The League of Oregon Cities is supporting a move to peg a home's property taxes to its market value — rather than its usually lower assessed value — whenever a home sells.
The change would boost property taxes on many properties when they sell but also generate more revenue to pay for schools, police protection and other local services.
The league also wants property taxes pegged to real market values on new construction. Currently, countywide ratios are used to determine assessed values on new construction, according to the league.
Statewide, the assessed value of property averages 74 percent of its real market value, according to data provided by the league. In Jackson County, the average is 77 percent, according to Chris Fick, a finance and taxation analyst with the league.
In Ashland, the gap is even wider, with assessed values on average totaling only 68 percent of real market values, he said.
Fick provided an example of how the tax bill would change under the proposal, using a home assessed at 75 percent of its real market value. If that home had a property tax bill of $2,000 and it sold, the property taxes would increase to $2,600. The change would require a voter-approved amendment to the Oregon Constitution, Fick said.
Assessed values have become increasingly divorced from real market values ever since state voters passed a property tax limit measure in 1997, according to the league. Assessed values were knocked back down to 1995-96 levels and then allowed to grow only 3 percent annually. People who own homes with similar market values can at times pay widely different amounts in property taxes, according to the league.
"Under our current system, you have major inequities in what people are paying for the same local services, meaning other people are subsidizing certain properties — a subsidy that will continue in perpetuity under our current rules," Fick said.
Northeast Portland is serving as the league's poster child for those disparities. According to league data, one home with a real market value of $282,140 in Northeast Portland has an annual property tax bill of $1,151, while a Southwest Portland home with a market value of $279,390 has a $4,385 annual tax bill.
Ashland is among the cities in Oregon that support resetting property taxes to real market values on new construction or when homes sell.
The Oregon Association of Realtors' lobbyist has vowed to fight the move to reset property taxes when the issue goes to the Legislature, said Krista Laulainen, legislative chairwoman for the Rogue Valley Association of Realtors and a principal broker with Coldwell Banker in Ashland.
"I don't know why doing the reset at sale makes it more equitable," she said.
Laulainen said one house could sell several times in a neighborhood and have ever increasing property taxes, while another house could be kept by the same owner for decades and have low taxes.
She said homeowners who try to sell their houses and buy new homes would be among those who would be especially hard hit by the change.
Prospective buyers would have to consider that the property taxes would increase when they purchase a home. So would those who sell their homes to buy another, Laulainen said.
She said many people who sell homes are forced to because of a death, a divorce or a job relocation.
Under the current system, it's easy for buyers to figure out how much their property taxes will be because the amount is similar to what the seller has had to pay, plus the allowed 3 percent annual increase, she said.
"People love that they have the ability to say, 'I know my tax rate,'" Laulainen said.
If the change proposed by the league caused property taxes to go up substantially, that could put a damper on real estate sales, she said.
Fick said Oregon's housing market is starting to show signs of recovery and the property tax reset would not likely be referred to voters until the 2014 election.
Implementation of the change would take place several years later, he said.
The amount of extra revenue that the change could generate for local governments would largely depend on how the real estate market recovers, Fick said.
He said 17 states have passed property tax limitations similar to Oregon's, but 15 recalibrate property taxes at the time of sale to realign assessed and real market values.
The Massachusetts-based Lincoln Institute on Land Policy found that the Oregon tax system has gone the furthest in breaking the link between assessed values and market values, Fick said.
"We don't think that's a good thing," he said.
Staff reporter Vickie Aldous can be reached at 541-479-8199 or firstname.lastname@example.org.