TRIBUNE PHOTO: JONATHAN HOUSE - James Peterson's property taxes doubled after building this 522-square-foot ADU atop his garage in Northeast Portland, due to Multnomah County's new taxation policy for ADUs.After facing a wave of criticism, Multnomah County officials appear to be backpedaling on the county’s new tax assessment policy that caused property taxes to soar for Portlanders who built new “granny flats.”

The public backlash gained steam when Portlanders who added new accessory dwelling units or ADUs were shocked by property tax bills arriving in the mail last month. The county assessor not only added the value of their new outbuildings to their taxable property value, but significantly raised the taxable value of their main homes as well, causing their total property tax bills to double, triple or even quadruple.

The county move threatens to undo efforts by the city of Portland to promote ADUs, which can offer more affordable housing, boost urban density and provide a lighter environmental impact.

Chris Robbins and Jody Peppler, upon hearing about the skyrocketing property taxes, abruptly halted work on a planned ADU on their North Portland lot, shortly after finalizing a $124,000 construction loan.

The unexpected tax increase would tack on several hundred dollars to their monthly payments, Chris Robbins said, making the project less affordable.

Multnomah County Commissioner Loretta Smith, after hearing complaints from constituents in North and Northeast Portland, sent a Nov. 17 letter to County Chair Deborah Kafoury, trying to get the county to rethink its new tax assessment policy for ADUs. “It is very troubling to me that this methodology was selected with virtually no communication to the public,” Smith wrote.

In an interview the next day, Smith said other county commissioners also are concerned about the new policy. “Where was this policy decision made?” Smith wondered. “In previous years we had only been taxing the ADU.”

Smith said she shares the city’s goals for spurring more ADUs: “I’m concerned about affordable housing. I’m concerned about the spike in property taxes from one year to the next. I’m concerned about urban sprawl.”

City Commissioner Dan Saltzman also criticized the new county policy at a public hearing Wednesday before the Portland City Council. Saltzman, who oversees the Portland Housing Bureau, expressed concern about the twin effects of the new county taxation policy and the pending expiration of a city tax break meant to encourage ADU construction.

“We are slowly putting a nail in the coffin of ADUs — the city and the county,” Saltzman said. “I think there’s a lot of valued uses for ADUs and we’re slowly killing them off.”

On Thursday, Kafoury, through her spokesman, tried to distance herself from the new county assessor’s policy.

“Deborah doesn’t have a position on this because it’s not in her authority,” said county spokesman Dave Austin. “The county board (of commissioners) does not have any authority over the assessor and his interpretation,” he said.

Neither Kafoury nor County Assessor Randy Walruff were available for comment Thursday, Austin said.

However, he said Walruff was due to meet with experts from the state Department of Revenue on Friday, and apparently is more willing to accept their guidance than he was a month ago.

“We’re asking for their direction,” Austin said.

The state Department of Revenue had already issued guidance to Multnomah County in October after consulting with Oregon Department of Justice attorneys. The revenue department concluded it was best to revise the assessed value of people’s land when a second unit is added, as with ADUs, but that no change in the taxable value of the main house was warranted. That would result in smaller tax hikes than the new Multnomah County policy.

Both the Department of Revenue and Walruff stressed last month that the county was free to have a different view, and Walruff insisted in an interview that he wouldn’t be swayed by the state agency’s guidance. At the time, Walruff said the city of Portland allowed new uses of residential land by enabling people to add second smaller homes onto their lots, which he was said was akin to a zone change, though the city didn’t call it a zone change. Since that change occurred after the passage of the Measure 47 and 50 property tax limitation measures of 1996 and 1997, the county is obliged by state law to raise the assessed value due to a change in use on the properties, Walruff said.

On Thursday, Austin released a brief statement attributed to Marissa Madrigal, the county’s chief operating officer, which said the county board of commissioners “will consider requesting the DOR to take action,” if Walruff doesn’t get “the needed guidance” at the Friday meeting with state revenue officials.

Bob Estabrook, spokesman for the Oregon Department of Revenue, said the agency has received feedback that other counties also are seeing growth in ADU construction, and may be handling taxation differently than Multnomah County.

If the agency concluded Multnomah County was violating the law, it would have the authority to intervene, Estabrook said, but that’s not the case here.

The law is clear when there is a zone change and a change of use that a property must be reassessed, he said. However, “We don’t have a statute or rule that says specifically here’s how you do it. We recognize there might be other legally defensible approaches.”

The state agency is evaluating how to proceed, Estabrook said, and might wind up seeking new state regulations or a change in state law.

This year, about one new ADU per day has been built in Portland, though experts say a larger number are being built under the radar without building permits, such as people converting garages to ADUs.

There’s been a surge of new construction the past few years, since the City Council agreed to waive systems development charges or SDCs, which can reduce the cost of building an ADU by $10,000 or more. That SDC waiver is due to expire next July, which is one reason there is a flurry of new ADU proposals from Portlanders hoping to build under the wire.

Despite that fee waiver, Robbins and Peppler said they’re not ready to build while a huge property tax increase looms over their construction plans.

Robbins had to retire prematurely from his job as an elementary school teacher after developing a disabling brain tumor. Peppler, a chef, hoped to get some financial relief by renting out their ADU for about five years. Then she hoped to join her husband in retirement, living in their ADU in the Kenton neighborhood while renting out their main house.

“I don’t want to move into a senior living center,” Peppler said.

But now those plans are in limbo.

“Why would you want to go into something when you don’t know what is going on?” Robbins said.

City seeks to make it easier to build ADUs

While the county wrestles with its controversial taxation policies, the Portland City Council on Wednesday conducted a public hearing on code provisions that would make it easier to build and site ADUs.

The council delayed approving the new code changes because it wasn’t ready to vote on an amendment proposed by Commissioner Amanda Fritz.

Fritz wants to eliminate the provision allowing people to build new ADUs on their property lines, with no setbacks required. There’s a need to have a little air, some sunlight, and room for firefighters to maneuver, Fritz said, as well as room for people to paint and maintain their ADUs.

Fritz also pointed out that many Portlanders are taking advantage of the city’s ADU incentives to build rental units for Airbnb customers, which can be a highly lucrative side business.

City planner Phil Nameny said the provision targeted by Fritz is the most popular one among would-be ADU builders. There is a pent-up demand, he said, because many people don’t have enough room to build ADUs on their lots because of the setback rules.

Portlanders are now allowed to put garages on the side or rear property lines, and the code was intended to treat ADUs the same, Nameny said. City planners reasoned that an ADU is no more intrusive than a garage, which could house a noisy car or power equipment, for example. Planners specified there could be no windows facing the neighbors when the ADUs are built on the property line.

ADU advocates Eli Spevak and Kol Peterson testified that a large share of ADUs are being rented for below-market rents, providing an important new source of affordable housing.

“We really have an affordable housing crisis,” Spevak said. “Little houses have to be part of the toolbox for that.”

The City Council agreed to take a vote on Fritz’s amendment, and the rest of the ADU package, on Wednesday, Dec. 2 at 9:45 a.m.

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