased their contribution by 20% to help. This increase was not enough for City Councilman Randy Leonard.

By 2009 the program was still $129,000 in the red. Randy Leonard insisted the shortfall should be made up by downtown condo residents: “the rich bitches sipping champaign in penthouses at the KOIN Center” should pay for it he said during a city council hearing. The volunteer days were over.

Portland City Code excludes single family residences from business renewal district fees. Rather than change the law, the Portland City Council arbitrarily declared condos were no longer single family residences, because their units are served by a common water meter. If this interpretation looks silly, it is even more so considering there are no non-condo single family residences in the entire Clean and Safe Service District.

Randy Leonard’s desire to milk the downtown condominium residents as much as possible was aided by a very bizarre fee structure that was created in 1996. Reminiscent of the same city council that could not bill us properly for water services, the formula to calculate the Clean and Safe Service District’s fee is benchmarked to the assessed market value in 1994 for properties built before that year and arbitrarily assumes a lower $68 per square foot for properties built after 2000. Why give a break to more recent development? If properties were remodeled to higher values and their floor space did not change the original lower values were still used, leading to radically different fees for similar buildings – strange brew!

This skewed formula yields a very skewed outcome. The mean assessment is 9.41 cents per square foot, but the median is only 4.34 cents per square foot. Mathematically that means there has to be a lot of money being raised from a few who are paying substantially more. The “champagne sippers” at the Fountain Plaza are paying 30.63 cents per square foot! When the current association president, John Faubion, complained to Portland Business Alliance Vice President Shane Abma, he responded “80% of the businesses like the formula the way it is.” It is understandable why that statement is true, since 80% of the businesses are paying less than the average.

So what does the $14,000 in property taxes these condo owners are paying get them? For basic services that are core to a city government’s mission, THEY HAVE TO PAY MORE! On Sylvan Hill, I pay only a fraction of their property tax bill, and it covers all the services I need. On May 29, 2009 Randy Leonard released a white paper titled Downtown Clean and Safe Condo Frequently asked Questions where his answer was: “Downtown is simply different from other parts of the city. There are more people living, working, and recreating in the concentrated area of downtown than in any other neighborhood, creating unique crime control and cleaning issues.”

Leonard is right, the downtown is different, but he draws the wrong conclusions. Its concentrated population makes its crime control and cleaning issues LESS EXPENSIVE PER CAPITA than the rest of the city even though its residents pay the highest per capita property taxes in both the city and the county. Isn’t that why Metro is trying to box us all in high-density neighborhoods? These downtown residents are model Portlanders, living exactly the way city planners want us to. Their reward for living in a way that allows the city to provide public services more efficiently is to be charged even more for their lighter burden. Downtown condo owners are being charged more for the same reason that Willie Sutton robbed banks: “that’s where the money is.”

Should it be any mystery to us why there are no longer any Fortune 500 businesses with headquarters in downtown Portland? Nike thrives in Beaverton and Washington County because it is so far away from the City of Portland and Multnomah County. In a time when politicians want to talk about job creation, perhaps we should see this whole Clean and Safe Service District issue as a microcosm for what ails us on the national level.

The Randy Leonards of this world think jobs get created by diverting money from water rate payers, downtown sustainable lifestyle livers, and the like to finance Chicago Alderman style patronage spending. It is no accident that only a few token homeless people are still picking up trash. Most of the cleaning work is now being done by politically connected private contractors. Is this any different from the jobs program agenda of that Chicago pol we have for a president?

What Barack Obama and Randy Leonard need to understand is that the more you tax something, the less of it you get. We don’t need less affluent people in America. Their very existence is not a bad thing. We don’t need less affluent people living sustainably downtown. Treating them like “rich bitches” is not going to lead to a net rise in our City’s quality of life nor our nation’s.

Eric Shierman is a partner at Creative Destruction Investment Partners, writes for the Oregonian under the pen name “Portland Aristotle” on the MyOregon blog, and is the author of the forthcoming book: A Brief History of Political Cultural Change. His articles can be read at: http://connect.oregonlive.com/user/PortlandAristotle/posts.html