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August17,,998 C omme nta r v Analyst~s-: Daniel Stone, San Francisco 4,5-~s5-5o,s Oregon Municipalities After Measure 50 In recent years, Oregon voters passed several tax limitation measures in response to rising Jonathan Chirunga, San F~anCisGO property values and property taxes. These measures, beginning with the passage of Measure 415-765-5014 5 in the early 1990s that compressed overlapping tax rates, culminated in the passage of Measure 47 in November 1996, which lowered property values, limiting future growth. In May 1997, voters approved Measure S0, which revised and clarified Measure 47. Under Measure 50, property taxes were rolled back to 1996 levels, less 10%, and future tax growth was limited to 3% per year plus the value of new construction. As a result, local Main Office: governments generally saw a reduction in operating property tax revenues of about 17%. NEW YORK 25 Broadway This amounted to an average 6% cut in total budget revenues-a reduction that necessitated NY i0004 NewYork adjustments to local budgets. However, school districts were held harmless from any , 212-208-8000 immediate revenue reduction since the state had either legal or moral obligations to make up for the loss of property tax revenue. To date, most local governments have been able to Regional Offices: rebalance their budgets within the Measure 50 limits. While municipalities are benefiting in the short to medium term from the rapid growth that continues in many parts of the state, BOSTON the real test of Measure 50's effects will likely come in a recession when property values 84 State Street, 6th Floof decline and local governments face reduced revenues. BOStOn, MA 02109 fi17-371-0300 - CITIESANDCOUNTIES In the case of cities and counties, Measure 50 initially lowered revenues. However, for many CHICAGO governments-particularly those in the fast-growing Portland area-this reduction in 10 SDUth Wacker Drive revenue appears to be short-lived. In fact, some entities expect rapid growth in new SUi#e 2915 construction to pre-Measure 50 levels within one year. Because Measures 47 and 50 were ChtCagO, IL 60606 written to reduce specific tax burdens faced by homeowners, local governments no longer 312-831-D400 have the power to set their own general operating tax levy. Under Measure 50, local governments have a permanent tax rate for operations. Politically, this may work to the DALLAS benefit of some governments. Because local governments no longer have control over their 500 North Akard Street levies, they will be more likely to capture rising revenues from new development without SUitB 3200 being asked to reduce tax rates. Also, with the growth in tax burdens on existing Dallas, TX 75201 homeowners now limited, the concern over property taxes in the state may wane. One other 214-$?1-1400 factor that benefited many local governments was the fact that, in setting the new permanent rate, existing serial levies (additional tax levies added to the rolls for a limited period of time) were made a permanent part of the new levy rate. Some governments, SAN FRANCISCO therefore, ended up with a windfall of additional permanent revenues and were spared the 555 Ca(ifarnia Street need to seek voter approval every few years for a serial levy that had become part of the 21 St FIOOf operating revenues of the government. An example is the Tualatin Hills Park and Recreation San Francisco, CA 94104 District. In the past, the district had to seek voter approval every three years for serial levies 415-765-50Q0 that the district relied upon for basic operations. Now, those levies are permanent. Cities and counties, but not schools, still retain some revenue flexibility in the right to pass a local option levy with a majority of the electorate as long as the local option levy does not boost the combined overlapping levy rate above the Measure 5 limits of $10 per $1,000 of assessed value. While the impact of Measure 50 has not been especially severe on cities and counties in the fast-growing areas of the state, slower growth areas and, in particular, rural areas have felt a greater impact. It will take more time for their property tax revenues to return to pre- Standard & Poor's ~ Copyricpt 1998 try 7he McGraw-Hill Companies, Inc. a n+,:i<,r~„ ~~fT;~r Mcrram Hiti C.~~.nunies