Earlier this week, our Finance Director, City Attorney, Fire Chief, and I attended a meeting of taxing jurisdictions in Benton County. The purpose of the meeting was to listen to an explanation of why all the taxing districts, including Albany, are going to lose money as the result of a successful appeal of a tax assessment by Hewlett-Packard (HP) in Corvallis.
We learned that under state law all property taxes collected within a county are placed in an unsegregated or “unseg” account before they are distributed to the separate jurisdictions based on a calculation that includes the size of the tax levy, the property tax rate, and the total assessed value of the district. In short, we are not alone. The way the system works is that if any taxing jurisdiction within a county loses assessed value, all jurisdictions suffer some loss; while if any realize an increase all receive some gain. I’m not sure how I managed to avoid this fact for the first 25 years of my career, but I haven’t discussed the issue with any other city administrator or finance director who knew about it either.
Albany will lose something more than $350,000 next year because of the HP case, and we could lose additional revenue in future years if other large taxpayers successfully appeal their assessments. While the news for us is bad, it is much worse for many other jurisdictions. The recently created Alsea Health District, for example, just learned that it will be helping to pay for a tax refund to HP for years in which the District did not even exist. The District received absolutely no benefit from HP tax assessments in the years in question, but it will help pay the costs of the refund.
Apparently, the unsegregated account was created by the Legislature with the idea that all jurisdictions would benefit from a common property tax pool by getting something more than their actual share under positive circumstances while getting something less under negative conditions. This scheme evens out what could be a bumpy road for individual jurisdictions if large taxpayers go away or do not pay. Most of the impact of a major opening or closing is felt in the district where the taxpayer is located, but the common pool spreads out a portion of either the benefit or the reduction. Corvallis will be losing more than $2 million in the HP case while Albany’s tax revenue is reduced by a fraction of that amount.
The HP example illustrates why it is really important to maintain reserves to deal with unexpected events. The City of Albany has no control over what happens in Corvallis or Lebanon, yet our financial health can be threatened by events in both places. We have reserves sufficient to cover this loss in the short-term, but we will also have to reduce expenditures in the coming year. Some vacant positions will probably not be filled and some planned purchases are likely to be deferred. We have learned some lessons from this experience that include a request to both Linn and Benton Counties that we have better communication about appeals that could significantly affect our budgets. Assessors in both counties have been helpful in explaining the issue, and we now have one more thing to worry about that in the past most of us blissfully ignored.