Chapter 4.3

We Always Hurt the Ones We Love: Measure 47's impact will be hardest on those services we won't do without.
(The Oregonian, November 17, 1996)

By Richard H. Carson
"Lord the money we spend on Government and it's not one bit better than the government we got for one-third the money twenty years ago."

Will Rogers may not have been an Oregonian voting for Ballot Measure 47, but he knew exactly what we were thinking.

The passage of Measure 47 is far from being as dire as many of us -- the professional bureaucrats and elected officials -- may portray it. It may be, in fact, a tremendous opportunity to rethink how we do the public's business.

There are basically three kinds of government services and public financing:

- The ones voters don't like. For example, most citizens don't like development. However, developers pay their way through permits fees and system development charges.

- The ones voters are indifferent to. Municipal utilities, like water and sewer, are usually supported by a utility rate and not property taxes.

- And finally, the ones voters do like. The institutions we love most -- police, fire, libraries, parks, the municipal pool and schools -- are the big financial losers. We will have to find ways to finance them. For the fact is that we will refuse to live without them.

A lot has been said about "reinventing" government in the last few years. However, few of us have really tried anything new and innovative in terms of financing government. What we have tried has been marginal in its financial vision and impact. But there are real financial solutions to be had:

Fee for service. The "loved" government services must maintain a minimum service level, so they could start charging out their time on a fee for service basis. If your house catches on fire, then you could pay the local Fire Department to put it out.

This is no different than paying for the ambulance, hospital and doctor when you have a medical emergency. The police are already charging people for false alarms. If your water line breaks, the local Public Works Department will either tell you to hire a contractor to fix it or send you a bill.

It may be hard to swallow, but a library subscription fee may be in your future.

Paying for growth. We have been underestimating the true cost of growth and in the past actually subsidized it with our property taxes. Who will make up the financial difference under Measure 47? It will be the developer, homebuilder and ultimately the new homeowner.

System development charges. I recently came face-to-face with an example which illustrates my point. In Oregon City, a group of developers is building a sanitary sewer line to connect some 600 future homes. The price tag is more than $1 million. This works out to be a cost of more than $1,600 per household to hook up to sewer.

This came as a surprise to me since we are currently charging developers a system development charge for sewer of $400. We are only collecting 25 percent of the true cost of delivering sanitary sewer to new developments. In light of Ballot Measure 47, guess what the city will charge in the future?

School development charges. The school districts must be allowed to collect system development charges, too. Up until now the homebuilders have successfully held the school districts at bay through the state Legislature. Measure 47 means that the developers and homebuilders may start paying schools to accept the new kids.

Delayed annexation. Most taxpayers, developers, elected officials and lawyers don't understand the property tax system. When a new subdivision is annexed to a city, the tax base is increased by the value of the undeveloped dirt. When homes are built at a later date, then the improvement value -- generally 75 percent of the ultimate property assessment -- is not added to the tax base. Instead the property's increased assessed value actually reduces the city taxpayer's rate.

One solution is to make sure that all annexations come in at 100 percent of actual assessed value. In this way, the city's tax base grows with the development of the community.

This can be accomplished through a new tool called "delayed annexation." This works by permitting the development to be built out while it is still in the unincorporated county and then annexing it.

Special districts and utility rates. Some government services may need to be transferred to special districts. Public utilities, like water and sewer, will be especially attractive because they can be paid through a utility rate that is totally disconnected from property taxes.

Water and sewer districts are almost invisible entities. For example, can you name one person on the board of a special district in your area? When a bill arrives you just pay it.

Special districts are very adept at increasing the utility rates incrementally so that you don't even notice it. Cities have never been able to do this because the city budget process is very public and competitive. In other words, you have to make a choice between fire and police, or park and libraries. The special district budgets process makes no such choices.

The unintended consequences

Cities are already looking for non property tax revenue sources.

Real estate transfer tax. This will be one of the first to be used. In the past, the Legislature had a moratorium on this tax. That is no longer true.

The real estate transfer tax puts a tax on the property transaction; it taxes the sale of a house in a subdivision or a business.

It is considered to be a growth tax, but unlike service development charges, it does not need to be dedicated to growth. It can be used as a replacement tax for property taxes and it can be put in front of the voters next March.

It is attractive alternative tax because most people sell their home or business infrequently. It would be opposed by the developers and real estate interests, but they would find little support.

Sales tax. Finally, Measure 47 ensures that some Oregonians will try to enact a sales tax again.

Whether you like it or hate it, 47 permanently and constitutionally limits the use of the property tax. That leaves only three other possibilities for raising revenues -- increase the personal or corporate income tax, or enact a sales tax.

The former are already very high, and an increase will be resisted by both the voters and big business.

Big business has never resisted a sales tax. When your choices are limited, you start choosing the lesser of evils. It's kind of like voting for Ballot Measure 47.

Richard H. Carson is the community development director for Oregon City and managing editor of the Oregon Planners' Journal and is completing his master of public administration degree from Lewis and Clark College.

(Editor's note. Measure 47 was replaced by Measure 50. The latter completely changed Oregon's property tax structure from a tax base system to a rate based system).
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Common Sense
by Richard H. Carson