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HomeMy WebLinkAboutItem C: Meas.37/Goal 5 ActionsEUGENE CITY COUNCIL AGENDA ITEM SUMMARY Work Session: Discussion to Consider Creation of Fund to Pay for Ballot Measure 37 Claims Meeting Date: June 13, 2005 Agenda Item Number: C Department: Planning and Development Staff Contact: Susan Muir/Glenn Klein www. cl. eugene, or. us Contact Telephone Number: 682-6077/682-5080 ISSUE STATEMENT Ballot Measure 37 requires that when certain regulations restrict the use of property and reduce its value, the government must pay compensation for such restrictions or waive the regulation. The purpose of this work session is to enable the council to explore whether the City should pursue creation of a tax or charge on "increases in value" - or "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 impact of Measure 37 is to make it more difficult for the City to revise existing regulations and adopt new regulations by requiring payment of compensation (or waiver of the regulations) if the regulations reduce the value of property. Councilor Bettman also noted that while some regulations may reduce the value of some property, other regulations (and other governmental actions) can also have the effect of increasing the value of other property. She asked that the Council hold a work session to explore whether the City should pursue creation of a tax, fee or charge to capture some of the increase in value in order to fund payment of Measure 37 claims. Following a poll of the council, this work session was scheduled. No mechanism currently is in place in Oregon to capture a portion of the increase in fair market value of property that results from actions by government. Therefore, if the council wants to adopt such a mechanism, the City will not be able to adopt something that has been tried elsewhere in Oregon. As the Agenda Item Summary (ALS) discusses below, it appears that the council has the power to adopt such a charge, but there are some limitations upon that authority. In terms of the council's power, the home rule provisions of the Oregon Constitution, including Article XI, section 2, grant to local voters the power to adopt a city charter in which the people can structure their city government and grant powers directly to the city government. Section 4 of the Eugene Charter grants to the council broad powers, which are sufficient to allow the City to tax and create a fund from which Measure 37 claims could be paid. As interpreted by the Oregon Court of Appeals a couple years ago in the Eugene telecommunication cases, a city charter's general grant of power like Eugene's authorizes the City to undertake any activity (authorized by the Charter) that does not violate a federal or state constitutional or statutory provision. L:\CMO\2005 Council Agendas\M050613\S050613C.doc There are two limitations that are worth noting with respect to creation of a possible tax on increases in value for real property: 1) Measure 5's $10 limitation on "taxes on property" for general government purposes; and 2) the preemption in ORS 306.815 on "real estate transfer taxes." As noted below, these limitations are obstacles to how the council might structure a "givings" tax, but should not preclude the council from adopting some form of a "givings" tax. Measure 5 (Article XI, section 1 lb of the Oregon Constitution) limits the amount of"property tax" that general governments (city, county, special districts) can impose on property to $10 per $1,000 of assessed value. Measure 5 contains its own definition of"property tax" for purposes of that limitation: a "property tax" includes both 1) a tax levied against the property itself (like the annual ad valorem property tax), and 2) a tax imposed on the property owner as a direct consequence of ownership of the real property. However, a charge that is imposed upon the owner for some other reason, and is not imposed as a "direct consequence" of ownership of the property, is not covered by the $10 limit. Thus, for example, a monthly stormwater fee that is imposed only on owners of developed property is not imposed on the property owner as a direct consequence of ownership, but instead, as a direct consequence of the property being developed. ORS 306.815 preempts the council's authority to adopt a "real estate transfer tax." More specifically, that provision provides that a city cannot impose "a tax or fee upon the transfer of a fee estate in real property, or measured by the consideration paid or received upon transfer of a fee state in real property." Any tax adopted by the council to obtain a portion of an increase in fair market value caused by governmental actions will need to be drafted so that it is not covered by this statutory preemption. One final note in terms of limitations, although not a legal limitation: depending on the type of tax, there may be some significant administrative costs for the City in implementing and collecting a tax. For example, one idea being discussed at the state level is some type of "capital gains" tax (on the increase in value of real property attributable to actions by the government) that is collected as part of the state income tax; the tax would be due with the first tax statement filed after the real property transfers. If the City were to craft something similar, it would need to develop an administrative structure to collect and enforce the tax. If the council decides that the City should pursue development of some type of"givings" tax, there are several other questions that the council should discuss: 1. Should the tax apply only where property is vacant, or to all property whether developed or undeveloped? 2. To whom should the tax apply: all property owners; or owners of only certain types or classes of property (for example, exclude low income, non-profit, etc)? 3. To what does the tax apply: the value of only the bare or unimproved land; or the land plus all improvements? 4. When and how would such a tax be imposed and collected: annually; only after property changes hands; or annually but deferred until transfer of the property? 5. Whether, to what extent, and how the tax should account for increases in value due to factors other than regulation (e.g., inflation). In addition, once these questions are answered, additional questions would need to be discussed related to how the funds from a "givings" tax would be spent, including criteria about priorities for spending the new funds. L:\CMO\2005 Council Agendas\M050613\S050613C.doc 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), as well as ongoing proceedings regarding Goal 5 protection measures. Creation of a fund to pay compensation for Measure 37 claims could assist the City in preserving its regulatory authority in these contexts. COUNCIL OPTIONS 1. Direct the city manager to develop a legal framework for, and identify the administrative costs to implementing a "givings" tax on undeveloped property for increases in value not attributable to development on the property. 2. Direct the city manager to develop a legal framework for, and identify the administrative costs to implementing a "givings" tax on both undeveloped and developed property for increases in value not attributable to development on the property. 3. Take no further action on this concept at this time. CITY MANAGER'S RECOMMENDATION None. SUGGESTED MOTION None; this is a work session only. ATTACHMENTS None. FOR MORE INFORMATION Staff Contact: Susan Muir/Glenn Klein Telephone: 682-6077/682-5080 Staff E-Mail: susan.l.muir~ci.eugene.or.us/glenn.klein~harrang.com L:\CMO\2005 Council Agendas\M050613\S050613C.doc