THe Strategic Audit

The "Unforced Error":
How 1990s GOP Tax Populism Broke Oregon

In the 1990s, conservative activists and anti-tax populists convinced Oregonians that they could starve municipal government without consequence. Driven by anti-tax panic modeled on California’s Proposition 13, voters passed Measure 5 (1990) and Measure 50 (1997). It was an unforced fiscal error of historic proportions.

Rather than holding government accountable, it permanently sabotaged the state’s financial foundation:

Severing Reality from Value: Measure 50 decoupled assessed values from real market values and slapped a rigid 3% cap on growth, creating wild horizontal inequities where identical houses on the same block pay drastically different tax rates based simply on when they were built.
A Slow-Motion Structural Deficit: Inflation, materials, diesel, and public sector labor routinely increase faster than 3% annually. Capping revenue growth below the cost of basic services mathematically guaranteed that cities, counties, and schools would face compounding structural budget crises every single year.

The Nickel-and-Dime Rube Goldberg Machine: Local governments didn't stop needing to fix potholes, staff 911 dispatch, or hire firefighters. Because the front door of legitimate property taxation was constitutionally padlocked, cities were forced to invent sneaky side-door utility fees, regressive street surcharges, endless 5-year operating levies, and localized niche income taxes.

The result is a tax system that manages to make everyone furious: middle-class residents feel nickeled-and-dimed by opaque fees, high-income earners flee over the Columbia River to avoid targeted local income taxes, and public services remain chronically underfunded.

Oregon’s Unforced Error

A Grand Bargain to Modernize Property Taxes, Protect Homeowners, and Simplify Local Government Finance

Executive Summary

Oregon’s property-tax system no longer reflects either the market value of property or the actual cost of providing public services.

Ballot Measures 5 and 50, adopted in 1990 and 1997, fundamentally changed how Oregon finances schools and local government. Measure 5 imposed constitutional limits on school and non-school property taxes. Measure 50 subsequently established permanent operating tax rates and a system of maximum assessed value under which taxable value generally cannot grow by more than 3 percent per year, subject to exceptions for new construction and certain other property changes.

The result has been a system in which two properties with similar real market values can have substantially different taxable assessed values. Oregon’s own Legislative Revenue Office has concluded that these horizontal inequities are widespread.

At the same time, permanent tax rates limit the ability of local governments to adjust their revenue systems as communities and service needs change. Voters can approve temporary local-option levies, but the underlying operating-rate structure remains tied to the system created in the 1990s.

Oregon should replace this increasingly complicated arrangement with a **Grand Bargain for tax modernization**:

**Modernize property taxation, protect households according to their ability to pay, preserve statewide school equalization, restore meaningful local fiscal authority, and use new property-tax capacity to reduce or replace overlapping fees, temporary levies, and selected local or state income taxes.**

This should not be structured as a conventional tax increase. It should be designed as a **revenue swap**.

The objective is not simply to collect more money. It is to build a system that collects public revenue more transparently, distributes the burden more equitably, gives local governments a stable tax base, and reduces Oregon’s dependence on an increasingly complicated patchwork of income taxes, temporary levies, and service fees.

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I. How Oregon Got Here

Measures 5 and 50 were enacted during a national anti-property-tax movement heavily influenced by California’s Proposition 13.

Measure 5 established constitutional limits of $5 per $1,000 of real market value for school taxes and $10 per $1,000 for most other government property taxes. Measure 50 later converted Oregon to a system of permanent district tax rates and maximum assessed values.

For most existing property, maximum assessed value generally cannot increase more than 3 percent annually unless specified changes occur, such as new construction, improvements, subdivision, or partition.

Those policies succeeded in limiting property-tax growth for many individual property owners.

But they also created lasting structural problems.

Assessed value became disconnected from actual property wealth

Oregon now maintains two fundamentally different numbers for taxable property:

**Real Market Value (RMV):** what the property is estimated to be worth.

**Assessed Value (AV):** the value against which most property taxes are actually calculated.

For many properties, those numbers bear little relationship to one another.

