Decision for Defendants rendered June 16, 2015.
HENRY C. BREITHAUPT, Judge.
This matter is before the court on the second amended complaint (Complaint) of Plaintiffs (taxpayers). Taxpayers seek a declaration that property tax revenues raised to fund the commitments of Defendant Portland Development Commission (PDC) under an Agreement for Disposition and Development of Property (the D&D Agreement) between Portland State University (PSU) and PDC must be characterized as revenues "dedicated to funding the public school system" for purposes of Article XI, section 11b, of the Oregon Constitution (Measure 5).
This case is before the court on cross-motions for summary judgment. At the hearing on this matter, taxpayers withdrew the second and third counts of the Complaint. Specifically, taxpayers raise no challenge to the authority of PDC to enter into and fully perform its obligations under the D&D Agreement.
The first count of the Complaint remains to be decided and it is against that count that Defendants have moved for summary judgment.
The parties have entered into a stipulation of facts and no party suggests that any material question of fact exists so as to prevent summary judgment.
The stipulation of facts and related exhibits indicate the following:
Taking into account the counts of the Complaint withdrawn by taxpayers at the hearing on this matter, the issue for decision is whether revenues raised by PDC to fund its obligations under the D&D Agreement are "raised
The constitutional text of Measure 5 speaks only to a categorization of property tax revenues that, upon receipt, are dedicated to and therefore spent for a particular purpose. The text does not require, permit or even contemplate consideration or categorization of the dollar value, or cost, of assets of a governmental unit already on hand at the beginning of a property tax cycle and, therefore, not derived from the current levy of property taxes.
For the reasons set forth below, the assertion of taxpayers that transfers of buildings already owned by PDC are subject to a challenge under Measure 5 is without merit.
The record in this matter does not disclose how the buildings that are subject to the D&D Agreement were acquired by PDC. Any such real estate could have been donated to PDC (see ORS 457.190(1)
The text of Measure 5 fits the annual property tax cycle. Tax levies and the testing of such levies against constitutional limitations must be done on an annual basis. Critically, compliance with Measure 5 must be done in advance of a levy. Urhausen v. City of Eugene, 18 OTR 395, 400-01, aff'd, 341 Or. 246, 142 P.3d 1023 (2006). Measure 5 only addresses and can only be applied to property tax amounts to be spent from revenue to be raised. It is only such dollar amounts that are referred to in the text of Measure 5. Those dollar amounts are used in the Measure 5 computation of tax limits, which are expressed in terms of dollars per thousand of tax levy, and the relief, through compression, that may be required to produce a current dollar remedy for a taxpayer.
The Measure 5 calculations are done by placing the amount of school items in a numerator and the value of a property in the denominator. A similar calculation is done for nonschool items. Setting aside tax items not subject to the Measure 5 provisions, the aggregate school and nonschool items together comprise the total amount of the levy.
Taxpayers read Measure 5 as requiring that the value of assets disposed of by PDC under the D&D Agreement be added to the numerator of the formula for purposes of computing whether tax on any given property of a taxpayer exceeds the school limit. However that step puts a dollar amount in the numerator of the calculation without any textual support for the addition. Measure 5 and
In addition to the lack of any textual support for their position, the argument of taxpayers presents a second problem. It is not difficult to imagine that if taxpayers' approach were to be adopted, the numerators of the Measure 5 ratios could be swollen to a level where disposition of assets on hand would have the effect of "using up" the constitutionally permitted ratios — resulting in units of government being unable to raise operating cash for the upcoming year. Taxpayers point to no source indicating that was the intent of the voters who adopted Measure 5.
At the hearing on this matter, taxpayers conceded that they could not describe what remedy would be appropriate if the court agreed with them as to categorization of the transfers of property called for by the D&D Agreement. They could propose no formula or mechanism for converting their legal theory into a remedy that fit either the property tax cycle or the text of Measure 5 as to both limits and remedies. Nor can the court think of a remedy that could be fashioned within the constitutional language of Measure 5. The fact is that the disposition of assets on hand at the beginning of a tax year is a matter quite different from the categorization of revenues to be raised by a levy in the same year.
The court concludes that the reason no remedy can be thought of that fits the situation is because, as explained, the situation is not addressed by Measure 5 and the action cannot constitute a violation of the substantive limitation imposed by Measure 5.
The parties accept that some of the dollars received by PDC from the current year levy will be spent in the year in question to fund the undertakings of PDC pursuant to those provisions of the D&D Agreement that call for a transfer of cash from PDC to PSU.
The court addresses this question in the context of two prior decisions of the Oregon Supreme Court: Shilo Inn and Urhausen.
In Shilo Inn, the court was presented with funds expended by PDC. Shiloh Inn, 333 Or at 104-05. Although expended by PDC in furtherance of its general urban renewal activities, the funds had been categorized as for school purposes because the tax rate of a school district had been used to calculate the amount of revenue that would be transferred to and spent by PDC. Id. at 104. The court concluded that it was the use of funds, not the nature of the governmental unit whose rate was used in the levy process, which determined the correct categorization under Measure 5. Id. at 121-22, 134. Accordingly, the expenditure of funds was considered to be for the general government purposes of PDC and not the public school purposes of the district whose property tax levy numbers were used in setting the amount of tax.
