Burying a Tax Idea

It's not every day a special-interest group raises nearly $800,000 to wage a campaign to ban something that's already illegal. 

But that's the situation with a proposed 2012 initiative called "Protect Oregon Homes."

No, the roofs over Oregonians' heads aren't in peril. The dire title comes from the group driving the measure, the 14,000-member Oregon Association of Realtors, which is bankrolling a proposed change to the Oregon Constitution that would ban new real estate transfer taxes. 

The measure raises important public policy questions. A special-interest group—middlemen, in this case—is seeking to use the constitution for financial advantage.

And while approval of a new real estate transfer tax is unlikely, a constitutional ban would cut off options for local governments—including Oregon's poorest counties—looking to help pay for public services.

More than 30 states impose some kind of real estate transfer tax—often to pay for infrastructure and the cost of growth.

In Oregon, only Washington County imposes a transfer tax: a 0.1 percent fee on every property sold. Paid by the seller, that amounts to $300 on the sale of a $300,000 house. The tax generates about $2.5 million a year for the county. 

The real estate lobby first got lawmakers to pass a ban on new transfer taxes in 1989, after the cities of Lake Oswego and Eugene looked at them to fund schools and city vehicles.

The Realtors' 2012 measure would put the ban in the Oregon Constitution, beyond the reach of lawmakers. Only voters could lift the ban.

Shaun Jillions, a lobbyist for the Oregon Association of Realtors, says his members are willing to spend the money for the ballot measure because they're concerned a tax would threaten jobs and Oregon's fragile economy.

Real estate sales have plummeted since 2008, and Jillions says any new tax, especially on homeowners who may already have lost money on their property, would be a disaster.

"Our research shows that homeowners don't like [transfer taxes]," he says. "And renters who want to own homes someday don't either."

Jillions, whose group has raised $786,000 and expects to raise far more, says Realtors have pushed constitutional measures in four other states in recent years. He's confident his group will turn in the required 116,284 valid signatures to put the measure on the November 2012 ballot. 

Jillions says low transfer-tax rates such as Washington County's are atypical. The national average, he says, is much closer to the nearly 2 percent that Clark County, Wash., property owners pay. (A 2 percent tax on a $300,000 home would cost the seller $6,000.)

"Once taxes are on the books, they never seem to go down," Jillions says.

But rural counties are desperate for alternatives to federal timber payments. The U.S. government has been making these payments to counties with federal lands in lieu of the proceeds from timber harvests.

The money is under constant threat from congressional budget cutters. The payments were more than $250 million as recently as 2007-08, but have since been cut in half and are slated to disappear. 

In 2009, a governor's task force on federal timber payments listed real estate transfer taxes as a top option for rural counties. The report said a 1 percent statewide transfer tax would raise about $300 million annually. 

"Counties should be freed from restrictions in state law that limit or prohibit their ability to enact transient lodging tax and real estate transfer taxes," the task force wrote.

Multnomah County Commissioner Deborah Kafoury says the Realtors are wasting their money and need to look beyond their own wallets to such broader concerns.

"Putting a pre-emption into the constitution is really tying the hands of local voters," she says. "It's already state law, and I don't see why that's not good enough."

Critics say putting such a prohibition into the constitution would consign Oregon's poorest counties to a bleak future. 

"It's very bad public policy," Gil Riddell, a lobbyist for the Association of Oregon Counties, says of the proposed measure. "It really forecloses options that citizens otherwise would have to pay for services they expect.” 

WWeek 2015