HomeMy WebLinkAboutItem C: Measure 37 Givings Tax
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Work Session: Measure 37 Givings Tax
Meeting Date: May 22, 2006 Agenda Item Number: C
Department: Planning and Development/City Attorney Staff Contact: Susan Muir/Glenn Klein
www.eugene-or.gov Contact Telephone Number: 6682-6077/682-5080
ISSUE STATEMENT
Ballot Measure 37 requires that when certain regulations restrict the use of property and reduces its
value, the government must pay compensation for such restrictions or waive the regulation. The
purpose of this work session is to explore further analysis of two options for the creation of a tax or
charge on “increases in value,” known as a “givings tax,” in order to create a fund to pay such
compensation claims.
BACKGROUND
At the January 19, 2005, City Council meeting, Councilor Bettman noted that one of the impacts
of Measure 37 is to make it more difficult for the City to revise existing regulations and adopt
new regulations by requiring compensation (or waiver of the regulation) if the regulation reduces
the value of a property. Councilor Bettman also noted that while some regulations may reduce
the value of some property, other regulations (and other government actions) can also have the
effect of increasing the value of other property. She asked the council to hold a work session to
explore whether the City should pursue the creation of a tax, fee, or charge to capture some of the
increase in value in order to fund payment of Measure 37 claims.
At a January 25, 2006, work session the City Attorney and staff presented four separate options for a
possible givings taxto fund Measure 37 claims. The four options were reviewed and discussed by the
council. The council directed the City Manager to study Option 1 and a modified version of Option 3 in
more detail, including completing a proposed analysis of the tax amount and economic consequences,
and return to the City Council with focused decisions to be made around implementation of such an
ordinance. The two options are Option 1 – Tax on “upzonings” and Option 3 – Tax on increase from
legislative change (where property owner takes advantage of the legislative change).
Measure 37 Litigation
On October 14, 2005, the Marion County Circuit Court issued a decision finding that Measure 37
was unconstitutional. That decision was appealed directly to the Oregon Supreme Court. Earlier this
year, the Supreme Court issued a decision declaring Measure 37 constitutional and reversing the circuit
court’s decision.
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Other Jurisdictions
“”“
Staff is unaware of any other jurisdiction in Oregon that has adopted a givings or value
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added tax. The Metro Council (Metropolitan Service District) is looking at the possibility of
“”“”
adopting a windfall tax. The tax being discussed would be imposed on the windfall to
property owners when their land is brought inside the UGB. Half of the funds raised would be
used to purchase conservation easements on farmland that have valid Measure 37 claims. The
other half would be used to pay for public improvements like schools, roads and sewers in the
UGB expansion areas. Metrois continuing to examine this idea.
Tax Options
The proposed “givings tax” would be based upon the marginal additional real market value enjoyed by
the user of land as a result of certain governmental actions. As the beneficiary of the value of these
governmental actions, the user of the land, upon applying for change in zoning or plan designation
(Option 1) or a land use or building permit application utilizing designated legislative changes (Option
3) would be liable to pay the tax.
The City’s home rule powers give the council the authority to adopt such a tax and set a tax rate by
ordinance. No voter approval would be required, although the tax would be subject to referendum.
Current rezoning and plan amendment procedures or land use permit procedures will need to be revised
to incorporate the tax.
It is difficult to estimate the economic impacts that might result from implementation of a givings tax. If
the tax rate is low and the taxing process is not burdensome, it may have very little effect. But if the tax
rate is high or the process is burdensome, it could discourage citizen-initiated rezonings, changes in plan
designation, or building permit applications. To the extent these activities are discouraged, some
economic activity may be lost and some land may remain in a less efficient use that would otherwise be
the case. In the end, whether the tax has an economically detrimental effect will depend on the details of
its construction and implementation.