By fiscal year 2022–23, statewide assessed value across all property classes was only about 52 percent of real market value.

More importantly, the relationship is not uniform.

A Legislative Revenue Office study found widespread **horizontal inequity** under Measure 50: taxpayers with similarly valued properties can receive significantly different tax treatment.

That means Oregon's property-tax burden is determined partly by historical valuation patterns rather than simply by current property value or household ability to pay.

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II. Measures 5 and 50 Also Changed Who Pays for Schools

The reforms dramatically shifted responsibility for K–12 funding.

Before Measure 5, state funding represented roughly 30 percent of Oregon's nonfederal state-and-local education revenue.

By 1997, that relationship had essentially reversed: the state supplied approximately 70 percent, while local revenue provided approximately 30 percent. Oregon has continued to operate with roughly that division in subsequent decades.

This shift had an important benefit that should be preserved: Oregon developed a much stronger statewide school-equalization system.

A property-rich district should not be able to provide dramatically better educational opportunities simply because it happens to contain more valuable commercial or residential property.

For that reason, modernization should **not** mean returning Oregon to the pre-Measure-5 system in which individual school districts depended primarily upon their own tax bases.

Instead, additional local property revenue should flow through, or be credited against, the existing statewide equalization framework.

The goal should be:

**Restore local property-tax capacity without restoring geographic inequality in education.**

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III. The Secondary Tax System Oregon Built Around the Restrictions

Local services did not disappear when Oregon limited property-tax authority.

Roads still required maintenance. Fire departments still required staffing. Libraries still operated. Parks still needed maintenance. Behavioral-health programs, housing programs, emergency communications, and other public services continued to cost money.

Governments therefore increasingly relied upon mechanisms outside permanent property-tax rates.

Those mechanisms can include temporary local-option levies, service charges, utility-related fees, special assessments, and—particularly in the Portland metropolitan area—new local income taxes.

The Portland region now illustrates how layered revenue systems can develop.

Metro's Supportive Housing Services program is financed in part through a 1 percent marginal personal income tax above specified income thresholds and a 1 percent business-income tax on qualifying businesses.

Multnomah County's Preschool for All program currently imposes a 1.5 percent tax above its first income threshold and an additional 1.5 percent above a second threshold.

Whatever one thinks about the programs those taxes finance, the larger structural question remains:

**Should Oregon continue building separate revenue mechanisms around a constrained property-tax system, or should it modernize the underlying tax base itself?**

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IV. The Oregon Tax Modernization Grand Bargain

Oregon should pursue a constitutional amendment, accompanied by implementing legislation, built around four principles:

1. Normalize property taxation over time.

2. Protect households according to ability to pay.

3. Restore accountable local fiscal authority while preserving statewide equalization.

4. Require a portion of new revenue capacity to replace existing taxes and fees rather than simply layering new revenue on top of them.

This distinction is essential.

The proposal should not become:

**Old taxes + new property taxes.**

It should become:

**A modern property-tax system in exchange for eliminating or reducing less efficient revenue mechanisms.**

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V. Phase One: Gradually Reconnect Assessed Value With Real Property Value

A simple “reset to market value at sale” system is tempting, but it risks recreating one of the major inequities associated with California's Proposition 13.

Two identical neighboring homes could carry radically different taxable values merely because one was recently sold and the other remained under the same ownership.

Oregon should instead consider a **gradual convergence system**.

Properties would move over time toward a defined relationship between assessed value and real market value.

For example, the constitution could establish a minimum assessed-value-to-market-value ratio—potentially phased toward 70, 75, or 80 percent—while limiting the amount by which an individual property's taxable value could increase in a single year.

The precise percentage should be determined through fiscal and distributional modeling rather than predetermined politically.

That approach would allow Oregon to repair valuation disparities gradually instead of imposing abrupt reassessments.

