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IN THE REGULAR DIVISION OF THE
OREGON TAX COURT

SHILO INN PORTLAND/205, LLC,

v.
MULTNOMAH COUNTY,
CITY OF PORTLAND and
PORTLAND DEVELOPMENT COMMISSION
and
DEPARTMENT OF REVENUE (TC 4370)
Petitioner sought a declaration that the taxes on its property, located in an urban renewal area, exceeded the limits imposed by Article XI, section 11b of the Oregon Constitution. Petitioner's basic claim was that taxes categorized as dedicated to funding public education but used to pay urban renewal indebtedness are, for purposes of section 11b, funds used for government operations other than public education. Respondents asserted that section 11b does not control how property taxes are actually used or expended. The court determined that the division of taxes for purposes of urban renewal, including taxes dedicated for funding public schools, does not change the category for purposes of section 11b. In addition, the court found that the statutory scheme by which taxes are categorized for purposes of Article XI, section 11b of the Oregon Constitution is consistent with the requirements of that section.
Property taxation-Constitutional limits-Categorization of property taxes
1.
For purposes of Article XI, section 11b of the Oregon Constitution, taxes are categorized by the taxing districts imposing the tax.

Property taxation-Constitutional limits-Categorization of property taxes

2.
Article XI, section 11b places emphasis on the governmental unit categorizing the tax and not on the use of the tax.

Property taxes-Constitutional limits-Categorization of property taxes-Intent of voters

3.
Although Article XI, section 11b evidences an intent to limit the taxes imposed by each category based upon the function of the unit of government imposing the tax, the wording is not so specific or definite as to preclude a unit of government in one category from levying a tax in another category.

Property taxation-Division of taxes-Intent of voters-Urban renewal

4.
The wording of Article XI, section 11b does not indicate that the public intended to change the method by which taxes are divided under Article IX, section 1c for purposes of funding urban renewal.

Property taxation-Division of taxes-Urban renewal

5.
Article XI, section 11(15) clearly affirms that taxes will continue to be divided as permitted by Article IX, section 1c to fund urban renewal projects.

Property taxation-Urban renewal-Constitutional limits

6.
Article XI, section 11(16) expressly authorizes the legislature to enact laws to ensure that urban renewal


debts are paid, while also indicating that any such taxes imposed remain subject to the limits of Article XI, section 11b (unless excepted under 11b).
Property taxation-Constitutional limits
7.
Article XI, section 11(11)(b), which redefines the area for testing the limits of Article XI, section 11b, indicates that the limits of 11b are based on the taxes imposed, not the taxes expended.

Property taxation-Constitutional limits-Categorization of property taxes

8.
Article XI, section 11b contains no mechanism for ascertaining or verifying the actual expenditure of taxes. Property taxation-Statutory construction-Constitutional interpretation

9.
The statutory scheme by which taxes are categorized for purposes of Article XI, section 11b of the Oregon Constitution is consistent with the requirements of that section.

Property taxation-Division of revenue-Categorization of property taxes

10.
The division of revenue for purposes of funding urban renewal, including those taxes dedicated for funding public schools, does not change the category for purposes of Article XI, section 11b.


Oral argument on Respondent Portland Development Commission's Motion for Summary Judgment was held July 22, 1999, in the courtroom of the Oregon Tax Court, Salem.
Gregory W. Byrne, Portland, argued the cause for Petitioner.
Sandra Duffy, Chief Assistant County Counsel, Multnomah County Counsel, Portland, filed an answer to Petitioner's amended petition and joined in Respondent City of Portland's Motion for Partial Summary Judgment and in Respondent Portland Development Commission's motion for summary Judgment but did not argue the cause for Respondent Multnomah County.
Linda Meng, Chief Deputy City Attorney, Portland City Attorney's Office, Portland, argued the cause for Respondent City of Portland (the city).
Jeannette M. Launer, Portland, argued the cause for Respondent Portland Development Commission (PDC).
Douglas M. Adair, Assistant Attorney General, Department of Justice, Salem, argued the cause for Intervenor.
Decision for Respondent Portland Development Commission rendered July 28, 1999.
Appeal pending.
CARL N. BYERS, Judge
Petitioner seeks a declaration that the 1998-99 taxes on its property located in an urban renewal area exceeded the limits imposed by Article XI, section 11b of the Oregon Constitution. Petitioner's basic claim is that taxes categorized as dedicated to funding the public school system but used to pay urban renewal indebtedness are, for purposes of section 11b, funds used for government operations other than public schools. Respondents assert that section 11b does not control how property taxes are actually used or expended.
There is no dispute of material fact. This matter is before the court on Portland Development Commission's (PDC) motion for summary judgment. The City of Portland (the city) also filed a motion for partial summary judgment opposing Petitioner's Motion for Class Action Status and joining in PDC's motion for summary
judgment. Oral arguments on the motions were heard on July 22, 1999. (1)
BACKGROUND

Oregon's populist efforts in this last decade of the 20th century to limit property taxes have created a level of complexity and confusion approaching that of federal income tax laws. In this particular litigation, three provisions of the Oregon Constitution not only contribute to the confusion but also provide the legal landmarks for the court's decision.
The first is Article IX, section 1c of the Oregon Constitution, adopted in 1960, authorizing the legislature to enact laws that divide property taxes in urban renewal areas. Property taxes levied on increases in value occurring after the adoption of an urban renewal plan are used to pay any indebtedness incurred for redevelopment or urban renewal projects.
The second provision is Article XI, section 11b of the Oregon Constitution. This was enacted as initiative Measure 5 in the 1990 general election to impose limits on property taxes. It requires property taxes to be divided into two categories:
(1)
one that dedicates revenues raised to fund the public school system (limited to $5 per $1,000 of real market value), and

(2)
one that dedicates revenues raised to fund government operations other than public schools (limited to $10 per $1,000 of real market value).