The City Attorney and staff from Finance and PDD have done further analysis of Option 1 – Tax on
“upzonings” and Option 3 – Tax on increase from legislative change. The two options are described
below and are summarized in the table in Attachment A. It is important to note that the Givings Tax
concept breaks new ground and there are many outstanding questions that remain to be answered as the
concept is developed.
Option 1 – Tax on Upzonings:
Citizens occasionally request the City to change the zoning on
property, or the land use designation for property in the Metro Plan or in a refinement plan. Oftentimes,
the change in zoning or plan designation will allow more valuable uses and will increase the real market
value of the property. Whether an increase will occur and its extent will vary considerably, depending
on location, types of uses allowed and the demand for a particular use.
While rezoning or change in designation in most cases will increase land real market value, the value of
existing improvements on the land may not increase. This is because existing improvements probably
will not see a change in use without some new investment, and may not be compatible at all with the
uses allowed under the new zone or plan designation.
Lane County Assessment and Taxation does not automatically revalue property that has been rezoned or
has had a change in plan designation. Instead, property is revalued under the new zone or change in
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designation when Lane County becomes aware that the use of the property has actually changed, usually
as a result of notification that a land use permit has been filed with the City. This may occur months or
years after a rezoning or change in plan designation is completed. One approach to imposing the tax
would be to wait until Lane County Assessment and Taxation records a change in use and new real
market value, and impose the tax at that time. This would normally be long after the rezoning or change
in plan designation is complete. Subject properties would need to be tracked and a separate billing,
collection and enforcement process would be needed in this case.
If the tax were imposed and collected at the time of the rezoning or change in plan designation, rather
than later as a separate process, changes in real market value could be determined by individual property
appraisals, but a reasonable alternative could be to estimate changes in real market values using citywide
data for similar property.
Typical values per acre can be calculated for each zone from citywide data provided by Lane County
Assessment and Taxation. These typical values can then be used to estimate the change in real market
land value for a piece of land. The difference between the estimated new value after the rezoning or
change in designation and the prior value could be the basis for the tax. A tax rate could then be applied
to this basis amount to determine the tax due. However, it would not feasible to estimate change in
value of improvements in the same way; an individual appraisal would probably be needed to determine
the change in real market value of improvements.
If individual appraisals are used (and they would be necessary if improvement value is included in the
basis of the tax) each property would need to be appraised twice: once under the old zone or plan
designation and once under the new. The cost of individual appraisals would be two or three thousand
dollars per property and could be quite a bit higher, depending on the property involved.
Attachment B shows the typical value of land per acre in 2005 for various zones, calculated from the
current real market values for all property in each zone within the City of Eugene. Values of
improvements are not included because the change in value for improvements cannot be reasonably
estimated without an individual appraisal of the property. Some special area zones do not show typical
value in Attachment B because there is currently no information on these zones in the Lane County
Assessment and Taxation database. Overlay zones and plan designation values are also not included in
this table due to lack of information. Additional analysis will be necessary to determine the effect of
special zones, overlay zones and plan designations on real market values.
In order to estimate the revenue that a tax on rezoning and change in plan designation might yield, this
analysis is based on the following assumptions.
Only citizen-initiated rezoning or change in designation applications for property within the city
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would be subject to the tax. A City-initiated action would not trigger the tax.
The tax would be collected at the time of approval of a rezoning or change in designation
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application. Assuming that payment of the tax is a condition of approval of the rezone or change in
designation, no new billing, collection and enforcement process should be needed and attendant
costs will not be incurred by the City. The biggest potential cost would be the cost of litigation is
someone challenges the legality of the proposed tax.
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When a rezoning or change in designation application is submitted, the land’s typical real market
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value under the old zone or plan designation will be compared with the land’s typical value under
the new zone or designation, based on Lane County Assessment and Taxation typical land value per
acre for that zone or designation. Values of improvements are excluded from this calculation. The
City would avoid the costs of individual property appraisals under this assumption.