Shilo Inn is not directly relevant in this case. Although an urban renewal agency, indeed the same one, is involved, no party argues that the proper categorization of tax revenue is dependent on anything other than PDC's purpose in making the expenditures — that is, what the expenditures are for.
The parties do, however, differ as to the purpose of the expenditures of cash derived from the tax levy amounts that have been categorized by PDC. As noted above, taxpayers argue that the expenditure is for schools while PDC argues the expenditures are for its general governmental activity of urban renewal.
Taxpayers argue that funds are expended under the D&D Agreement to develop or redevelop building space that, while taxable, will produce rental revenue for PSU and will be owned by PSU. Focusing on these economic benefits to PSU, taxpayers argue that the expenditures are therefore to fund the public school system.
There is no doubt that the expenditures of cash by PDC have multiple purposes. However, even if those expenditures can in some way be viewed as supporting PSU, taxpayers have stipulated that the actions of PDC under the D&D Agreement will provide urban renewal benefits within an urban renewal area. Nor do taxpayers question that production of, or attempts to produce, urban renewal benefits are general government activities.
The question then reduces to how Measure 5 is to be applied to mixed-use expenditures. On this question Urhausen is both instructive and, in the opinion of this court, controlling.
In Urhausen, voters in a city approved a local option levy. 341 Or at 248. Of the proceeds of the levy, approximately 93 percent were devoted to contracts between the city and certain school entities for provision of school-based nursing and other services. Id. Seven percent of the levy was to be used for general government operations. Id. The city categorized all tax revenue as dedicated to general government operations because the city was spending the revenue under contracts with others. Id. at 249-50. The city relied on the provisions of ORS 310.155(3) in taking its actions. Id. at 250. Parties challenging that categorization asserted that the disposition of the 93 percent increment was, in fact, an expenditure for schools that had to be categorized as such pursuant to Measure 5. Id. at 250-51.
Both this court and the Supreme Court concluded that the expenditures by the city pursuant to contracts of
Both this court and the Supreme Court rejected the city's arguments as to the operation of the exclusivity clause of Measure 5 and the validity of ORS 310.155(3). Id. at 248, 251-54. Urhausen clearly holds that for tax levies, the proceeds of which are divided between school and nonschool expenditures, the Measure 5 limits are to be applied at the level of expenditures and not at the level of the levy. Id. at 258. Accordingly, the exclusivity clause does not allow categorization of an entire levy as being for general government simply because some of the proceeds of the levy are used for general government purposes.
In the course of its argument in Urhausen, the city asserted that the position of the challengers — and the one adopted by the courts — would render the exclusivity clause of Measure 5 meaningless. Id. at 254. That would be the case because all multiple-purpose expenditures would be divided and there would be no need for the exclusivity rule. The Supreme Court rejected that argument, observing:
Id. at 254. Although this observation of the Supreme Court was clearly dicta, this court sees no reason not to apply the reasoning in this case where, unlike the situation in Urhausen, a "facility" is involved and the "facility" has multiple purposes. The matter is not comparable to the division of a collection of fungible dollars produced by a levy.
The voters who added Measure 5 to the constitution clearly understood that there could be situations where tax levies might be expended on items that combined both of the Measure 5 categories — that is items that had both school and nonschool purposes. In Urhausen, the Supreme Court concluded that direct expenditures on services with exclusive purposes could be, and should be, segregated into the two Measure 5 categories if the intent of the voters was to be fulfilled. Id. at 261.
Matters are more complex when, as the Supreme Court recognized, a multipurpose "facility" is involved.
Unlike the easy division of current dollar expenditures as between some activities found to be exclusively school related and some activities that were nonschool in character, facilities with multiple purposes or uses can present division or allocation problems.
The voters who considered Measure 5 could have insisted that it contain a provision spelling out a formula in such cases for allocation as between school and nonschool uses — perhaps relative square footage or even relative time of use as between school and nonschool use of a facility with multiple purposes. They did not do so. Instead, they adopted language that had an easy-to-apply (albeit arguably imperfect) approach. That approach dictates that in the case of a multiple-purpose facility, the presence of any nonschool use causes the revenue used for
In this case, the dollars that concern taxpayers are dollars that are used to produce facilities with multiple purposes. Taxpayers stipulated that one of the purposes is the general government purpose of urban renewal. No one questions that the facilities also serve school purposes. In such cases of multiple uses, the exclusivity rule of Measure 5 requires that such revenues therefore be characterized as for general government uses.
As taxpayers concede, nothing in Measure 5 or other law prevents the government agencies involved here from doing what they propose to do. The question is proper categorization of tax revenues used by PDC in fulfilling its undertakings under the D&D Agreement. On that score, the presence of a benefit to PSU is not determinative unless PSU is the only beneficiary. It is not the only beneficiary under the D&D Agreement. PDC and the citizens who enjoy the hoped-for benefits of urban renewal, are also beneficiaries. In such cases, the text of Measure 5 both allows and requires that the revenues received by PDC be categorized as for general government purposes.
The joint motion of Defendants and Defendant-Intervenor is granted. The motion of taxpayers is denied. The Complaint of taxpayers is dismissed, with prejudice.
IT IS ORDERED that Defendants' and Defendant-Intervenor's Joint Motion for Summary Judgment is granted; and
IT IS FURTHER ORDERED that Plaintiffs' Motion for Summary Judgment is denied.