East of 82nd Avenue homeowners pay more, while others pay a lot less
When Jean DeMaster sold her Hollywood district home and bought a cheaper house in East Portland, her first property tax bill was a shocker. The new house cost $50,000 less, but property taxes were $600 more.
It turns out that residents east of 82nd Avenue, like DeMaster, routinely pay more property taxes than their counterparts in Southeast, Northeast and North Portland for similarly priced homes. East Portland residents often pay double, triple or four times as much.
82nd Avenue has long been considered an invisible dividing line, a psychological barrier that denotes less-desirable communities to the east. Now, new research by a suburban Portland fire district shows that 82nd Avenue is a demarcation line for property tax disparities as well.
For the most part, its the poor people who are being screwed, says Jody Wiser, leader of the advocacy group Tax Fairness Oregon. It means that our current tax system is actually hurting many of our families that are struggling the hardest.
Unequal property tax bills for same-priced homes is not a new phenomenon in Oregon; it derives from voter approval of Bill Sizemores cut and cap property tax limitation in 1996.
But the stark contrast between East Portland and closer-in eastside neighborhoods wasnt so clear until the release of a color-coded map by Tualatin Valley Fire & Rescue last year. The map depicts most of the residential areas of North, Northeast and Southeast Portland in shades of blue, which means homeowners are paying property taxes on less than 60 percent of the true value of their homes. Starting at 82nd Avenue and moving east, neighborhoods suddenly shift to warmer colors, which means residents are assessed taxes on 80 percent, 90 percent or 100 percent of their homes market value.
After seeing the map, DeMaster had a clearer understanding of why her tax bill went up when she moved from Northeast Portland to East Portland. As executive director of Human Solutions, an East Portland community development agency, she is one of many citizens pressing the city of Portland to address decades of neglect east of 82nd Avenue.
We receive less services, DeMaster says, but it looks like were paying proportionally a higher share of taxes.
In contrast, gentrified neighborhoods in inner North and Northeast Portland are paying the lowest share of property taxes relative to their home values.
I think its outrageous, says Portland City Commissioner Steve Novick. Many African-Americans and others displaced by gentrification moved to cheaper housing in East Portland, Novick notes. Now theyre paying higher taxes than the people that displaced them.
How it happened
Sizemores Ballot Measure 47 dropped assessed property values back to 1995 levels, then cut them another 10 percent and capped future increases at 3 percent a year with little regard for what subsequently happens to neighborhoods or home prices.
As a result, some North and Northeast Portland homeowners only pay property taxes on 5 percent or 10 percent of their actual property value, says Randy Walruff, Multnomah County assessor.
Many of those neighborhoods were tarnished by gang violence in the early 1990s, which depressed home prices. Some empty lots were assessed at only $500 when county assessors walked door to door in 1996 to reset taxable values in inner North and Northeast Portland, Walruff recalls.
When Measure 47 set assessed values back to 1995 levels, that nullified the new values set by county assessors during the 1996 physical reappraisal. And there was no longer a need for assessors to walk door to door to physically reappraise properties every six years; now annual adjustments are principally a matter of adding 3 percent to the prior years assessed value.
Consequently, North and Northeast Portland had the most outdated assessed values in the county as Measure 47 took effect. In later years, North and Northeast Portland became more trendy, and Northeast Alberta Street and North Mississippi Avenue redeveloped into thriving commercial corridors. Housing prices skyrocketed.
Gentrified areas arent the only Portland neighborhoods where property taxes are relatively low. Many closer-in neighborhoods grew more desirable after 1995. As home prices shot up faster than 3 percent a year at least until the Great Recession market values zoomed much higher than assessed values.
In contrast, theres been an influx of low-income people and immigrants into East Portland since 1995. Home values didnt climb much faster than 3 percent a year, if that, so assessed values were closer to actual market values.
Home value trends on Portlands west side were more varied, with no clear pattern. Gresham home values seemed to parallel those in East Portland.
A 2010 study by the Legislative Revenue Office found that Multnomah County had the most inequities in property tax assessments in Oregon. Tax assessments for about 4,700 Multnomah County homeowners were equal to less than 20 percent of their homes market values that year, while about 1,150 homeowners were assessed taxes on more than 90 percent of their homes value.
Bye-bye to progressive taxes
Oregon has long prided itself on having a progressive tax system, where those with higher means pay higher levels of taxes. Homeowners with more expensive homes paid more for schools and other local services than those with lower-priced homes.
But thats not necessarily the case any more.
You have taken the property tax system and turned it into something other than a progressive system, says Eric Chambers, senior adviser to Gresham Mayor Shane Bemis.
And, as the Portland-area housing market recovers, inequities in property tax assessments will grow, according to economic analysts at the Legislative Revenue Office. This is because the recovery will likely be uneven, with certain properties, neighborhoods and regions of the state growing more rapidly than others, analysts concluded in their 2010 report.
Folks in East Portland appear to be getting hurt the most. Gresham, where assessed values also are more in line with home values, has a city tax rate that is close to half of Portlands, Chambers notes.
Even the people who are renting there (in East Portland) are having to pay more rent because the taxes are higher, Wiser says.
One of the constitutional amendments being pushed by the Oregon League of Cities could exacerbate inequities for East Portland residents, Novick says. That amendment would enable residents to vote for local property tax levies that exceed overall tax rate caps set by 1990s Measure 5 tax limitation. East Portland residents would have to pay the higher tax rate on a larger share of their propertys value than their counterparts elsewhere in the city.
Fueling more gentrification?
The negative ramifications of property tax inequities go beyond East Portland.
Were going to continue to see taxpayer confidence in the tax system erode, says Walruff, the county assessor. They dont know why, but from their perception, its not fair.
Unequal property taxes also skew the real estate market.
If a prospective homebuyer encounters a North Portland home with property taxes costing $200 a month less than a comparable East Portland home, the North Portland home is more affordable, and easier to qualify for a home loan.
Eventually, relatively low property taxes can drive up home prices in North, Northeast and Southeast Portland, while relatively high property taxes can drive down prices in East Portland.
It encourages more rapid gentrification and instability in neighborhoods that used to be more affordable, says Carl VanderZanden, a Northeast Portland landlord and real estate investor.
In effect, property tax disparities caused in part by gentrification can lead to more gentrification.
You can argue that its somewhat of a self-fueled increase, Walruff says.
Relatively low property taxes in the inner-east side are great for an investor buying rental houses, VanderZanden says. You can go in and your property taxes are still minuscule.
But that can hurt homebuilders, he says, especially those doing in-fill housing. This year, the average Multnomah County home is assessed at 73 percent of its market value, and a new in-fill home would inherit that property tax break. But a competing older home next door might have a much lower taxable value, making the new home a harder sell, VanderZanden says.
The system is completely irrational, he says. I can hardly believe that its legal.