Importantly, Oregon lawmakers are already considering related concepts.

SJR 3, introduced in the 2025 legislative session, proposes constitutional changes that would require reassessment following property sales, establish a minimum maximum-assessed-value-to-real-market-value ratio of 75 percent, extend local-option levy periods, and exempt certain local-option taxes from Measure 5 compression.

The Grand Bargain should build upon that discussion while examining whether gradual statewide convergence can address horizontal inequities more effectively than transaction-based reassessment alone.

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VI. Protect People, Not Historical Valuations

The most important political and policy protection should be straightforward:

**No Oregonian should lose a home because property-tax modernization causes a sudden tax increase they cannot afford.**

But the protection should be based primarily upon **ability to pay**, not merely how long someone has owned a property.

A wealthy household that purchased a home thirty years ago does not necessarily need the same protection as a low-income family that bought one five years ago.

The modernization package should therefore include several safeguards.

A statewide property-tax circuit breaker

Owner-occupants below a defined percentage of area median income would receive a refundable credit when property taxes exceed a specified percentage of household income.

Rather than permanently suppressing a property's taxable value, Oregon would directly protect the household experiencing the financial burden.

# # # Senior and disability deferral

Qualifying seniors, people with disabilities, and other financially vulnerable homeowners could defer tax increases above an affordability threshold.

The deferred amount could become a lien payable when the property is eventually sold or transferred, allowing homeowners to remain in their homes without permanently removing property wealth from the tax base.

Homestead protection

Owner-occupied primary residences should receive a homestead exemption or credit unavailable to second homes, vacation properties, or investor-owned residences.

The Legislature should model whether a percentage-based exemption, income-tested credit, or fixed-dollar exemption produces the fairest statewide results.

Annual transition cap

Even homeowners who do not qualify for income-based assistance should not experience sudden reassessment shocks.

During the transition period, annual increases in actual property-tax liability could be capped, allowing properties to move gradually toward the modernized system.

These protections separate two issues that Oregon's existing system often conflates:

**The value of property** and **the owner's ability to pay taxes on that value.**

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VII. Commercial and Industrial Property

Commercial and industrial property should also move toward a more consistent relationship between taxable value and real market value.

But a commercial “split roll” should not simply be assumed to be beneficial.

Different treatment of residential and commercial property can create economic distortions, and certain categories—small businesses, agricultural property, multifamily housing, industrial facilities, utilities, and data centers—have very different economic characteristics.

The Legislature should therefore commission an incidence analysis before establishing separate assessment rules.

The principle should be simple:

**Comparable property wealth should generally receive comparable tax treatment unless a clear public-policy justification supports different treatment.**

Any preferential treatment should be transparent and enacted deliberately rather than emerging accidentally from historical assessed values.

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VIII. Restore Local Rate Democracy

Measure 50 largely froze local operating tax rates into the structure established in the 1990s. Oregon's Secretary of State describes each taxing district as having a fixed permanent operating rate that the district itself cannot increase.

That creates an unusual democratic problem.

Communities can change dramatically over decades while their permanent operating tax structure remains tied to decisions made generations earlier.

Oregon should permit voters to reconsider permanent operating rates through carefully designed local referendums.

That does not mean allowing local governments to increase property taxes without voter approval.

It means allowing voters to make meaningful long-term fiscal choices rather than repeatedly approving temporary operating levies.

Local-option levies should remain available for genuinely temporary needs, but routine operations should not depend indefinitely upon recurring emergency-style elections.

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IX. Reform Measure 5 Compression

Measure 5's constitutional limits can cause **compression**, in which otherwise authorized property taxes are reduced because combined taxes exceed constitutional limits.

This can mean that voters approve a levy but taxing districts do not necessarily receive the full amount voters believed they were authorizing.

SJR 3 already proposes exempting qualifying local-option taxes from Measure 5 compression, demonstrating that this issue is part of the current legislative discussion.

