SALEM — As lawmakers meet around the state to discuss how to overhaul the state’s public education system, they’ll eventually face the question of how to pay for it.
Changes to the state’s property tax system, which has implications for school funding, could be on the table.
“We do not have a revenue structure in this state that can sustain the investments we need in our education system, so we’re going to have to change it,” House Speaker Tina Kotek, D-Portland, told attendees at the annual Oregon Coastal Caucus Economic Summit last week.
Any change in Oregon’s complex property tax system is politically difficult because it would require voters to approve changes in the Oregon Constitution.
In 1990, Oregon voters approved Measure 5, which instituted constitutional limits on local property taxes of $1.50 per $1,000 of real market value. In 1997, voters approved Measure 50, which changed how property taxes are calculated, decoupling assessments from market values and placing a limit on their annual growth.
Supporters say the system’s limits protect taxpayers from sharp annual increases and require local governments to be thrifty.
Detractors, however, say that the system, which among other caps and restrictions, typically taxes owners on the assessed value of a property — rather than its real market value — creates significant disparities in property taxes, even between similar properties in the same area.
State Sent Mark Hass, D-Beaverton, the chair of the Interim Senate Committee on Finance and Revenue, said this week that, while keen to fix inequities in the system, he would prefer to make changes to the property tax system in a “revenue-neutral” way.
He would focus on tweaking Measure 50.
“I’m not looking at revenues as much as I’m looking at reforming the tax code to make it more efficient and less volatile,” Hass said Monday. “So to me, any kind of work like that is preferably revenue neutral.”
At the same event where Kotek spoke, Senate President Peter Courtney, D-Salem, described how K-12 education in Oregon used to get two-thirds of its funding from local property taxes. Instead, now the funding burden lies almost solely on the state’s general fund, which relies on the highly volatile income tax.
Without Ballot Measures 5 and 50, he said, property taxes would been about $3.5 billion higher per year, with roughly $2.1 billion of that allocated to schools.
“That shows you the magnitude of what happened to this state in 1990,” Courtney said. “We have never replaced that source of funding...that is why we’re struggling so much.”
The prospect of taking up property tax reform next year is somewhat “daunting,” Hass said, for a few reasons.
Voters would need to approve changes to the state constitution to change the property tax code, which would require educating voters about a complex issue.
Democratic Gov. Kate Brown, who indicated support for changes to the property tax system in May, said at the time that educating voters on the issue would have to come first. Her spokespeople did not return a request for comment Tuesday.
Rep. Knute Buehler, her Republican challenger, wants to increase education spending by 15 percent. He has suggested funding his plan with cuts in employee benefits packages.
Lawmakers attempted to make changes to the system last year. But even when they floated a homestead exemption, which would exempt part of a home’s value from taxation, the legislation proved to be a “big lift,” Hass said.
“So we’re scratching our heads and trying to figure out what can be done in the next session,” Hass said. “...This has got nothing to do with shortfalls or elections or anything, but it’s a really huge issue.”