Many property owners in Baker County are likely to be surprised when they peruse the property tax bills that arrive by mail later this month.

And it won’t be a pleasant surprise for some, said Kerry Savage, the county assessor.

The significant increase in the market value for many properties over the past year or so means the tax tab for some of those property owners will rise by more than the 3% limit on increases in assessed value that voters set when they passed Measure 50 in 1997.

But probably not substantially more, Savage said.

The overall property tax billings for the county, including cities, counties and special districts such as the library and vector control, have increased by 5.5% over the previous year, he said.

Property owners whose tax bill goes up by more than 3% generally should be in the 5% to 6% range, Savage said.

He anticipates more calls and emails from property owners than usual this fall since more of them, compared to past years, will see increases larger than 3%.

Tax statements will be mailed later the month; state law requires that they be mailed no later than Oct. 25.

Different values

Delving into how property taxes are calculated has become more complicated in Oregon since voters passed a pair of tax-limiting measures,

Measure 5 in 1990 and Measure 50 in 1997.

Prior to Measure 50, property taxes were based on the property’s market value, and there were no limits on how much market value could increase annually.

But Measure 50 severed the direct link between real market value and tax bills. The measure added a new figure — assessed value. Over the past quarter century, property taxes have been calculated based on the assessed value, and Measure 50 limited annual increases in the assessed value to 3%.

The purpose was to prevent much larger yearly jumps in tax bills.

But Measure 50’s limit on assessed value increases doesn’t mean your tax bill can’t rise by more than 3% from year to year, Savage said.

The most obvious reason for a tax bill to exceed the 3% limit is if you add on to your home or make some other physical improvement that raises the value, by the assessor’s office estimate, by $10,000 or more. The addition can boost the assessed value, and thus the tax bill, by more than 3%.

The less obvious situation — and the one that will affect quite a number of property owners in Baker County this year, involves properties that weren’t physically changed over the past year.

The assessed value for such properties can’t increase by more than 3% — the Measure 50 limit.

The other column on your tax statement, however — real market value — isn’t subject to the 3% cap. And although your tax bill, as mentioned, is based on assessed value rather than real market value, if the difference between the two figures gets wide enough — and the real market value, as is most often the case, is higher than the assessed value — the result can be a tax bill increase greater than 3%, Savage said.

The reason lies with the older of the two tax measures, Measure 5 from 1990.

That measure limits property tax payments by setting caps on the two tax categories — local government, which includes property taxes that go to cities, counties and special districts, and education, which includes local school districts and community colleges.

The Measure 5 limits are $10 per $1,000 of property value for local governments, and $5 per $1,000 for schools.

But here’s the rub — the property value used to calculate Measure 5 limits isn’t assessed value, but rather real market value.

If the tax obligation on a property, based on assessed value, exceeds the Measure 5 limits, that triggers what’s known as “compression.” That means the property owner pays no more than the Measure 5 limits of $10 per $1,000 for local governments and $5 per $1,000 for education, even if the tax obligation is higher based on assessed value.

Savage said properties are more likely to be in compression — meaning their tax bill is smaller than it would be without Measure 5 limits — if the real market value is only slightly higher than the assessed value.

But as that gap grows — if the real market value rises faster than the assessed value — then it becomes more likely that the tax obligation won’t exceed the Measure 5 limits, meaning the property owner will, in effect, pay the full tax obligation with no reduction due to compression.

And for many of the county’s 16,000 to 17,000 property tax accounts, that gap between values has grown significantly over the past year, Savage said.

The explanation is simple.

Real market values are rising because the prices people are paying for homes and other properties has skyrocketed, as anyone knows who has either bought or sold, or even perused a real estate publication.

Savage said the assessor’s office bases real market values on those actual sales.

And crucially, there is no cap on annual increases in real market values.

Assessed values, however, are limited to the 3% annual rise established by Measure 50.

Effects of compression

So why does a big jump in real market value result in a bigger tax bill, when taxes are based on a different value — assessed?

The answer lies in Measure 5 and compression.

Consider a property in Baker City that has a real market value of $150,000 and an assessed value of $140,000.

The Measure 5 limit for that property, for local government only (not including education), is $1,500 — $10 per $1,000, or $10 multiplied by 150.

But the property tax obligation for that same property, based on its assessed value of $140,000, would be about $1,584 (again, this is for local government only; an actual bill, including education, would be substantially higher).

Because that exceeds the Measure 5 limit by $84, the property owner would pay $1,500, resulting in a compression totaling $84 (money that the local government would not receive).

But as Savage noted, real market values have risen considerably over the past year, with increases of 20% to 25% common.

Let’s say the aforementioned property’s real market value has risen by 20% — from $150,000 to $180,000, a percentage that Savage said is not uncommon in the county over the past year. Yet due to Measure 50, that property’s assessed value could increase by no more than 3% — to $144,200. Due to the increase in real market value, the property’s Measure 5 limit for local government rises from $1,500 to $1,800.

