In Brief...
MEASURES 47 AND 50:
OREGON’S CUT AND CAP TAX REFORM
by: Todd S. Liebow, MAI
Way back in November 1996, Oregon voters passed
Measure 47. This was a constitutional amendment
popularly referred to as the "cut and cap" tax reform act.
The "cut" aspect of the legislation referred to a reduction
in taxes for the 1997-98 tax year calculated as the lesser of
the 1994-95 taxes or 90 percent of the 1995-96 taxes.
Bonded debt would be exempt from the calculations. The
"cap" aspect of the measure restricted growth in taxes to
no greater than 3 percent annually after the 1997-98 tax
year.
Exempt from the calculation were circumstances of new
construction, significant renovations/rehabilitation, loss of
exemption status, change in zoning, subdivision of the
property, and omitted property.
When the legislative assembly convened in January 1997,
it became evident that, as written, Measure 47 was
impractical to implement on an equitable and feasible
basis. Measure 50 was the revision of Measure 47 and is
the product of a cooperative effort between industry, the
petitioner for Measure 47, the Oregon Assessors, the
Department of Revenue and the House Revenue
Committee. Measure 50 limited the 1997-98 assessed
value of each property to the lesser of real market value or
the 1995-96 real market value, less 10 percent. Growth in
assessed value was limited to 3 percent annually,
thereafter. Thus, the 1998-99 maximum assessed value
was the 1995-96 real market value, less 10 percent, plus 3
percent. The 1999-2000 maximum assessed value was the
1998-99 maximum assessed value plus 3%, and so on.
In addition to the cap on assessed value growth, tax
growth was also effectively limited to a 3 percent annual
growth rate, although exceptions are permitted under
specially approved levies. Similar to Measure 47,
assessed values can be increased due to new construction,
subdivision, rezoning, omitted property and loss of
exemption. When these events occur, the assessor will
place the added value on the assessment roll at the
maximum assessed value.
The maximum assessed value of added value will be
determined by estimating the real market value of the
change and multiplying it by the ratio of the maximum
assessed values of like properties to the real market value
of like properties.
TSLCut&Cap1/2009 PGP VALUATION INC.
For example, on December 31, 2007, a new fast serve
restaurant was completed. Its real market value is
$800,000. The average maximum assessed value for like
properties in this class is $600,000 and the average real
market value for like properties is $800,000. Therefore,
the subject's 2008-09 assessment (maximum assessed
value) will be [($600,000/$800,000) x $800,000]
$600,000.
The process is charted below:
Real Market Value (RMV) Subject Property $800,000
Maximum Assessed Value of Similar Properties $600,000
(MAV)
Real Market Value of Similar Properties $800,000
(MAV ) RMV of Similar Properties 75%
Subject Computation
RMV x 75% Ratio $600,000
$800,000 x 75%
The 2009-10 assessed value will be ($600,000 x 1.03)
$618,000.
Measure 50 also provided for establishment of new levies
outside the tax rate limits. One interesting aspect of the
new levies clause was that the levy request required a
50 percent "turnout" of registered voters for approval.
Voters overturned this supermajority requirement in 2008.
One significant implication of Measure 50 is the
"disconnect" between assessed value and market value.
Reliance on assessed value for market-based decision
making and matters related to income tax is clearly a
phenomenon of the past. There is reason to believe that
there will be some level of predictability of future tax
obligations based on the growth rate limits. Properties
subject to exceptions, particularly new or significantly
changed properties, should be monitored closely for their
first year values on the tax roll, as these values will dictate
the taxable values into the future.
Todd S. Liebow, MAI, is a Principal of PGP Valuation Inc, a National Real Estate
Appraisal and Consulting Firm providing Property Tax Appeals/Consultations;
Commercial, Industrial, and Special Use Property Appraisals; and Feasibility
studies.