Property Tax Hikes in Portland 11/12/15

In Market Statistics, Uncategorized by Juli

The City of Portland has actively encouraged homeowners to build so-called accessory dwelling units on their property since 2010, waiving thousands of dollars in development fees in each case.

But residents who took advantage of the fee waiver in the past year are seeing those savings largely wiped out in the form of property tax increases, courtesy of Multnomah County assessors. Homeowners who did the same thing in previous years were not hit with a similar tax hike.

Owners of detached units – a small, habitable house in the backyard, for example, complete with foundation – are calling the hikes a cash grab.

But county assessors say they are just following state law; the tax hikes, they maintain, are the result of Oregon’s complicated and inequitable property tax system.

Either way, nobody predicted the tax dispute when Portland officials encouraged the construction of accessory dwelling units through the fee discounts five years ago. And either way, homeowners are stuck with a much bigger bill – at least for now.

Paz Pozarycki and Katharina Grad Steinmeyer started a business, Urban Dwelling Unit, focused on building accessory units. Pozarycki recently built a detached accessory unit of his own on Northeast 17th Avenue, near a popular stretch of Northeast Alberta Street.

Between 2005 and 2014, records show, Pozarycki’s taxes steadily rose from $1,113 to $2,037. But this year, his tax bill shot up to $7,209 – a 254 percent increase.

That’s because in the county’s eyes, the construction of the accessory unit triggered a reset of the entire property’s maximum assessed value to more directly correspond with its real market value. The maximum assessed value in 2014 was $84,920 despite a real market value of nearly $357,000. The maximum assessed value this year was $304,900, significantly closer to the property’s real market value of $513,210.

“We were, of course, completely shocked and rather disappointed,” Pozarycki said. “Because as you may know, my business is building these [accessory units].”

Kol Peterson, an advocate for accessory units who helps edit AccessoryDwellings.org and organizes a self-guided tour of Portland accessory units, said it is “outrageous, what the county is doing.” Before this year, Peterson said, the county only re-adjusted the assessed value of the new accessory unit, not the entire property.

“The county is trying to get away with something,” Peterson said.

Pozarycki’s company has four detached accessory units in the pipeline, he said. Now, he’s concerned about whether his clients will want to build them anymore. He said he likely wouldn’t have built his own accessory unit had he known about the tax implication.

“It doesn’t seem fair in any way,” Pozarycki said.

But property taxes in Oregon aren’t fair for many people.

Oregon has the “most complex, convoluted property tax system in the United States of America,” said Randy Walruff, Multnomah County’s top tax assessor.

“It’s a nightmare,” Walruff said. “It has so many inconsistencies in it.”

Walruff’s explanation for the tax hikes is that the county didn’t recognize until this year that the booming market for new detached accessory units was caused in part by a zoning change Portland City Hall made in 1998. Before then, only attached accessory units – such as a studio over the garage or a basement apartment – were allowed. (Attached accessory units are unaffected by these tax hikes.)

Under the populist tax measures passed by Oregonians in the 1990s, a property’s maximum assessed value can only increase by about 3 percent each year. The base year for a property’s value is 1995.

That has resulted in a system under which neighborhoods that have gentrified quickly since 1995 – such as Pozarycki’s – pay significantly less in property taxes than they would if the burden was re-distributed based on real market value.

But there are certain situations that cause counties to reset the maximum assessed value, bringing it closer to the real market value. For example, if a property such as a church was exempt from taxation in 1995 but is sold and redeveloped today, the county calculates maximum assessed value based on current real market value rather than 1995 value.

Another situation that triggers a similar reset is if the property is re-zoned and then used consistently with that new zoning. Since Pozarycki wouldn’t have been allowed to build a detached accessory unit in 1995, and since he did build one now, the county changed his property’s maximum assessed value.

Walruff acknowledged that his department may have been incorrectly assessing properties with detached accessory units until this year. But the sudden spike in their construction caused his employees to take notice, he said.

“Once we know and have more awareness, we can’t keep doing it wrong,” Walruff said.

The Oregon Department of Revenue, which oversees the administration of property tax law, said in emails obtained by The Oregonian/OregonLive that numerous interpretations, including Multnomah County’s, may be legally sound.

But an interpretation offered by Department of Revenue tax employee Gregg Thummel indicates that perhaps only the new accessory unit and the property’s underlying land – not the pre-existing main home – should have been re-assessed according to current market value.

The issue may need to be resolved by the state’s tax courts or the Oregon Legislature, Walruff said. Homeowners can appeal their tax bills through Dec. 31.

Portland planner Phil Nameny said the city had not considered the property tax implications when officials waived development fees on detached units in an effort to spur density and affordability. The waiver is set to expire next summer.

“How properties are assessed for taxation is a complex issue that we defer to Multnomah County’s expertise. … I think the issue that people are bringing up is whether the assessment of the [accessory units] has been consistent,” Nameny said in an email. “In addition, some of the most popular neighborhoods for [accessory units] are also the neighborhoods that The Oregonian and others identified as having unusually low assessed values in comparison to their market values.”

But all the explanation in the world won’t make the tax bill any lower for Pozarycki, who could rent his main dwelling or the accessory unit to a potential tenant.

“A lot of young people who are trying to live in Portland are complaining about the rents increasing,” Pozarycki said. “And then Multnomah County is turning around and quadrupling the taxes on people. And guess what landlords do? They raise the rents.”