A modernization amendment should therefore review the compression system as part of the overall reform rather than treating Measures 5 and 50 independently.

Possible approaches could include modifying the existing limits, exempting specified voter-approved levies, or replacing the current compression mechanism with a more transparent limitation on total tax liability.

The final mechanism should be determined after statewide modeling.

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X. The Grand Bargain: New Capacity Must Replace Old Taxes

This provision is the heart of the proposal.

Property-tax modernization will be politically difficult if voters believe governments will simply retain every existing tax and fee while adding higher property taxes.

The amendment and its implementing legislation should therefore establish a **Revenue Replacement Guarantee**.

A defined share of net new property-tax capacity would be dedicated to replacing specified existing revenue mechanisms.

No existing revenue source would be eliminated until replacement revenue is demonstrably sufficient and recurring.

That prevents the reform from creating new fiscal holes while making the tax swap enforceable rather than aspirational.

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XI. Create an Oregon Tax Consolidation Fund

The Legislature should establish an Oregon Tax Consolidation Fund to manage the transition.

As property-tax modernization generates additional recurring revenue, a specified portion would flow into the fund.

The money could then finance dollar-for-dollar reductions in designated taxes, fees, or General Fund obligations.

The mechanism would operate approximately as follows:

**Modernized property-tax revenue**

↓

**Maintain required local-service funding**

↓

**Maintain statewide school equalization**

↓

**Fund homeowner protections**

↓

**Deposit qualifying net new revenue into the Tax Consolidation Fund**

↓

**Reduce or eliminate designated taxes and fees according to statutory triggers**

The Legislature should require independent revenue certification before each reduction takes effect.

That creates a genuine swap instead of relying on optimistic revenue projections.

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XII. Replace Regressive General-Government Utility Fees Where Feasible

Municipalities sometimes fund general services through charges attached to utility bills or similar mechanisms.

Not every utility fee is inappropriate. Charges that genuinely correspond to water, sewer, stormwater, or another enterprise service should remain available.

But general-government costs should not be disguised as utility charges merely because ordinary property-tax capacity is inadequate.

Implementing legislation should define the distinction.

As replacement revenue becomes available, jurisdictions participating in the Grand Bargain could be required to eliminate qualifying general-government surcharges and return those services to the ordinary tax base.

That would make taxation more visible.

Residents should be able to see:

**what government costs, what tax pays for it, and who bears the burden.**

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XIII. Replace the Temporary Operating-Levy Treadmill

Local-option levies serve a legitimate purpose, but essential ongoing services should not permanently depend upon five-year election cycles.

The modernization package should allow jurisdictions, with voter approval, to convert qualifying recurring operating levies into transparent permanent operating rates.

That would give residents a clearer choice.

Instead of repeatedly asking:

**“Should we keep the library/fire district/public safety program open for another five years?”**

voters could determine:

**“What permanent tax rate are we willing to authorize for this level of service?”**

Future increases could still require voter approval.

The reform therefore increases transparency without eliminating direct democratic control.

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XIV. Permit Replacement of Layered Local Income Taxes

Local income taxes should not simply be abolished by state mandate.

Programs such as Metro Supportive Housing Services and Multnomah County Preschool for All were approved by voters and have dedicated revenue structures.

However, property-tax modernization creates an opportunity to ask whether some locally funded services could eventually operate from a broader and more stable revenue base.

The Tax Consolidation Fund should therefore permit participating jurisdictions to substitute property-tax revenue for specified local income taxes when several conditions are satisfied:

replacement revenue is recurring;

the affected program maintains its legally required funding;

the governing body and, where legally required, voters approve the change;

and an independent fiscal analysis confirms that the replacement does not create a future deficit.

This could allow Oregon gradually to simplify regional taxation without destabilizing housing, preschool, or other public programs.

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XV. Preserve School Equalization While Reducing Pressure on the State General Fund

Property-tax modernization could also change the relationship between local school revenue and the State School Fund.

