Explanation Of Urban Renewal Tax Increment Financing

The Oregon Constitution and Statutes allow cities and counties to establish Urban Renewal Districts for the purpose of improving specific areas, or "Plan Areas", that contain deteriorated buildings and/or lack adequate infrastructure, or "blight" as it is commonly called. Urban renewal agencies can take on special projects, or "plans", like improving roads, bringing sewer and water to industrial sites, developing public buildings, such as fire stations, and many other worthwhile activities. By incurring debt to pay for these improvements it is expected that property values within the Plan Area will increase due to private investments that would not otherwise occur. The property taxes from this increase in value, called the "increment value", is then given to the urban renewal agency to pay off the debt. If there is no increase in assessed value the urban renewal agency does not collect any revenue. The theory is simple: "if you build it, they will come".  Of course detractors of urban renewal argue that this industrial development would occur any way and public money should not be used to support private investment. This debate has been going on for a long time and there are reasons to support both sides of the argument.  Local taxing districts, such as the county, city, fire district, school district and others, continue to receive the property taxes from the assessed value the district had before the urban renewal plan area plan was formed. This value is called the "frozen value".

Impact on Property Owners Inside the Plan Area:

Even though the assessed value is frozen, property owners are still taxed the same way as before. New investment is taxable the same as all other property in the County (unless the property qualifies for exemption or special assessment under other programs).

Impact on Property Owners Outside the Plan Area:

With all taxing districts having a fixed tax rate for operating purposes, there is no impact on property owners, either positive or negative. It no longer matters what the assessed value is in a district, the tax rate stays the same. For those districts that have a voter approved local option levy or a bonded debt levy where a rate is calculated each year there could be a minor impact. That is because the rate is calculated on the frozen value and therefore the tax rate would have been slightly lower without the urban renewal plan area. (Although if private investment did not occur the tax rate would stay the same.)

Impact on Taxing Districts:

With a rate based property tax system the impact on taxing districts is just the opposite for what it is for property owners. Like the frozen value, a taxing district's operating property tax revenue from the plan area would be frozen since the rate can not change. (The district could still realize an increase in property taxes from outside the plan area.) Once the debt is paid off and the Plan Area is dissolved, assessed values increase due to the private investment and taxing districts receive property taxes from the increased assessed value. For local option levies and bonded levies there is no impact on the district since the tax rate will be increased to raise the same amount of money.

Columbia County Urban Renewal Plan Areas:

There are two urban renewal districts in Columbia County, one in Rainier and the other in Clatskanie.

The City of Rainier Activated the Rainier Waterfront Urban Renewal Plan through the Rainier Economic Development Council (REDCO) in late 1994 and includes the industrial land under the Rainier - Longview bridge. Since the plan area extends outside the City, the Board of County Commissioners also approved the adoption of the urban renewal district.

The purpose of the Rainier Waterfront Urban Renewal Plan is to promote economic development through attracting industry to the industrial land to the west of the bridge as well as making improvements along the water front from the downtown area of the city to the bridge. Not long after the plan was adopted, a fortune 500 company, United States Gypsum, announced plans to invest $125 million to build a plant to manufacture Sheetrock brand drywall. Revenue from this additional value will go to REDCO to repay costs of improving services to the site that were necessary to attract the company. Plans are progressing to build a new marina, realign city streets and construct a pedestrian walkway along the water front.

On June 13, 2001 the Columbia County Board of Commissioners adopted Ordinance 2001-06, "In the matter of Adopting the Port Westward Urban Renewal Plan, Creating an Urban Renewal Area at Port Westward, In Columbia County, Oregon". Since part of the plan area extended in to the City of Clatskanie, the City Council also had to formally approve the formation of the urban renewal district. Resolution No. 2001-12 was adopted by the City Council on May 2, 2001. The new Port Westward Urban Renewal district will be administered by the Columbia County Development Agency, with the three County Commissioners acting as the governing body of the Agency.

Specifically, the purpose of adopting an urban renewal plan area at Port Westward is to improve road, rail, water and sewer infrastructure so as to encourage industrial development at the 900 acre plus, deep water industrial facility. A total of over $34 million in costs have been detailed. As industrial development occurs at Port Westward additional tax revenues will be available to pay for the improvements that are needed for this new development. It is anticipated that it will take nearly 25 years to complete all of the projects and pay off the debt.

Already there are three companies that are thinking about making substantial investments at Port Westward. Portland General Electric is considering a $360 million gas fired electric generating facility in addition to their existing facility on the site. Summit Power is close to securing approval for a $350 million gas fired electric generating facility. And Cascade Grain is actively pursuing a $115 million plant to convert corn into ethanol.

