Compression Bandage

Not having enough money is a problem most public schools in Oregon understand well.

But having money they can't get access to—that's even worse.

In 2011, voters by nearly 3-to-2 approved a five-year levy for Portland Public Schools that could add up to $80 million a year to the district's operating budget. The levy meant taxpayers would kick in more for schools to help avert teacher layoffs.

But of the money voters approved, the district will have to leave more than $28 million—enough to hire 300 additional teachers—on the table.

It's not by the school district's choice but due to a side effect of Oregon's property-tax limits called "compression."

"It's hugely frustrating," says PPS budget director David Wynde. "The amount of money we're talking about is the difference in any likely scenario between another year of cuts and retrenchment or being able to invest positively for kids."

Voters can raise taxes on themselves locally to pay for more services. But if the total amount of taxes exceeds the state's property-tax limits, the amount of money governments can collect gets squeezed like an accordion.

That's what happened when Multnomah County voters approved a new taxing district and operating base for the library. The new tax assessment restricted money other local governments could collect.

The new library district, for example, choked off $10 million due to Portland's city government next year.

Local governments and schools are finding compression a fast-growing problem, according to a new report by the Oregon League of Cities.

The organization found that half of Oregon cities, 90 percent of school districts and every one of the state's 36 counties lost money last year because of compression—in all, $144 million.

Now, as lawmakers convene this week for the 2013 session, Democratic legislators are preparing to push for what they hope will be the first major change to the state's Measure 5 property-tax limits by freeing schools and local governments from compression.

State Rep. Jules Bailey (D-Portland), who is proposing one of the reforms, says if voters approve a tax, prohibiting a jurisdiction from collecting it is "crazy."

"My perception is when voters pass a local option levy for schools, they think the authorized amount is actually going to schools," Bailey says. "That's not happening."

But Bailey and others who support the change do so at the risk of disrupting a longer-term political strategy of Gov. John Kitzhaber.

Kitzhaber, a Democrat, wants to prove to Oregon voters that the state can cut the cost of public education before asking them to rupture a property-tax limit that has been sacrosanct since it passed in 1990.

He also wants to wring big savings out of the Public Employee Retirement System and improve graduation rates before asking voters to commit to paying higher taxes or changing property-tax limits.

And by waiting, Kitzhaber's strategy is intended to put greater pressure on the state's stressed school-funding system—and increase the likelihood voters will opt for major reform.

Changes like those proposed by Bailey and others could reduce the impetus to institute bigger reforms.

Sue Levin, executive director of Stand For Children, says school districts could certainly use the extra revenue that compression fixes would bring, but there are risks.

"A piecemeal approach could take some pressure off in the short term," Levin says. "Our members recognize comprehensive tax reform has a better chance of solving our problems long-term. Those bigger fixes will be a tough fight—both in the legislature and likely at the ballot."

Not everybody thinks compression is a problem. 

Jason Williams of the Taxpayer Association of Oregon says the state's property-tax limit has done exactly what's it was supposed to do—cap the overall tax burden on voters. (The limits restrict property taxes at $5 per $1,000 of assessed value for schools, and $10 for local governments.)

Williams says a major change is wrong-headed and unnecessary. 

"A lot of our property tax is blown on urban renewal," Williams says, referring to the practice of diverting property taxes to economic-development programs. "Then the politicians hold our kids hostage and say, 'Give us more money!'"

Bailey's proposal, House Joint Resolution 8, would allow schools and local governments to seek—and collect—levies approved by voters without regard to property-tax limits. Bailey says the change would especially help rural counties that have lost federal timber payments.

“This is a way for counties to go out for a local operating levy,” Bailey says. 

Another proposal is more limited. Rep. Sara Gelser (D-Corvallis) has introduced a measure that would allow for local operating levies beyond the limits, but only for schools. She would impose a higher cap, $7.50 per $1,000 of assessed value, as opposed to the current $5.

But Gelser's bill would also reach back in time and allow school districts to collect the full amount of levies that voters have already approved.

That's a potentially large difference from Bailey's measure: Gelser's approach amounts to an immediate tax increase where school districts are facing compression—but it would also mean immediate money for those schools.

Gelser says there is no perfect solution. She says her bill would aid far more school districts than the competing measures and that voters in those districts are more concerned about fundraising than whether a measure is retroactive.

"Everybody has a compression problem," she says. "The goal of all these measures is to get more money in local governments and school districts."

With Democrats in control of both the House and Senate, they have a good shot of at least referring changes to voters—if they can reconcile Bailey's and Gelser's competing ideas.

But some legislators think dealing with compression doesn't go far enough.

Sen. Mark Hass (D-Beaverton), chairman of the Senate Education Committee, is pushing for more sweeping change: Hass, Sen. Ginny Burdick (D-Portland) and Rep. Tobias Read (D-Beaverton) have proposed an overhaul that would reduce income taxes and property taxes and add a 5 percent sales tax ("A Sales Tax, Anybody?" WW, Dec. 5, 2012).

Many parents—particularly in the Beaverton School District, where a local option levy failed in 2011—are fed up with large class sizes and outdated textbooks.

Allowing them and parents in other relatively affluent districts to pursue local options outside compression could reduce pressure for wholesale tax reform.

Hass says he's got nothing against trying to address compression, but he's frustrated by how long it's taking to begin real reform.

"It's OK to work on tiny, obscure parts of our tax code, but we can't get our arms around the big picture," Hass says. "If we did a top-to-bottom restructuring, we could take care of all these problems."

All of the changes Hass favors would mean amending the state constitution, and that would require a statewide vote. None would need the governor's signature.

Kitzhaber has been briefed on compression fixes, says his spokesman, Tim Raphael. "He thinks they are good ideas," Raphael says, adding the governor will focus primarily on bigger-picture issues, such as pension reform.

Otto Schell of the Oregon Parent Teacher Association says trying to fix compression is a useful step, but even if it's successful in generating new money, it will not be enough to satisfy parents. 

"The problem is so much bigger than the money those [compression] proposals would raise," Schell says. "The problem is so big and profound that none of the tinkering stops the harm.” 

WWeek 2015