Guest opinion
Here’s why taxes can rise when property values drop
By Reg Leguieu, Guest writer Herald and News 2/15/09
Why do property taxes keep going up when property values are going down?
In 1997 Oregon voters approved property tax limitation initiative Measure 50. Measure 50 was labeled the “Cut & Cap” property tax limitation measure. The “cut” was that a new assessed value for every property was established at the previous 1995 real market value minus 10 percent. The “cap” was that this new assessed value could increase just 3 percent per year — so long as it was below real market value.
Allow me to illustrate how Measure 50 works for you. In 2000, the beginning of the “up” market here in Klamath County as elsewhere, a typical residential property in Klamath County had a real market value of $110,000 and an assessed value of $85,000. Remember, the assessed value is the taxable value unless real market value becomes less.
By 2006, the end of the “up” market, a typical residential property had a real market value of $217,000 (an average annual appreciation of 12 percent for a total appreciation of 72 percent in just six years) and a taxable value of $101,500 (an annual increase of 3 percent for a total increase of 18 percent).
While the real market value of typical residential properties increased 72 percent, the taxable value and your property taxes increased just 18 percent (3 percent per year for six years). Remember, Measure 50 limits the increase in taxable value to 3 percent per year. Even if this typical example had sold in 2006 for $217,000, the taxable value would remain $101,500 for the new owners and would still remain limited to a 3 percent annual increase.
Now, let’s say this typical residential property depreciated 12 percent in 2007. The new real market value goes down from $217,000 to $191,000.
Since the taxable value of $101,500 is still less, it still goes up 3 percent to $104,545 and property taxes go up 3 percent.
For 2008 let’s say this typical residential property depreciated another 12 percent from $191,000 to $168,000.
Since that’s still above the taxable value of $104,545, the taxable value will increase 3 percent to $107,680 and property taxes will increase 3 percent.
For 2009 let’s say this typical property depreciates another 12 percent from $168,000 to $147,800. Again, since that’s still above the taxable value of $107,680, the taxable value will increase 3 percent to $110,910 and property taxes will again increase 3 percent.
Property taxes will only go down when real market value drops below the assessed “taxable” value.
Now, let’s compare the annual taxes for this example property under Measure 50 with what they would be if there were no Measure 50, and let’s assume that 2010 will mark the end of the recession and a return to an “up” market: Without Measure 50 With Measure 50 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 2011: 2012: 2013: 2014: 2015: $1,100.00 $1,166.00 $1,236.00 $1,310.00 $1,389.00 $1,472.00 $1,560.50 $1,466.75 $1,378.85 $1,296.00 $1,218.35 $1,291.45 $1,368.95 $1,451.10 $1,538.10 $1,630.40 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 2011: 2012: 2013: 2014: 2015: $850.00 $875.50 $902.00 $929.00 $956.50 $985.50 $1,015.00 $1,045.50 $1,076.75 $1,110.00 $1,143.30 $1,177.60 $1,212.90 $1,249.30 $1,286.80 $1,325.40
What is clearly illustrated here is that, on an “up” market like we experienced from 2000-2006, Measure 50 protects the taxpayer; on a “down” market like we are now experiencing, Measure 50 protects county government and the many taxing districts in Klamath County by continuing to provide 3 percent annual increases. And this illustrates that the taxpayer will pay significantly less total taxes under Measure 50.
I predict that after 2010, we will again experience strong appreciation and increased property values here in Klamath County, and Measure 50 will once again protect the taxpayer from paying more than a 3 percent annual increase in taxes — even if real market value’s soar to new record highs.
Measure 50 provides predictability and security for the taxpayer and local government alike.
Why do property taxes keep going up when property values are going down?
In 1997 Oregon voters approved property tax limitation initiative Measure 50. Measure 50 was labeled the “Cut & Cap” property tax limitation measure. The “cut” was that a new assessed value for every property was established at the previous 1995 real market value minus 10 percent. The “cap” was that this new assessed value could increase just 3 percent per year — so long as it was below real market value.
Allow me to illustrate how Measure 50 works for you. In 2000, the beginning of the “up” market here in Klamath County as elsewhere, a typical residential property in Klamath County had a real market value of $110,000 and an assessed value of $85,000. Remember, the assessed value is the taxable value unless real market value becomes less.
By 2006, the end of the “up” market, a typical residential property had a real market value of $217,000 (an average annual appreciation of 12 percent for a total appreciation of 72 percent in just six years) and a taxable value of $101,500 (an annual increase of 3 percent for a total increase of 18 percent).
While the real market value of typical residential properties increased 72 percent, the taxable value and your property taxes increased just 18 percent (3 percent per year for six years). Remember, Measure 50 limits the increase in taxable value to 3 percent per year. Even if this typical example had sold in 2006 for $217,000, the taxable value would remain $101,500 for the new owners and would still remain limited to a 3 percent annual increase.
Now, let’s say this typical residential property depreciated 12 percent in 2007. The new real market value goes down from $217,000 to $191,000.
Since the taxable value of $101,500 is still less, it still goes up 3 percent to $104,545 and property taxes go up 3 percent.
For 2008 let’s say this typical residential property depreciated another 12 percent from $191,000 to $168,000.
Since that’s still above the taxable value of $104,545, the taxable value will increase 3 percent to $107,680 and property taxes will increase 3 percent.
For 2009 let’s say this typical property depreciates another 12 percent from $168,000 to $147,800. Again, since that’s still above the taxable value of $107,680, the taxable value will increase 3 percent to $110,910 and property taxes will again increase 3 percent.
Property taxes will only go down when real market value drops below the assessed “taxable” value.
Now, let’s compare the annual taxes for this example property under Measure 50 with what they would be if there were no Measure 50, and let’s assume that 2010 will mark the end of the recession and a return to an “up” market: Without Measure 50 With Measure 50 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 2011: 2012: 2013: 2014: 2015: $1,100.00 $1,166.00 $1,236.00 $1,310.00 $1,389.00 $1,472.00 $1,560.50 $1,466.75 $1,378.85 $1,296.00 $1,218.35 $1,291.45 $1,368.95 $1,451.10 $1,538.10 $1,630.40 2000: 2001: 2002: 2003: 2004: 2005: 2006: 2007: 2008: 2009: 2010: 2011: 2012: 2013: 2014: 2015: $850.00 $875.50 $902.00 $929.00 $956.50 $985.50 $1,015.00 $1,045.50 $1,076.75 $1,110.00 $1,143.30 $1,177.60 $1,212.90 $1,249.30 $1,286.80 $1,325.40
What is clearly illustrated here is that, on an “up” market like we experienced from 2000-2006, Measure 50 protects the taxpayer; on a “down” market like we are now experiencing, Measure 50 protects county government and the many taxing districts in Klamath County by continuing to provide 3 percent annual increases. And this illustrates that the taxpayer will pay significantly less total taxes under Measure 50.
I predict that after 2010, we will again experience strong appreciation and increased property values here in Klamath County, and Measure 50 will once again protect the taxpayer from paying more than a 3 percent annual increase in taxes — even if real market value’s soar to new record highs.
Measure 50 provides predictability and security for the taxpayer and local government alike.