Property owners could be given the option of accepting the City-determined value (as noted in the
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prior paragraph), or could obtain (at their own cost) an appraisal. If the property owner gets an
appraisal, the City could then accept that appraisal or obtain its own.
The tax rate is assumed to be a flat percentage applied to the estimated change in real market value.
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The actual rate structure to be imposed will be determined by the council.
About 25 citizen-initiated rezoning or change in plan designation applications are normally submitted
each year, though this number varies and has been as high as 50 in recent years. In 2005, under the
assumptions noted above, the estimated change in real market value of land for applications submitted
was about $2.25 million. The average change in real market value was about $9,000 per property,
though this ranged from a low of $300 to a high of $39,000 for individual properties.
Under these assumptions, in 2005, each 5 % increment in the tax rate would have generated estimated
gross revenues of about $113,000. With one possible exception, nearly all of that would be available for
appropriation because administration of the tax would be fairly simple and administrative costs would be
low. The one exception is that some additional resources may be required if a property owner submits
his or her own appraisal (rather than relying on median values); if such an appraisal is submitted, it will
need to be evaluated and then the City may need to obtain its own. Other than that appraisal issue, no
additional FTE is expected to be required and administrative expenses are expected to remain low after
modest setup costs. However if the tax were not made a condition of approval of the rezoning or change
in plan designation, a billing, collection and enforcement process might have to be established. If
appraisals were required to establish change in real market value on a property by property basis, rather
than using typical real market values by zone, the costs would likely be higher by an average of several
thousand dollars per property. If value of improvements were included in the basis for the tax,
individual appraisals would be required and costs would be higher, and there is no certainty that change
in real market value and resulting the gross revenue would be significantly higher.
Focused Decisions - If the council chooses to more forward with this option, the following focused
decisions will provide direction to staff for development of a draft ordinance:
1.Should only citizen-initiated rezoning or change in designation applications for property within the
city would be subject to the tax, excluding City-initiated actions?
2.Should the tax be collected as a condition of approval of a rezoning or change in designation
application, or should the tax be collected separately from the rezoning or change in designation
process, requiring a separate tracking, billing, collection and enforcement process?
3.Should change in real market value of land be estimated using typical per acre values calculated
from Lane County Assessment and Taxation data for all property within each zone citywide, or
should the value be determined with property by property appraisals?
4.Should change in value of improvements be included with change in value of land to determine the
basis for the tax, necessitating property by property appraisals?
5.Should the tax rate be a flat percentage applied to the estimated change in real market value for all
rezonings or changes in plan designation, or should another rate structure (stepped, discounted, by
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zone, etc.) be examined? If a flat percentage is used, what percentage should be used for a draft
ordinance?
Option 3 – Legislative Change Tax:
When the council adopts legislative changes to land use
regulations, Metro Plan or refinement plans, depending on the nature of those changes, it is possible that
the changes increase the real market value of certain properties. For example, if the council amends the
Land Use Code to expand the types of uses 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 a certain property may
increase. This option would involve imposition of a tax on the estimated increase in real market value
resulting from an amendment to the Land Use Code, a legislative change to the Metro Plan or to a
refinement plan.
Only legislative changes that result in a significant increase in real market value would be used to
determine the basis of the tax. It would be beneficial for the City to obtain the services of a certified
appraiser or economist with experience in property appraisal to identify the significance of legislative
changes by estimating the resulting typical marginal increase in real market value that may occur.
The tax would not be imposed until a triggering event occurs. This might be when a citizen-initiated
building permit application is submitted. Payment of the tax could then be a condition of issuance of the
permit, eliminating a need for a separate billing, collection and enforcement process.
When a triggering event occurs, the change in real market value from the applicable legislative changes
would then need to be calculated. For this step in the process, the City could retain a certified appraiser
to perform a property-specific appraisal to estimate the change in real market value resulting from the
applicable legislative changes. It is likely that the cost of individually appraising the property to
determine the basis for the tax would be several thousand dollars and in some cases could be higher.
