Stagnating property tax proceeds will require the city to take action to maintain services to city residents

Oregon's property tax limitation laws are taking a toll on the city of Newberg's budget and the city is quickly reaching a point where it will have to take action. In short, the city is not receiving sufficient property tax proceeds to continue offering services at current levels while balancing the budget.

City officials say that property tax revenue is stagnant, while each year the cost of providing services to a growing population increases. The city has some reserves on hand and the budget has been balanced for the current biennium, but officials say that is not sustainable.

"The good news is that the budget was adopted (for 2018-2019) and in that was the cost of living (adjustment for city employees) at 2 percent and there is no change to the split on how much the employees have to pay on the medical plans …," City Manager Joe Hannon said. "The bad news on the budget is that there are no people added to it and there are also no cuts.

He explained that the city is spending more than it is bringing into the general fund, but the city's ending fund balance is adequate for the time being.

"We are not going to go broke," he said. "We have basically a year to two years to work through the solution to get us back to where our revenues and expenditures are equal."

The city received more than $4.49 million in property tax proceeds to fund the 2018-2019 budget. The budget for public safety – which includes municipal court ($320,690), dispatch ($1.28 million) and police ($5.98 million) – tops $7.57 million, meaning the city must dig into its reserves for about $3.09 million to balance the budget.

Moving forward to the forecasted 2019-2020 budget, property tax proceeds are expected to grow $334,252 to total more than $4.83 million. Public safety costs are expected to increase $464,665 to more than $8.06 million, leaving a deficit of more than $3.22 million and another foray into the city's reserve funds.

How did this happen?

In the 1990s Oregon voters approved Measures 47 and 50 that capped assessed property tax increases to 3 percent annually. Cities soon saw property tax proceeds stagnate while the cost of providing services steadily increased.

The new laws did give cities a few measures to offset the loss of tax proceeds, including local option levies and increased fees. The other alternative is cutting services and personnel, which Newberg has done repeatedly over the past couple of decades.

All the while, the cost of providing and maintaining services increase. For example, the average price of gas in the Portland area in May 2017 was $2.76 per gallon -- this year it is $3.29. The city has dozens of vehicles that run on gas.

What are the city's options?

The city's options are basically limited to cutting services or increasing revenue. Under state law, the city can install a local option tax for five years for operational expenses and 10 years to fund construction. It can also go to the voters for an increase in the city's current property tax levy of $2.50 per $1,000 of assessed value to $3.50, which would raise $1.9 million annually. The city could also increase fees.

The city now has a monthly public safety fee of $5.04 per household, with commercial and industrial properties paying more. The fee is charged to all property owners, regardless of whether they are for-profit businesses or nonprofit entities like churches and George Fox University.

"The trend that is going on, and we are not alone in this kind of thing, we can't keep up," Hannan said. "Since our property tax is limited by law with just plain old inflation, we shift to something else and in our case it is the public safety fee."

The city has floated the idea of bumping the public safety fee to $24, which will also bring in $1.9 million in annual revenue.

The city intends to poll Newberg residents in the fall to ask what they want and what services are important. The poll will be narrowed to a few options that will have the greatest impact on the budget. Once the city sets a course, using the polling results, it could go to the voters in May seeking a property tax increase or a local option tax. The city isn't required to gain voter approval for increases in the public safety fee.

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