It should not dismantle Oregon's equalization system.

Instead, increased local property revenue should continue to be incorporated into the statewide school-funding formula.

Oregon law already calculates State School Fund distributions in relation to available state resources and local school revenues.

As the statewide property-tax base strengthens, additional local resources could reduce the amount of state General Fund revenue required to maintain a specified statewide funding level.

That creates potential fiscal capacity at the state level.

But the proposal should not promise an immediate income-tax reduction before those savings are demonstrated.

Instead, legislation should establish a trigger:

**When the Legislative Revenue Office certifies that property-tax modernization has produced recurring State General Fund savings above an established reserve threshold, a predetermined portion becomes available for personal-income-tax relief.**

That makes the tax swap fiscally enforceable.

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XVI. Reduce Oregon's Dependence on Personal Income Taxes

Oregon relies unusually heavily on personal income taxes to finance state government.

The personal income tax has been the dominant source of General Fund revenue; the Secretary of State reported that it was expected to supply approximately 82 percent of General Fund revenue during the 2023–25 biennium.

That creates considerable exposure to fluctuations in employment, wages, investment income, and capital gains.

Real property, by contrast, cannot relocate to another state.

A broader and more rational property-tax base could therefore allow Oregon gradually to rebalance its overall tax portfolio.

Any reduction in state income-tax rates, however, should occur only after replacement revenue is verified.

The Grand Bargain should promise **tax diversification**, not an unsupported tax cut.

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XVII. A Ten-Year Transition

A system built over three decades should not be dismantled overnight.

Oregon should consider a transition of approximately ten years.

During that period:

Property values would gradually converge toward the new assessment standard.

Circuit breakers and deferrals would take effect before significant reassessment occurs.

Counties would receive administrative funding to update assessment systems.

Local governments would identify taxes and fees eligible for replacement.

School-finance formulas would be adjusted to preserve equalization.

The Tax Consolidation Fund would begin replacing designated revenue sources only after recurring new revenue is certified.

No household would face an unrestricted one-year jump from its existing taxable value to full market value.

And no local government would lose an existing revenue stream before replacement funding became available.

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XVIII. Constitutional Amendment Versus Implementing Legislation

One of the mistakes Oregon should avoid is putting every component of the new system into the Constitution.

The Constitution should establish durable principles.

Those might include:

* authority for a modern assessed-value system;
* authority to modify or replace Measure 5 compression;
* authority for voters to approve updated permanent local operating rates;
* minimum protections against abrupt homeowner tax increases;
* requirements for statewide school equalization; and
* the requirement that designated new revenue capacity be used for tax consolidation and taxpayer relief.

The Legislature should retain authority over details such as income thresholds, exemption amounts, phase-in schedules, administrative procedures, replacement formulas, and annual adjustment mechanisms.

That allows Oregon to correct problems without requiring another constitutional amendment.

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XIX. Require Independent Modeling Before Referral to Voters

The Legislature should not choose final percentages until the fiscal effects have been modeled.

At minimum, the Legislative Revenue Office should model:

**Assessment scenarios:** 60, 70, 75, 80, 90 and 100 percent assessed-value-to-RMV targets.

**Transition periods:** five, ten, fifteen and twenty years.

**Household impacts:** effects by income, age, home value, length of ownership, geography and housing tenure.

**Commercial impacts:** effects on multifamily housing, small businesses, industrial property, agricultural property and large commercial holdings.

**Government impacts:** effects on cities, counties, school districts, fire districts, libraries and special districts.

**Tax interactions:** Measure 5 compression, local-option levies, statewide school equalization and existing local taxes.

**Revenue replacement:** the amount actually available to reduce fees, income taxes, or General Fund obligations after services and homeowner protections are financed.

Oregon has already begun moving in this direction.

