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Opponents sharpen knives for litigation on education funds

Portland’s newly hatched Education Urban Renewal Area may face new restrictions on spending money for — of all things — education.

The urban renewal district was created a year ago by the Portland Development Commission to steer $169 million in city money to redevelop the area around Portland State University and Lincoln High School. The urban renewal plan’s listed projects include rebuilding PSU’s Neuberger Hall and other academic buildings, and fostering a mixed-use redevelopment of the Lincoln site that might incorporate the downtown high school.

Attorney Greg Howe argues that spending any city property tax money for education must comply with voter-approved property tax limitations, especially the granddaddy of them all — 1990’s Measure 5, which caused a long-term erosion of school funding in Oregon.

If Howe is right, that means any new PDC property taxes shelled out for education would force reductions in other property taxes going to Portland Public Schools, Portland Community College and Multnomah Education Service District, because they’ve already hit the $5-per-$1,000-in-assessed-value property tax cap set by Measure 5.

“I think that the (state) Constitution ought to be followed,” says Howe, who has gone to court in the past to uphold other aspects of Measure 5. “I’ll litigate it if I have to.”

Howe raised the issue with the Oregon Department of Revenue, citing related decisions by the Oregon Supreme Court. As a result, the department is poised to change its administrative rules. The proposed change would require urban renewal authorities like the PDC to designate what share of the property taxes it raises are going to education, says Greg Kramer, policy analyst at the Department of Revenue.

Vigilant on taxes

All money raised for urban renewal is classified as “general government” taxes, which are limited to $10 per $1,000 in assessed property value under Measure 5. That’s the pool of property tax money shared by cities, counties and other nonschool local governments and also maxed out.

The rules change, Kramer says, would require the PDC to determine if any of the money it raises should be deemed education spending and subject to the $5-per-$1,000 limitation.

The implications of this wonky debate are unclear, as the Education Urban Renewal District is not expected to raise significant property taxes for several years. But it could force a rethinking of some of the planned projects, lest they cause a reduction in other funds to Portland Public Schools, Portland Community College and Multnomah Education Service District.

David Williams, lobbyist for Portland Public Schools, doesn’t think the rules change will cause a significant impact to the district, but he’s closely following the issue. “Given the zero-sum game of local property taxes, we’re hyper-vigilant,” Williams says.

For example, the district might have to forfeit some of the property taxes it raises from its local option levy.

However, to the extent the PDC invests money to build roads and sidewalks and the like, it wouldn’t be considered education spending, he says.

“Just because somebody calls it an Education Urban Renewal Area doesn’t mean that it’s applicable to the $5-per-$1,000 limit for constitutional property taxes,” Williams says.

And he doesn’t think the issue will affect PSU — the biggest beneficiary of the Education Urban Renewal Area — because it doesn’t collect property taxes and isn’t subject to the tax limitations referenced in the Oregon Constitution.

Others aren’t so sure of that.

Education spending for purposes of the property tax limitation refers to everything from preschool to higher education, says Tom Linhares, executive director of the Tax Supervising & Conservation Commission, which serves as a budget and taxation watchdog for local governments in Multnomah County.

In one of the court cases that brought new scrutiny to the issue, the city of Eugene passed a property tax levy that sent much of the money to local schools. The Oregon Supreme Court ruled that money must fall within the $5-per-$1,000 tax cap.

Getting sneaky

Keith Witcosky, the PDC’s deputy director for government relations and public affairs, says the agency has no intention of using urban renewal funds to supplement local property taxes for schools. Rather, the money is designed to help spur more economic development around PSU and Lincoln High, he says.

“None of our dollars should be going into Lincoln High School at all,” Witcosky says.

And the PDC designed the urban renewal area in partnership with PSU, Portland Public Schools and Multnomah County, so it wouldn’t proceed with spending money if it will force corresponding reductions in their other property tax funds, he says.

But the idea of spending urban renewal money directly on schools is not new in Portland.

Several years ago, the Portland City Council crafted a scheme to divert property taxes collected in the River District Urban Renewal Area— more commonly known as the Pearl District — to build a new school for David Douglas School District in East Portland.

That idea was abandoned when critics sued the PDC.

Howe, citing the helpful change being pursued by the Department of Revenue, says he expects everyone involved to do the right thing, and then there’d be no need to file any lawsuits.

Witcosky says the PDC will need to be cautious about how it spends its money from the Education Urban Renewal Area, lest it hurt its education partners.

“If someone’s trying to get sneaky on this, they’re going to create a lot of long-term problems,” he says.

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