By Helen Hollyer

With the dozen attendees gathered in a semicircle around him in the Creswell Community Center, Oregon House District 11 Representative Phil Barnhart was able to discuss a variety of local and state issues during his Nov. 21 town hall meeting.

The lively discussion lasted beyond the two hours scheduled for the event, and most attendees stayed for an additional half hour, even though the event occurred on a Saturday and the weather was providing a sunny respite from several days of rain.

Creswell Church of Christ Pastor Dave Stram, along with church directors Don Bowers and Sharon Knopp, had asked Barnhart for assistance in dealing with the almost $26,000 property tax assessment the church, a non-profit organization, had recently paid.

The situation had arisen when the Lane County Department of Assessment and Taxation levied five years of real property taxes on the church because its tenant, Creswell Christian Child Care Center, also a nonprofit organization, had overlooked a requirement to file a required notice with the county assessor's office.

Barnhart told the three that he was continuing to research the issue, but that state law required a nonprofit organization to file a notice with the county whenever the status of the property in which it was housed had changed in order to maintain its nonprofit real property tax exemption.

"Five Cs was unaware that they needed to file, and the penalty came back to the church," Stram pointed out. As the property owner, Creswell Church of Christ was the organization penalized, even though 5Cs had been the entity required to file the document.

"If the filing is not made, and the use changes, then you're in trouble and may be subject to property taxes," Barnhart said. "[The reason the property owner is liable] is because the landlord is getting the benefit of the property tax exemption."

When the Church of Christ representatives asked Barnhart if he thought the legislature might change the law, he responded that the law had already been modified during the last legislative session to allow forgiveness of the most recent tax year's tax liability if the property owners had filed the required documents by April 1 of that year and paid a $200 penalty.

"I would be surprised if I could do better next year," Barnhart told them. "The votes weren't there when HB 2700 [which included the recent modification] was passed in the last session.

"The equities are all on your side," he continued, "but the law isn't."

A.J. O'Connell asked is there was any sentiment in the legislature to jerk the nonprofit status of groups that file falsely.

"We have not talked about that, but if the county assessors came in and said that the law is being abused, the legislature would look at it," Barnhart responded, moving on to provide an overview of the state's current budget woes.

"In Oregon we have a fairly volatile tax system because of our reliance on income and property taxes without a sales tax," he said. "Most states have all three, and are more stable in most circumstances.

"Both sales and income taxes are currently down in other states, but Oregon was slower to enter into the recession. Income tax tracks recessions well, but no one has been able to predict recessions.

"What Oregon did in 2003 was to pass a constitutional amendment to allow 15 percent of state lottery revenues to be put in an Education Stabilization Fund that can be spent on education with a super-majority vote," Barnhart explained.

"We also established a Rainy Day Fund that can be tapped to provide school funding stability. The combined amount in both funds is projected to be about $750 million by the end of the current biennium on June 30, 2011.

"Unfortunately, with the stock market meltdown and the resulting credit crunch for small businesses that heralded the 2008 recession, Oregon immediately lost revenue as the result of the loss of income taxes on stock market capital gains.

"Non-exempt real property sales [i.e., sales of commercial real estate and other real property other than personal residences] declined dramatically, producing far less revenue for the state. Growing asset values produce taxes, declining asset values do not," he continued.

Barnhart went on to explain that the state's greatest revenue decline was in W-4 income as the result of employee layoffs.

"Oregon was lucky in that it largely avoided the bond and interest problems most states experienced, but the revenue decline put it in the position of trying to close a budget gap at the end of the last biennium [which ended June 30, 2009].

"In January 2009, the House Ways and Means Committee had to require state agencies to take a 10 percent reduction of the two-year budget, and it had to be done during the last quarter of the biennium, which was in effect a 40 percent cut.

"Recognizing that we were in the first deflationary recession, in which the value of goods and services actually decline, since the Great Depression of the 1930s, the federal government in February 2009 passed out billions of stimulus money to the states.

"You can't cut state budgets, which means laying off state government employees such as teachers and police officers, because it make a recession worse," Barnhart stated. "The federal government also gave money to the state for infrastructure projects, which create jobs.

"Oregon spent the first half billion to close the 2007-09 budget gap, and is spending one and a half billion on the 2009-11 budget. The state also cut two billion out of the 2009-11 budget."

Explaining that Measures 66 and 67, which increase income taxes on a small percentage of the wealthiest individuals and corporations doing business in the state, Barnhart stated that both measures were referred to the January 2010 ballot by petition.

"If approved, the taxes generated would go directly to the 2009-10 budget we [the legislature] already approved," he said. "If they fail, Creswell School District will lose approximately 668,000, which means a loss of 17 schools days, 10 teachers and that state will lose one-quarter billion in federal matching money. Overall failure to pass the measures will cost one billion dollars."

Describing the current budgetary situation in most other states as much worse than is Oregon's, Barnhart pointed out, "to the extent that the [Oregon] budget goes down, the state's bond rating will be lowered and everything the state does will cost more because interest costs go up when a state's credit rating goes down."

Barnhart spent much of the remainder of the meeting describing the impact on both tax measures on the state's individuals and corporations, explaining that 97.5 percent of individual taxpayers would not see a tax increase [Measure 66], and that three-quarters of the increased taxes in Measure 67 would be paid by large corporations headquartered outside Oregon.

Creswell High School teacher Anne O'Connell pointed out that because state income taxes are deductible from federal income taxes, the impact for both individuals and corporations would be even less.

Barnhart concurred, commenting that more than half the money generated by the passage of the measures would go to schools, and most the rest would be devoted to health care and other human services, with the remainder going to public safety.

"All reputable economists agree that maintaining the state budget benefits state residents economically," he said.

"I think we need another federal stimulus bill," Barnhart said. "What are we going to do to replace the bills we've already received? I'll consider the recession over when the employment level is what it was before the recession, and I believe that's at least five years out."

The Creswell Chronicle will publish a detailed analysis of the impact on Measures 66 and 67 on individual and corporate income taxpayers in an upcoming issue.