Under this option, a list would need to be kept by the City of each legislative change that has the
potential of increasing the value of property. When someone applies for a building permit or land use
approval, the City would need to examine the list to determine whether the proposed development would
be relying on (i.e., taking advantage of) one or more of the changes. If so, an appraiser would need to
determine the amount of the increase in value and a tax calculated. There will be a significant
administrative cost associated with tracking this information.
About 2,250 permits were issued for new building, additions and alterations in 2005. Estimates of the
number of permits that would be subject to the tax, the potential tax revenue, and cost of implementation
will depend upon council direction and further analysis. However, it would be reasonable to say at this
time that between one and four FTE would likely be required to accomplish review of permits or sales,
track legislative changes and property, handling public inquiries, administering appeals, and possibly
making appraisals, billing, collecting and enforcing the tax, at a cost of $100,000 to $400,000 annually.
Implementation of this option also has the potential of delaying high-priority work tasks for PDD. The
extent of any such delay is impossible to estimate until staff begins implementing this task.
Focused Decisions - If the council chooses to move forward with this option, the following focused
decisions will provide direction to staff for development of a draft ordinance:
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1.Should the City obtain the services of a certified appraiser or economist with experience in property
appraisal to identify the significance of legislative changes by estimating the resulting typical
increase in real market value that may result?
2.Should the tax rate be a flat percentage applied to the estimated change in real market value, or
should another rate structure (stepped, discounted, by zone, etc.) be examined? If a flat percentage is
used, what percentage should be used for a draft ordinance?
RELATED CITY POLICIES
Measure 37 may have an impact on the City’s ability to regulate property under its Land Use Code
(Eugene Code, Chapter 9). Creation of a fund to pay compensation for Measure 37 claims could assist
the City in preserving its regulatory authority in this context.
COUNCIL OPTIONS
1.Direct the City Manager to prepare a draft ordinance for Option 1 with a flat tax percentage of [ %]
and schedule a public hearing. (Note: Since the tax would also involve changes to Chapter 9 of the
Eugene Code, the ordinance would first go to the Planning Commission for a public hearing and
recommendation.)
2.Direct the City Manager to prepare a draft ordinance for options 1 and 3, with a flat tax percentage
of [ %] and schedule a public hearing. (Note: Since the tax would also involve changes to Chapter 9
of the Eugene Code, the ordinance would first go to the Planning Commission for a public hearing
and recommendation.)
3.Direct the City Manager to prepare a draft ordinance for Option 3 with a flat tax percentage of [ %]
and schedule a public hearing.
4.Take no action.
CITY MANAGER’S RECOMMENDATION
The City Manager previously recommended that the council not move forward with a givings tax until
after other jurisdictions in Oregon tried and tested such a tax. The council decided that the potential
revenue from such a tax (as a way to pay Measure 37 claims) was worth the cost of being first in the
state – at least if additional analysis of options 1 and 3 suggested that the options were viable. Based on
the additional analysis, it appears that Option 1 is viable and can be implemented in a manner that will
develop a revenue source for payment of Measure 37 claims without a significant increase in workload
for City staff. The most significant downside of proceeding with Option 1 is the potential litigation cost
should someone challenge the legality of the tax.
In light of the prior direction by the council and the additional analysis, the City Manager now
recommends Option 1 – i.e., that the council direct the manager to prepare a draft ordinance for Option 1
and schedule a public hearing before the Planning Commission and then the council. Depending on the
percentage of increased value that the council wants to capture, it is likely that this option could raise
several hundred thousand dollars per year, and other than the potential litigation costs, the administrative
costs for this option are relatively low. Option 3, on the other hand, would have very high
administrative costs and the projected revenue is probably low.
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SUGGESTED MOTION
Move to direct the City Manager to prepare an ordinance for Option 1 with a flat tax percentage of [ %]
and schedule a public hearing before the Planning Commission and City Council on the draft ordinance.
