Item A: Measure 37 Givings Tax - Laserfiche WebLink

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Option 2 – Tax on City investment: The City undertakes public improvements that increase the fair market value of property. Some of the time, the City creates a local improvement district and assesses the benefited property owners the cost of the improvements. Occasionally, the City makes an improvement and pays for that improvement with other public funds, and does not require the benefited property to pay for the improvement. For example, the City may purchase property for and develop a park, or may purchase property for open space. Some of these improvements may increase the fair market value of nearby property. The “local investment” tax would involve taxing that increase in fair market value. Option 3 – Tax on increase from legislative change: When the council adopts changes to land use regulations or plans, depending on the nature of those changes, it is possible that the changes reduce the fair market value of particular properties, but it is equally possible that the changes increase the fair market of certain properties. For example, if the council amends the land use code to expand the types of uses allowed in a particular zone, or relaxes a height or setback restriction, or increases the maximum density for a particular type of zone, the value of certain properties may increase. This option would involve imposition of a tax on the increase in fair market value resulting from an ordinance that amends the land use code or makes a legislative change to the Metro plan or to a refinement plan. Option 4 – Tax on capital gains: The first three options each would impose a tax on increases in fair market value resulting from specific, identifiable and discrete events: an upzoning, a public improvement, or a legislative change to the Metro Plan, refinement plan or land use code. Each of those options also likely would be prospective only – i.e., the tax would be imposed only for future upzonings, public improvements and legislative amendments. (In theory, the tax could be imposed for past upzonings, public improvements and legislative amendments, but the administrative costs and problems would increase significantly.) Option 4 would impose a tax all on increases in fair market value during all or part of the time period that someone owns a piece of real property except for (a) increases in value that result from the owner’s investment (for example, a remodel), and (b) inflation as measured by the CPI or some other index. In theory, the tax (1) could be imposed (and collected) on an annual basis, or alternatively, (2) could become due upon some triggering event, such as the sale of the property or the issuance of a building permit to undertake new construction or a remodel on the property. If the council chose the first alternative (annual basis), each year, the City would have to calculate and all owners of real property (with increased value) would have to pay the tax. If the council chose the second alternative, the tax would be calculated only upon the triggering event. The tax would operate similar to a capital gains tax. First, a difference in value would be calculated by comparing the value from one year to the next (for annual tax), or the value between the triggering events. Second, “investments” by the owner (such as a remodel) would be subtracted from that difference (along with inflation and any other factors chosen by the council), and the remainder would be taxed at a rate set by the council. Attachments A - D include preliminary answers to several questions about how each of these options would work, including legal issues, administration, whether there are any Measure 5 issues, and the impact on the property owners. In addition to those questions, once an option is selected, the council would have to determine several other items: 1. Should the tax apply only where property is vacant, or to all property whether developed or undeveloped? L:\CMO\2006 Council Agendas\M060125\S060125A.doc