The tax obligation for local government would be about $1,632. And since that’s less than the Measure 5 limit, the property owner would pay the full $1,632 — no compression.

The increase in the tax payment from $1,500, with compression, to $1,632, without compression, is an 8.8% jump — higher than the 3% cap on the rise in assessed value.

Savage doesn’t have an estimate for how many property owners will see a comparable scenario on their tax statement this year, but he said there will certainly be more than in the past. And that’s due largely to the large rises in real market value, pushing the Measure 5 limits higher and significantly reducing compression.

One statistic partially illustrates the trend.

In the 2020-21 tax year, 1,963 property tax accounts in the county had equal assessed and real market values. Those are properties where compression was likely.

That number dropped to 1,770 in 2021-22, and to 1,449 for the current tax year, Savage said. The bottom line, he said, is that there are more properties where the real market value has risen faster than the assessed value, making compression less likely and increasing the chances that the tax bill will increase by more than 3%.

Savage said that although he expects to field more questions than usual about tax statements, he also knows it’s hardly a secret that home prices have risen rapidly.

“I think most people understand that the market is increasing, and expect to see differences in their bill,” he said.

Effects vary around the county

Generally speaking, properties within the Baker City or Huntington city limits are more likely to be under compression, and thus more likely to see bigger increases in their tax bills due to the rapid rise in real market values.

The reason is that those two cities have higher tax rates — part of the local government category — than other incorporated cities in the county.

Baker City’s rate is $6.33 per $1,000, and Huntington’s is $9.60.

Also, properties inside any city pay taxes both to that city and to the county, both of which count toward the Measure 5 limit of $10 per $1,000 of real market value for the local government category.

That means properties within Baker City or Huntington exceed the $10 per $1,000 limit based solely on the city and county ($3.73) tax rates. Add rates for special districts such as the library and weed and vector control, and those properties, so long as there is a relatively small gap between their real market and assessed values, will likely see a reduction in their tax bill due to compression.

Owners of properties outside any city’s limits are less likely to be in compression because they pay taxes to the county at $3.73 per $1,000 of real market value, but no taxes to a city, so they generally stay below the Measure 5 limit of $10 per $1,000.

For those properties, even a large increase in real market value is less likely to result in a big rise in their tax bill because they haven’t had any reductions in their bills due to compression, so their actual payments will rise by no more than the increase in their assessed value, which is limited to 3% per year.

When a property’s real market value rises more rapidly than the assessed value, it’s more likely that the owner will see a larger increase in the tax bill.

Although the tax obligation is based on assessed value, which can increase by no more than 3% per year, property tax limits are based on real market value, which has no such limits on annual increases. That means the tax limit can rise by much more than 3% annually, and the larger the difference between that limit and the actual tax obligation, the more likely the actual tax owed will increase by more than 3%.

The following examples are for illustration purposes, and don’t represent any actual properties.

EXAMPLE 1: House in Baker City

2021

Real market value: $150,000

Assessed value: $140,000

Measure 5 tax bill limit: $1,500 ($10 per $1,000 of real market value)

(For local government only; doesn’t include taxes for education)

Approximate tax obligation for local government: $1,585

Actual tax bill for local government: $1,500 (Measure 5 limit; remaining $85 is not owed due to compression)

Same house, 2022

Real market value: $180,000 (20% increase due to rapid rise in actual housing sales figures)

Assessed value: $144,200 (increase limited to 3% per year)

Measure 5 tax bill limit: $1,800 ($10 per $1,000 of real market value)

(For local government only; doesn’t include taxes for education)

Approximate tax obligation for local government: $1,632

Actual tax bill for local government: $1,632 (below Measure 5 limit, so no compression)

Increase in actual tax bill for local government: 8.8% (from $1,500 to $1,632)

 

EXAMPLE 2: House in Baker County, unincorporated

2021

Real market value: $150,000

Assessed value: $140,000

Measure 5 tax bill limit: $1,500 ($10 per $1,000 of real market value)

(For local government only; doesn’t include taxes for education)

Approximate tax obligation for local government: $805

Actual tax bill for local government: $805 (below Measure 5 limit, so no compression)

Same house, 2022

Real market value: $180,000 (20% increase due to rapid rise in actual housing sales figures)

Assessed value: $144,200 (increase limited to 3% per year)

Measure 5 tax bill limit: $1,800 ($10 per $1,000 of real market value)

(For local government only; doesn’t include taxes for education)

Approximate tax obligation for local government: $830

Actual tax bill for local government: $830 (below Measure 5 limit, so no compression)

Increase in actual tax bill for local government: 3.1% (from $805 to $830)

“I think most people understand that the market is increasing, and expect to see differences in their bill.”

— Kerry Savage, Baker County assessor, talking about property tax bills