ATTACHMENTS
A. Table summarizing Option 1 – Tax on “upzonings” and Option 3 – Tax on increase from legislative
change
B. 2005 Median Real Market Value per Acre of Land (excludes improvements)
FOR MORE INFORMATION
Staff Contact: Susan Muir, Executive Director
Telephone: 682-6077
Staff E-Mail: susan.l.muir@ci.eugene.or.us
City Attorney: Glenn Klein
Telephone: 682-5080
Staff E-Mail: glenn.klein@harrang.com
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ATTACHMENT A
Table summarizing and
Option 1 – Tax on “upzonings” Option 3 – Tax on increase from
legislative change
Option 1 – Tax on “upzonings” Option 3 – Tax on increase
from legislative change
Categories of actions included Quasi-judicial site-specific Land use code changes affecting
actions multiple properties
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Specific actions to be subject to
Rezoning Individual permits subject to
tax
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those portions of the land use
Change of designation in
code subject to the tax.
Metro or refinement plan
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Criteria for imposition of tax
Citizen-initiated rezoning or Citizen-initiated permit
change in designation. application.
??
New zone or designation will Portions of the applicable
increase real market value of land use code increase the
the property. real market value of the
property
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The tax has not previously
been imposed for those
portions of the land use code.
Basis for tax Change in real market value Change in real market value
under new zone or designation, resulting from applicable
compared to real market value legislative change, compared to
under old zone or designation. real market value absent the
legislative change.
Methodology New value is to be assigned List maintained of legislative
administratively by the City, changes with potential to
based on median real market significantly affect value. When
value per acre for all land in the property owner submits building
city with that zone or designation permit or land use application,
times the number of acres. Old list of legislative changes
value is the real market value checked to determine whether
assigned to the land by Lane application would take
County Assessment & Taxation. advantage of one or more of the
Marginal increase in value is the changes. If so, then appraisal
difference between the old value performed to determine increase
and the new value. Median in value of property resulting
values per acre for each zone or from that legislative change.
designation will be adopted by
administrative rule and are to be
updated annually with most
recent tax year information. If
property owner disagrees with
city-assigned value, property
owner can submit appraisal from
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certified appraiser; city then
could choose to accept that
value, or get its own appraisal.
Likely number of There are about 25 owner-There are about 2,000 building
actions/permits affected each initiated actions per year. permits issued annually.
year
Potential annual revenue Estimated to be about $100,000 Uncertain. Requires further
per 5% tax increment assuming analysis.
25 actions per year.
Administrative requirements Nominal, unless individual Between 1 to 4 FTE, at a cost of
appraisals are required. $100,000 to $400,000 annually
depending on demands of
program.
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ATTACHMENT B
2005 Median Real Market Value per Acre of Land (excludes
improvements)
Residential Zones RMV per acre
R-1 Low Density Residential 240,595
R-1.5 Rowhouse -
R-2 Medium Density Residential 309,446
R-3 Limited High Density Residential 356,326
R-4 High Density Residential 465,690
Commercial Zones
C-1 Neighborhood Commercial 233,876
C-2 Community Commercial 422,075
C-3 Major Commercial 793,880
C-4 Commercial/Industrial 323,417
GO General Office 353,454
Industrial Zones
I-1 Campus Industrial 130,670
I-2 Light-Medium Industrial 164,863
I-3 Heavy Industrial 150,563
Other Zones
AG Agricultural 136,602
PL Public Land 101,238
Not enough information
S-CN Chase Node Special Area
ditto
S-DW Downtown Westside Special Area
ditto
S-E Elmira Road Special Area
ditto
S-F Fifth Ave Special area
S-H Historic 263,622
Not enough information
S-HB Blair Blvd Historic Commercial Special Area
ditto
S-RN Royal Node Special Area
ditto
S-RP Riverfront Park Special Area
ditto
S-W Whiteaker Special area
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