Coping with State Tax and Expenditure Limitation: The Oregon Experience

SINCE THE PASSAGE of California’s Proposition 13 in 1978, tax and expenditure limitation measures (TELs) have been widely used for altering the revenue systems of state and local governments (Joyce and Mullins 1991). Oregon’s Ballot Measure 5, a TEL passed in 1990, provides an opportunity to (1) identify some of the effects of a TEL on local governments and (2) examine how local officials try to cope with such measures. Oregon’s public sector has considerable experience with tax and expenditure limitations. A cap on the annual percentage increase in the yield of the property tax for local governments has existed for many years, and state law limits increases in the state government’s general revenues and expenditures. A growing displeasure with the property tax culminated in November 1990 with the passage of Ballot Measure 5, an initiative limiting property taxes. Ballot Measure 5 set a 1⁄2 percent property tax rate ceiling. The measure immediately imposed a 1 percent cumulative rate limit on Oregon cities, counties, and special districts (except school districts) and a fiveyear, phased reduction in the rate limit for school districts down to ⁄2 percent. Hence, after five years, the cumulative tax rate for all Coping with State Tax and Expenditure Limitation: The Oregon Experience