Oregon Timber Counties Face Insolvency
A bleak financial future looms ahead for many Oregon timber counties, especially Josephine and Curry. Last week an extension of timber replacement funding was scrapped when Senator Wyden’s Amendment to a Senate bill was denied for procedural reasons. Today, Congressman Greg Walden proposed what may be the last hope for an extension of federal timber replacement revenues in his, “Security and Energy for America Act,” which provides “payment in lieu of taxes (PILT) funding for timber counties, as part of a comprehensive solution to America’s dependence on foreign oil.
For decades timber counties, primarily in the western states relied on a share of federal revenues obtained from timber harvests on lands within their county boundaries. With reductions in timber harvests in the 1980’s and 90’s, timber revenues to counties were greatly reduced. To fill the gap, in 2000 Congress passed The Secure Rural Schools and Community Self-Determination Act (PL 106-393). This Act was intended to temporarily compensate timber counties and schools for lost revenues in 42 states. (For a summary of the effects on Oregon counties, click here.) With the termination of federal timber replacement money, Josephine County will lose 67% of its revenues, and Curry County will lose 60% of its revenue. Although counties cannot legally go bankrupt, if they run out of money, they are forced to shut down services. The consequences to public health, public safety and public services for the residents in Jo and Curry counties will be dramatic.
The options in the short run are few. The average permanent real property tax assessment for Oregon’s 36 counties is $2.80 per thousand dollars of assessed value. Josephine County’s permanent real property tax base is only 59 cents per thousand–1/5 of the $2.80 state average. Curry’s R.P. assessment is only 60 cents per thousand. With Jo and Curry County residents paying only 1/5 of the state average, there is little motivation for legislators from non-timber counties to rush financial aid to Jo and Curry Counties. Nevertheless, Governor Kulongoski has taken seriously the impending financial disaster by organizing the Governor’s Task Force on Federal Forest Payments And County Services. Yesterday, this Task Force announced 54 recommended actions that could be taken to help the troubled counties.
Since it is unlikely Josephine or Curry County property owners will vote to increase their property tax assessments by 500%, the commissioners in both counties face a bona fide, real-life financial crisis. The federal timber replacement money ends effective, today, July 1, 2008. Without an infusion of federal. state and county money Jo and Curry Counties may be forced to terminate many governmental services within a year. The date of insolvency could depend on budget busters like unexpected costs to fight a large forest fire, continuing increases in gasoline and energy costs, or one or more negative verdicts in pending law suits.
Some believe insolvency is inevitable. Even if they are correct, it is unlikely the state will intervene until county commissioners turn out the lights, close the doors and mail the keys to the Governor. Seriously, when the funds run out, county commissioners will be forced to shut down government services one by one. A timber county commissioner told me this morning that without an infusion of revenue his county would have to look to the state to take over work performed by the County Clerk, Tax Assessment, Building dept, Juvenile Justice, District Attorney’s office, Law enforcement and even the county jail. If and when a county notifies the State that it can no longer provide for the public safety or public health, the State will be forced to respond.
The ultimate response would be to dissolve the insolvent county and make it part of a contiguous county. In that event, the property owners from the old county immediately would find their properties reassessed at the tax rate being paid by the land owners of their new county. In Jackson County that rate is $2.01 per thousand of assessed value. In Douglas County the levy is $1.11 per thousand.
At that point the old county citizens would have a window of opportunity to call for a special election and vote to voluntarily increase their old county’s R.P. tax assessments to a level sufficient to cover bare-bones government services. But, even that might not be enough. Josephine County’s sheriff is proposing a temporary district levy that would increase Jo County’s tax levy to $2.09 per thousand. At that level only enough additional money would be generated to cover county law enforcement, without a dime for juvenile justice or the D.A.’s office.
Long term, real property taxation is an unsustainable revenue source for all Oregon cities and counties. With the 3% annual real property tax assessment limitation, real property taxes no longer can keep up with the rising costs of city and county governments. For instance, the cost of gasoline for patrol cars, tar and asphalt for road construction and repairs, and health and retirement benefits are inflating much faster than the 3% maximum allowable increase in annual property tax assessments. In addition, more and more property is being moved off the tax roles via conservation easements and non-profit organizations, not to mention the properties delinquent in paying their property taxes. The result is real property taxes are declining every year as a percentage of city and county revenues and will continue to do so.
What can be done?
Is there a way to provide sufficient revenues for our cities and counties without taxing citizens””especially those on fixed incomes””out of house and home?
I believe there is a solution”¦one that requires vision, courage and bipartisan cooperation. Last year, I proposed such a solution in the newsletter entitled, “A Tax for a Tax.” (Click here to read) It contained a survey that asked the following question: “Would you be willing to trade the property taxes Oregonians pay on their homes, small farms and businesses for a broad-based, Constitutionally restricted 5% Retail Sales Tax?”.
The results of the survey showed 87% supported the proposal.
In a nutshell, a tax reformation proposal with 87% positive acceptance rate among Oregonians, regardless of party or political philosophy, is worth careful consideration. It would require a Constitutional Amendment that exempts homes, small farms and businesses from property taxes, and institutes a broad-based 5% sales tax. Whether the exemption amount is $10 million or $5 million, the net effect is to increase state revenues by capturing taxes from those who are currently not paying their “fair share,” while ensuring local city and county governments have a new, preferential source of revenue that will increase over time with Oregon’s economy. In sum, the rising water of Oregon’s future economy will float all municipal boats, as well as the ship of state. I explain in the newsletter why this approach is appealing to liberals and conservatives, although for different reasons. If the drafters of the Amendment stay focused on the goal and do not become greedy, this concept will protect and enhance revenue for local governments while substantially increasing revenue for the state.
Hopefully, members of the Governor’s Task Force on Comprehensive Revenue Restructuring have accepted the fact that merely adding a third leg to the proverbial stool will not be acceptable to a majority of Oregon voters””voters who gleefully remind legislators that the sales tax has been defeated 9 times already.
The fatal flaw for the Task Force may be in not providing a sufficient level of R.P. tax exemption. Currently, the Task Force’s proposal is to lower the exemption from my recommended level of $10 million to only $1 million. In so doing it risks losing the support needed from conservatives, whose support will be required to enable such a reformation of Oregon’s tax structure to get a majority vote on the Constitutional Amendment. If Oregon’s lawmakers want voters to approve a plan that provides a solid, dependable source of funding for our cities and counties while increasing revenues for the state, it can implement a Constitutionally restricted sales tax only by exempting the real property tax from the homes, small farms and businesses of all Oregonians. In short, it must trade”¦A TAX FOR A TAX.
P.S. If you would like to send your opinion on “A Tax For A Tax” to the Governor’s Task Force on Comprehensive Revenue Restructuring, feel free to contact the Committee Administrator at: [email protected]