PPS, others keep an eye on tax plan that could squeeze funds

by: TRIBUNE PHOTO: CHRISTOPHER ONSTOTT - Portland State University officials appear unfazed that use the citys Education Urban Renewal Area fund to improve campus buildings like Neuberger Hall is in jeopardy.Portland State University is still banking on using city urban renewal funds to renovate and expand its academic buildings, despite revelations that could reduce property taxes for public schools and community colleges.

As reported by the Portland Tribune May 9, any money spent for education purposes in the city’s new Education Urban Renewal Area surrounding PSU could cause a dollar-for-dollar drop in property taxes for public schools, Portland Community College and Multnomah Education Service District. The new reality — unanticipated when the Portland Development Commission and Portland City Council approved the $169 million urban renewal project 13 months ago — stems from Oregon Supreme Court decisions and a policy change by the Oregon Department of Revenue. Henceforth, the city must identify any education spending from urban renewal dollars to assure it falls within the Measure 5 property tax limitation enacted in 1990. That capped education property taxes at $5 per $1,000 in assessed property value. City urban renewal funds come from tax-increment financing, property taxes siphoned off when property values rise in an urban renewal area.

“It isn’t what the schools or PSU had in mind” when the urban renewal area was created, says Greg Howe, the attorney who won one of those Oregon Supreme Court cases and helped convince the Oregon Department of Revenue to change its procedures.

As it is, approved levies for Portland Public Schools, Portland Community College and Multnomah Education Service District total $7.18 in property taxes for every $1,000 in assessed value, but must be “compressed” to fit the $5 per $1,000 Measure 5 cap, says Tom Linhares, executive director of the local Tax Supervising & Conservation Commission. Any new urban renewal spending for education could cause further “compression,” or reductions to those levies.

Portland Public Schools is aware of the new wrinkle, which PPS lobbyist David Williams described as a “zero sum game” for education property taxes.

But PSU, which was slated to get urban renewal funds to renovate or expand several academic buildings, isn’t changing its plans, at least yet.

“We aren’t aware of a determination that tax-increment financing from the Education URA cannot be used for facilities used by PSU for educational or research purposes, so we have not changed our thinking about the URA,” said Monica Rimai, PSU vice president for finance and administration, in a prepared statement.

“In other words, we’re moving forward until someone official tells us otherwise,” PSU spokesman Scott Gallagher stated in an email.

PSU’s stance may mean little in the short run, because the urban renewal district isn’t expected to raise serious money for a few years, until property values rise or new private buildings are erected.

But Howe suggests PSU should revise its expectations for future funding.

“Of course PSU is a school, and it’s certainly covered under Measure 5,” Howe says. “All the money that Portland State gets is going to have to come out of that $5 per $1,000. There isn’t any doubt of that at all in anybody’s mind.”

University-led boom?

The city hopes PSU’s rapid growth will create spinoff jobs and downtown development, in future years, as the state’s largest university grows from 30,000 students to 50,000.

To help make that possible, the Education Urban Renewal Area ordinance adopted last year calls for funding numerous improvements to PSU academic and research buildings, including:

• Major renovations to Neuberger Hall, East Hall and Cramer Hall

• Expanding the School of Business

• Energy efficiency/modernization projects at Marston House, East Hall, Montgomery Court, the Fourth Avenue Building, and Smith Memorial Student Union

• Expansion of engineering and physical science classrooms and research facilities

• Upgraded laboratory space

The newly adopted 2013-14 budget for the Education Urban Renewal Area only allocates $964,872 for the coming year, all of it for transportation infrastructure and none for PSU buildings. And a five-year budget projection doesn’t anticipate money for PSU buildings until 2017-18, when it forecasts spending $425,000 for Neuberger Hall and $400,000 for a research facility expansion.

Scott Andrews, chairman of PDC’s board, points out that the five-year budget forecast is not binding; only the first year’s spending is. He predicts there will be numerous changes in the projects funded by the Education Urban Renewal Area over the next 20 years.

“We’ll just have to be very careful to do due diligence as to where the money goes,” Andrews says. “We have to take a look at each of the projects and all of their components, so that they don’t trigger the problem you foresee.”

There’s yet another wrinkle that complicates matters. If compression reduces local property taxes for Portland Public Schools, most of those funds will be replaced with money from the state school fund, Williams notes. But that means school districts elsewhere in Oregon lose money because of Portland urban renewal, which could be a sore subject in the Legislature or outside the city. “I don’t think the people of Burns are going to be happy with that,” Howe says.

Gallagher says there’s nothing to be done anyway for three to five years, until the urban renewal district generates significant funds.