Compression Depression

Oregon city managers are expected to understand public finance and our state’s property tax system, and I believe I can reasonably claim to meet those expectations after working closely with both issues for more than 27 years.  Unfortunately, while I have a good understanding of how things work, I have little influence when it comes to making them work well.  Oregon’s public finance system is broken, and people throughout the state will pay the price in the form of increasing fees (tuition at state universities, for example) and service reductions until it is fixed.

The latest evidence of this problem arrived in Albany when the Linn County assessor reported the amount taxing jurisdictions will lose to compression in this fiscal year and the newest increase in assessed value of property.  Albany is likely to receive about $950,000 less in property taxes this year than we projected, despite the fact that assessed value remains about $500 million less than market value within the Linn County portion of the city.  About $300,000 of the difference between projection and reality was the result of a mistake in reading a tax statement from Benton County, but the remaining $650,000 is simply money lost to compression and a reduced rate of growth in assessed value.

We maintain sufficient reserves to deal with the problem this year; and, as is true every year, we will not spend all the money we budgeted.  These temporary solutions do not, however, resolve the underlying problem.  We are likely to see steadily increasing losses to compression as more properties within the city reach the point where assessed value equals market value, and it is unlikely we will see substantial increases in total assessed value in the near future.  The Council has approved an emergency services levy that will be on the May election ballot; but, even if successful, the levy will not cover the resources we are losing now and expect to lose in the years ahead.

I have asked the directors to discuss the problem within the departments and bring back some ideas about how best to develop a plan for Council consideration.  I believe we have no choice but to cut expenses, but I also believe we can reduce the effects of the cuts on the public we serve and our employees by redistributing resources within the organization. 

The Council will begin discussions on this issue at their Monday work session, although I expect the initial focus will be on the nature and extent of the problem.  In the short-term, I am asking all employees to look at every expense more critically and implementing a General Fund hiring freeze through the completion of our budget process. 

The website, www.Statemaster.com, shows Oregon having the 40th lowest tax burden among the states while the Tax Foundation, which adjusts tax burden to personal income, rates Oregon at the national average.  By any measure, our state has relatively low public expenditures; and our services are starting to reflect that fact.