This report was researched and produced by the Northwest Economic Research Center (NERC) with support from Portland Parks & Recreation.
Parks -- Oregon -- Portland, City planning -- Oregon -- Portland, Portland Parks and Recreation -- Management, Parks -- Oregon -- Portland -- Finance, Property tax -- Oregon
For this report, the Northwest Economic Research Center (NERC) investigated six potential revenue generating measures, as requested by Portland Parks and Recreation (PP&R). This research includes an analysis of the revenue potential for each tax, the impacts of compression in property taxes, and an assessment of tax incidence.
Three of the funding options investigated are forms of property tax: a temporary local option tax, a permanent special district tax, and a general bond obligation. Using 2017 property tax data, NERC built a model that simulates these tax increases for each tax lot in Portland. The growth of Assessed Value (AV) and Real Market Value (RMV) over time are accounted for in revenue projections, which are made from FY2020-21 to FY2024-25. PP&R provided the scenarios that determined the target value to raise independently from any NERC analysis. The rates described in the report are the rates necessary to meet these targets.
Our model estimates a $0.92 (per $1,000 AV) temporary local option property tax would generate roughly $50 million for PP&R in FY 2020-21. This equates to a $76.60 increase (per $100,000 AV) for a typical household. By gradually increasing the rate to $1.19 over a five-year horizon, these revenues can reach up to $68 million by FY 2024-25. For comparison, this would change the average household tax bill increase from $76.60 to $92.10 (per $100,000 AV).
In order to raise the same $50 million, the city would need to levy a permanent special district tax of $0.80 (per $1,000 AV). This fee would increase the typical Portland household tax bill by $67.80 (per $100,000 AV) – about $9 less than the local option. However, adding a special district tax affects the funding of other local tax levies more than adding a local option tax, due to tax compression (a term that describes the mandatory limit on property tax rates in Oregon, as set forth in 1990’s Ballot Measure 5). Compression “squeezes” revenues from both local option and special district taxes, reducing them below expected levels calculated using solely tax rates and property values.
The final property tax revenue option examined is a general obligation bond. This type of property tax does not have compression effects, but does entail the restriction that revenues can only be used for capital purchases (i.e. cannot be put toward operating costs). Because of this caveat, we estimate a bond rate of $0.74 (per $1,000 AV) is required to raise a slightly lower target of $48 million in revenue. Adding this bond is estimated to increase a typical Portland household’s property tax by $74.30 (per $100,000 AV).
The other three funding options analyzed are consumer goods taxes: a transient lodging tax, a cell phone tax, and a prepared food and beverage tax. All three taxes are estimated for 2018.
Lastly, our estimates find that a 5% food and beverage tax in Portland could have generated between $72.9 and $96.1 million in revenue in 2018. The low estimate is derived using 2018 gross national restaurant sales from the US Bureau of Labor Statistics’ Quarterly Census of Employment and Wages (QCEW) survey, scaled to Portland levels, with a 5% rate applied. If the restaurant business is more intensive in Portland than the U.S. as a whole, this may lead to an underestimate. Higher estimates are calculated using revenues from Ashland’s Food and Beverage Tax and the Portland Business License Tax for businesses associated with food and beverage sales.
What follows in this report is a detailed account of how these estimated are obtained, what the funding potential is for each option, how the phenomenon of compression will alter revenues for property taxes, and how the tax burden will be distributed in the local economy for each of the revenue generating measures described above.
© 2020 Northwest Economic Research Center
Hulseman, Peter; Kelley, Katelyn; Nguyen, Hoang; Brophy, Emma; and Northwest Economic Research Center, "Portland Parks & Recreation: Funding and Financial Impact Analysis" (2020). Northwest Economic Research Center Publications and Reports. 47.