* 3 CO'Az a
Lj
X
THE
HIDDEN TAX
JL o the Citizens o f
M ultnomah County:
Often I hear taxpayers saying,
“Why' am I paying more taxes only to
he getting less a n d less service?” One
answer, / believe, is the impact o f TAX
INCREMENT EINANCING Tax
increment financing is a HIDDEN TAX
which citizens need to know about,
because it casts a long a n d deep
shadow over public funds, diverting
m oney fro m basic services to
“econom ic dei'elopment projects. ”
Though the term, TAX INCREMENT
EINANCING, m ay seem a form idable
term, its principles are easy' to grasp
a n d I t e tried to capture the essentials
in the paper which follows, in the hope
that a n inform ed public can help its
elected representatives m ake good
policy. Please take a fe w minutes to
review this document. The very worst
thing that could happen is that y o u u 'ill
emerge a sadder hut wiser taxpayer.
Several years ago, when urban
flight was a critical issue to cities, a
num ber of financial strategies were
developed to revitalize downtown
areas and prom ote economic growth.
These plans may have made sense in
the 1960’s but as a community on the
brink of the twenty-first century, it may
be time to revisit these notions. Tax
What the
public
should know
by
Caroline Miller,
C om m issioner
M ultnom ah County, Oregon
increment financing is one of these.
To illustrate what this financing
mechanism is and how it works, let s
create a mythical county in a galaxy’
long ago and far away. That way we
can set up a laboratory' situation which
is devoid of too many complications.
Once we understand the principal,
then we go back and see how it applies
to a real county in Oregon.
The Journey Out
Okay. We’ve made our journey
and we have arrived at the year 2001
on a distant planet where there is a
small county named ‘Eye Speck. As
you can see (see drawing No I A ) this
is a small kingdom of ten houses, each
of which has the same appraised
market value of $20,000. Three of the
houses within that county live in an
even smaller, incorporated
community', called the “City of Limits.
To pay for the services of the
county government, the elected
officials applied to the state on this
Drawing No. IA
1
February 198K
planet and were granted the right to
raise $1000, which would be the tax
base for the first year of operating
expenses, and a 6% increase in the tax
base each succeeding year of
operation. So, in the first year, the
county' of Eye Speck could raise $1000
In the second year, it could raise
$ 1060. In the third, it could raise $ 1124
and so forth, for so long as the county
and the property ow ner both shall live
To determ ine what each property
ow ner’s share of this debt would be
the elected officials of the county went
through the following thought process:
1. We want to raise $1000 for
fiscal year 2001.
2. We have ten houses in our
county', each worth $20,000.
3. The total assessed value of real
property for the county then is
ten houses times $2000 for a
total worth of $200,000
All right. They got that far in their
calculations but the big question was,
“What is the rate we shall have to
charge each property owner in order
to collect $1000?’’ As usual, there is
always one “smart pencil” in the crowd
and she shouted, “If there are ten
houses and we want to raise $1000,
then it is obvious. We have to charge
each house $100."
(see drawing No 2 A )
“Yes,” said another. “But how did
you arrive at that?” And the smart
pencil replied, “That’s easy. Take all
the value of the property in our county
— that would be $200,000 — and
divide into the amount of money we
allowed to raise — w hich is $1,000 —
and that gives us the rate we shall
charge each property' owner. In this
case, our rate for each dollar of
assessed value would be .00500. (The
county assessor, being from the old
school, would express this rate as
$5.00 for each $1,000 of assessed
value.) Now if we multiply the value of
each house times the rate, we arrive at
total tax of $100 for each property
owner in our county.”
In other words, if we multiply the
value of each home times the rate, we