SALEM - City revenues lost due to statewide property tax limitations increased 44 percent this year, from $19.6 million in FY2010-11 to $28.2 million in FY2011-12, according to a report released yesterday by the Oregon Department of Revenue.

The limitations, adopted in 1990 with passage of Measure 5, restrict the amount of tax levied per $1,000 of a property’s real market value (RMV). If taxes exceed their designated limits, the taxes are reduced, or compressed, until the limits are met. For all general governments – cities, counties and special districts – the limitation is $10 per $1,000 of RMV. The limitation is $5 per $1,000 of RMV for schools.

The dramatic increase in compression is largely the result of falling or stagnant real market property values, which dropped 5.3 percent according to the report. Since FY2008-09, when the real estate market collapsed, cities have seen a 161 percent increase in revenues lost to compression.

Increased compression has resulted in a reduction in municipal services, and inhibited the ability of local governments to provide voter-approved services through local option levies – temporary increases in taxes to support specific services.

Measure 50, passed in 1997, imposed permanent property tax rates on all existing local governments. Many of these permanent rates are so low that vital services, such as public safety, are funded through local option levies. Under Measure 5, these levies are compressed first, prior to other permanent taxes.

“Our primary objection to these limitations is that local voters have lost their ability to make local decisions,” said Chris Fick, finance and taxation analyst for the League of Oregon Cities. “The inability of local voters to determine the services they desire – particularly those as vital as public safety – runs counter to what most residents want: responsive local government.”

During the 2011 legislative session, the League introduced HJR 26, which would have allowed local voters to approve local option levies outside of compression, and for a maximum length of 10 years. Currently, the maximum length of a local option levy is five years. HJR 26 would have been referred to the voters.

Counties and school districts also saw similar increases in compression. Counties saw revenue lost to compression increase by 58 percent this year, to $34.3 million. School districts experienced a 70 percent increase, losing $74.5 million.

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