Once all of the plants are built, or even if only one or two of them are built, the new Port Westward Urban Renewal district will generate any where from $1,024,000 to $6,289,000 in tax increment revenue annually starting in tax year 2010-11.

The Rainier Waterfront and Port Westward Urban Renewal districts are intended to improve the areas to make it more attractive to commercial and industrial development which in turn creates jobs for local residents. This has been a long term goal of the County and particularly for Rainier and Clatskanie area residents. The construction of the USG plant in Rainier is an indication that urban renewal plans do work. The Port of St. Helens, which owns most of the land at Port Westward, has been trying to attract business to that site for at least 20 years. With a mechanism for paying for the needed improvements, that goal may finally be achieved.

Calculating Property Taxes for Urban Renewal Districts

Urban renewal calculations are extremely complex. There are two sources of property taxes for urban renewal agencies. The most common is called "division of tax" or "tax on the increment". This is the tax that is derived by multiplying the total tax rate in the plan area by the increment value as discussed above. The other type of property tax for some urban renewal agencies is called a "special levy". This source is only available to plan areas that existed on December 6, 1996. The purpose of the special levy is that Measure 50, passed by Oregon voters in May, 1997, limited assessed values including increment values relied on by urban renewal agencies to pay off debt. If these revenues were reduced some agencies may default on debt payments. To protect agencies from this, Measure 50 allowed that if the division of tax revenue was less than what the agency would have collected prior to Measure 50, the agency could levy a special levy to make up the difference. Since the Rainier Waterfront Urban Renewal Plan was adopted prior to December 6, 1996 the sponsoring agency, REDCO is authorized to levy a special levy. Port Westward, having just been adopted in 2001 is not eligible for a special levy.

The method for making these calculations has been revised in response to an Oregon Supreme Court ruling in Shilo Inns v. Multnomah County, case number S46816. For the current, 2002-03 tax year, in response to the Shilo Inns case, the amount of taxes going to the urban renewal agency from the division of tax will appear on the tax statements. Since the Port Westward Urban Renewal District was activated by the County, the division of tax amount will appear on every tax statement in the county. The Rainier district was activated by the City so the division of tax amount will only appear on tax statements for property inside the City limits and within the plan area outside the City. These same properties will also have the special levy and the Port Westward division of tax amount.

While an amount of property tax going to the urban renewal agency appears on your tax statement, the total amount of your property tax bill has not been increased. The tax amounts for all other taxing districts are reduced by the same amount as the urban renewal tax amount. In other words, you would be paying the exact same amount even if there were no urban renewal districts.

So, if I’m not paying any more in taxes, how does the urban renewal agency get the money to pay for the projects? In effect, the value of the new property within the urban renewal plan area pays the taxes that go to the urban renewal district. However, it doesn’t appear that way from looking at the tax statements and that is where it gets complex. Remember, the urban renewal agency only receives money if the value in the plan area increases. Based on this increased value, the amount that is due to the urban renewal agency is calculated by multiplying the increment value times the total tax rate for all taxing districts that levy in the plan area.

If the assessed value in the urban renewal area increased by $1,000,000 and the total tax rate from all of the districts was $12.00 per $1,000, then the urban renewal agency would be entitled to $12,000.00 (1,000,000 x .0120000). If the assessed value increased by $16 million and the total tax rate was $17.00, then the agency would collect $272,000.

This amount is then converted to a tax rate to be applied across all of the property within the agency that activated the urban renewal plan. Based on the current assessed value of the county, that rate would be less than a penny per $1,000 for Port Westward. For Rainier’s urban renewal plan area the rate would be 13 cents per thousand. The rate is higher in Rainier because the value of the city is less. This rate is then applied to each account’s assessed value to arrive at the urban renewal amount for that account. However, the tax rate for all of the other districts are reduced by the same amount (less than a penny for Port Westward and 13 cents for Rainier) so that total tax rate for all districts stays the same.

The only exception is for bonded debt levies and local option levies since these are not permanent rates but rather are calculated each year based on the assessed value of the district. If the district’s boundary includes an urban renewal area, then the rate calculation uses the lower, frozen value. Since this value is lower, the tax rate is a little higher. Thus, other property owners pay a slightly higher tax bill than they otherwise would if not for the urban renewal district.

For more information, see Columbia County Assessor Info for Port Westward Urban Renewal , Columbia County Assessor Info for Rainier Urban Renewal or the Department of Revenue's Publication, Urban Renewal