Under legislation enacted in 2025, the Legislative Revenue Officer must examine problems including horizontal inequity, local-government budget needs, economic development and tax incidence; evaluate modernization options; and report to legislative revenue committees by **December 1, 2026**.

That report should become the starting point for designing the amendment rather than developing a constitutional formula before the statewide data are available.

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XX. The Public Compact

The Grand Bargain can ultimately be expressed in a simple commitment:

What Oregonians give

A property-tax system that more accurately reflects contemporary property wealth.

What Oregonians receive

Protection against being taxed out of their homes.

More equal treatment of similarly valued property.

Greater transparency about what government actually costs.

More stable funding for essential local services.

Fewer recurring emergency operating levies.

The potential elimination of general-government utility surcharges.

A mechanism for replacing overlapping local income taxes where sufficient replacement revenue exists.

Continued statewide school equalization.

And, if the fiscal savings prove sufficient, reduced reliance on Oregon's personal income tax.

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XXI. What This Reform Is—and What It Is Not

This proposal is not simply:

**“Raise property taxes.”**

Nor is it:

**“Repeal Measures 5 and 50 and return Oregon to 1989.”**

It is a tax-system exchange.

The existing system limits property taxation while governments compensate through state income taxes, temporary levies, fees, special taxes, and other revenue mechanisms.

The Grand Bargain asks whether Oregon can replace part of that fragmented system with a broader, more transparent property-tax base while directly protecting households that genuinely cannot absorb higher property taxes.

The correct comparison is therefore not:

**Current property taxes versus higher property taxes.**

It is:

**The total tax and fee burden under today's system versus the total tax and fee burden under a modernized system.**

That is the question Oregon should model.

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XXII. A Better Tax System Should Be Understandable

The deepest problem with Oregon's current structure is not merely that governments want more revenue or taxpayers want lower bills.

It is that thirty years of constitutional constraints, temporary workarounds, historical assessments, compression rules, local levies, income taxes and fees have made the relationship between property wealth, taxation and public services increasingly difficult for ordinary residents to understand.

Tax policy inevitably involves disagreement over how much government should spend.

But Oregonians across the ideological spectrum should be able to agree on something more basic:

**A tax system should be transparent.**

People should be able to understand what they are paying, why they are paying it, and how their burden compares with similarly situated taxpayers.

Local voters should be able to decide what level of public service they want and what they are willing to pay for it.

Homeowners with limited incomes should not be forced from their homes because property values increased around them.

School funding should not depend upon whether a child happens to live in a property-rich community.

And governments should not have to build increasingly complicated revenue mechanisms simply because Oregon locked much of its local tax structure into the conditions that existed in the 1990s.

The purpose of modernization is not to recreate Oregon's old property-tax system.

It is to build the one Oregon would design today.

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The Grand Bargain in One Diagram

OREGON TAX MODERNIZATION
│
┌────────────────┴─────────────────┐
│ │
ASSESSMENT REFORM LOCAL RATE REFORM
│ │
Gradual AV/RMV convergence Voter-approved permanent
Reduce horizontal inequity operating-rate authority
Reform compression Longer-term stability
│ │
└────────────────┬─────────────────┘
│
NEW TAX CAPACITY
│
┌───────────────────┼──────────────────┐
│ │ │
HOMEOWNER PUBLIC REVENUE
PROTECTION SERVICES REPLACEMENT
│ │ │
Circuit breaker Cities/counties Utility surcharges
Homestead relief Schools Temporary levies
Senior/disability Fire/library Selected local taxes
deferrals Infrastructure State GF obligations
│ │ │
└───────────────────┼──────────────────┘
│
SCHOOL EQUALIZATION
│
▼
CERTIFIED NET SAVINGS
│
▼
POTENTIAL STATE INCOME-TAX RELIEF
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The Principle

**Modernize the base. Protect the homeowner. Stabilize services. Eliminate redundant taxes. Preserve school equity. Require every promised tax swap to be backed by actual recurring revenue.**

That is the Oregon Grand Bargain.

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