In 1997, a third feature was adopted by referendum (Measure 50) constituting a new section 11, Article XI of the Oregon Constitution. This provision imposes additional limits on property taxes by establishing a maximum assessed value and mandating a 17 percent reduction in taxes. This constitutional amendment also converted the property tax system from a tax-base system to a tax-rate system.
To implement the above constitutional provisions, the legislature has enacted a number of statutes. Due to the nature and relationship of the constitutional provisions, the statutory processes implementing their mandates are complicated. One source of confusion is the use of different terms for what is essentially the same concept. For example: Article IX, section 1c refers to "taxing units"; Article XI, section 11b speaks of "governmental units"; and Article XI, section 11 focuses on "taxing districts."
A simplified explanation of the administrative process is as follows: each taxing district must give written notice to the assessor of the taxes to be imposed for that year. ORS 310.060. The notice must categorize the taxes for purposes of section 11b. ORS 310.150 requires taxes to be categorized as: (1) payment of exempt bonded indebtedness (exempt from the limits of section 11b), (2) dedicated to funding the public school system (excluding exempt bonded indebtedness), or (3) dedicated to funding government operations other than public schools (excluding exempt bonded indebtedness).
If taxes are incorrectly categorized, the Department of Revenue notifies the assessor and the assessor extends the taxes on the roll in a manner that complies with the constitution. However, ORS 310.070 indicates that taxes are only incorrectly categorized if either: (1) the taxing unit does not have statutory authority to impose taxes in that category, or (2) the Oregon Tax Court or the Oregon Supreme Court make a final decision that the correct category is different.
FACTS
Petitioner owns two parcels of real property located in an urban renewal area established by the city and PDC in 1986. The real market value for Petitioner's property for the 1998-99 tax year was $15,297,600 and the assessed value was $11,155,970. Petitioner paid $234,005.06 in ad valorem property taxes, of which $137,091.59 was shown on its property tax statement as taxes for government operations other than schools. (Pet's Memo at 4.)
Petitioner asserts that the amount of taxes used for government functions other than public schools exceeds the limit of section 11b. This is based on Petitioner's calculations as follows: First, Petitioner calculated the ratio between that portion of the urban renewal "increase" on which taxes are imposed and the total assessed value on which taxes are levied. Petitioner found this ratio to be 22.844 percent. Petitioner then multiplied this ratio by $234,005.06 to obtain $53,456, the amount of taxes paid on the property that were used for urban renewal for the year.
Second, Petitioner reasoned that the remaining taxes of $180,479 would have been divided between funding for public schools and funding for government operations other than schools. Petitioner determined the ratio of the tax rate for government operations other than schools ($12.1288 per $1,000) to the total tax rate ($20.7206 per $1,000). This resulted in a ratio of 58.535 percent. When $180,479 is multiplied by 58.535 percent, it indicates that $105,643 (rounded) was paid for government operations other than schools. Petitioner therefore concludes that when $105,643 is added to $53,456, it has paid a total of $159,099 for government operations other than schools.
As a third and final step, Petitioner multiplied $10 for every $1,000 of real market value of its property to obtain the 11b limits on taxes for government operations other than schools. This resulted in an amount of $152,297. Petitioner concluded that because the "actual" amount used for government operations other than public schools was $159,099, the limits of section 11b were exceeded by $6,129. Although this is a relatively modest amount, Petitioner asserts that the total taxes in excess of section 11b in Petitioner's urban renewal area was $7,586,244. Accordingly, Petitioner filed a motion for class action status in an effort to obtain refunds of all of that "excess."
ISSUE
When applying the limits of section 11b, must property taxes categorized as dedicated to funding public schools, but used for urban renewal, be deemed taxes for government operations other than schools?
ANALYSIS
1. Although they have different perspectives, the parties do not disagree as to the administrative processes by which taxes are collected. All parties acknowledge that taxes are categorized by the taxing districts imposing the tax for purposes of section 11b. The assessor computes the rate of tax for each category, first applying the limits of section 11b. See ORS 310.210. Based on the notice filed by the urban renewal agency, the assessor also calculates the amount to be raised for purposes of urban renewal. ORS 447.440. Petitioner's premise is that taxes categorized as dedicated for funding public schools must be used for that purpose. Petitioner contends that where such taxes are in fact divided and a portion sent to an urban renewal agency, that portion used for urban renewal must be included in the measure as funds for government operations other than schools. In support of its position, Petitioner cites section 11b, specifically providing:
"* * * * *
"Property tax revenues are deemed to be dedicated to funding the public school system if the
revenues are to be used exclusively for educational services * * *." Or Const, Art XI,

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