Oregon Advisory Opinions October 31, 1978: OAG 78-126 (October 31, 1978)

OAG 78-126.

As pointed out in our Opinion No. 7661, 39 Op Atty Gen 150 (1978), Measure 6, to be voted on by the people in the November general election, will if passed present many difficult problems of construction. In many cases, these problems arise because the language of Measure 6 simply does not fit in with existing provisions of the Oregon Constitution such as art I, sec 32 and art XI, sec 11. In other cases, the language of Measure 6 is inherently ambiguous. In every case, of course, the problems of construction will eventually be solved if the measure passes, but in many cases it will take litigation to do so. In our Opinion No. 7661, in answer to 46 questions raised, we furnished our best opinion as to the proper construction and application of Measure 6.

Measure 6 is identical to California's Proposition 13, now art XIII-A of the California Constitution, except that the California measure limits the rate of ad valorem real property taxes to 1%, while Measure 6 would impose a 1.5% limitation. In County of Alameda v. State Board of Equalization, _________ Cal2d _________, _________ P2d _________, _________ Cal Rpt _________, (No SF 23850, Sept. 22, 1978) the California Supreme Court turned back a number of challenges to Proposition 13 under the United States Constitution and under California constitutional provisions relating to procedures for amendment and revision of the California Constitution. It is suggested that this decision may settle at least some of the constitutional questions relating to Measure 6 as well.

It does not. In our previous opinion, we expressly declined to answer questions relating to constitutional validity of Measure 6 and its entitlement to a place on the ballot. Thus the California decision, relating as it does to matters beyond the scope of our opinion, obviously does not aid in confirming, nor does it cast any additional doubt upon, our 46 answers.

But the issues which were decided by the California court are the same issues which may be raised in any constitutional challenge to Measure 6. Why then is the California decision not dispositive at least on those issues?

The first reason is that the Oregon court is not bound by the California court's decision, and could well reach a different conclusion. There is also, of course, the possibility that the California

decision will be appealed to and decided by the United States Supreme Court. In such a case, a decision by the U.S. Supreme Court will settle the issues ruled upon.

In our previous opinion, primarily with respect to construction of the measure, we discussed the weight which will be given by the Oregon court to a California decision. We believe the California

decision will be accorded substantial weight by the Oregon Court on these constitutional and place-on-the-ballot issues,(fn1) although the Oregon court will reach its own independent conclusion. Later California decisions on construction will be given less weight, because of differences between the constitutions of the two states.

Although such judgments are risky, we believe that the decision of the California Supreme Court was in most respects sound and would probably be followed by the Oregon Supreme Court and affirmed by the United States Supreme Court. The only major issue on which a substantial possibility of reversal exists is, we believe, the equal protection problem arising out of assessment under section 2 of newly acquired or constructed property at actual value, and other property at much less than actual value. This was the only issue on which the California court was not unanimous. Nevertheless, substantial room for argument exists, even on the other issues, and nothing will be settled for Oregon until the Oregon court speaks, or ultimately until the United States Supreme Court rules.

A second reason that the California decision is not dispositive is that it is not dispositive even for California. The court dealt with provisions of the measure as a whole, and expressly reserved judgment on some questions. P 3, slip opinion. For example, the court stated: "[I]t is readily apparent that petitioners' impairment of contract argument is prematurely raised." P 45, slip opinion. Ultimate decision of this issue would await a challenge by a bond holder or other contract obligee asserting actual impairment of contract rights. Similar considerations of prematurity and standing apply to the unequal assessment issue, and to other issues.

Our position relating to the constitutional questions decided for California by the California court remains unchanged from that expressed in our previous opinion: if the measure passes, we will defend it, and we do not now attempt to decide those issues.

The second question is whether Measure 6, if it passes, can be amended to better conform to other provisions of the Oregon Constitution, or at least to make more clear its intended relationship to provisions such as article I, sec 32 and article XI, sec 11. Such an amendment is possible. Any change which is to be made in Measure 6 will have to be in the form of a constitutional amendment. The amendment can be initiated by the people as Measure 6 was initiated, or can be proposed by the legislature and referred to the people at a special, a primary or general election. Before such an amendment would become effective, it must be approved by a majority of the people of the State of Oregon voting on the question. It cannot be amended by legislative action.

The third question is whether a proposed amendment to Measure 6, submitted with the opinion request, would solve the problems of construction and relationship to other parts of the Oregon Constitution which we found in Measure 6. The proposed amendment would solve some of those problems, but not others.

Our consideration of the proposed amendment will be entirely technical, without judging the desirability of any of the changes from a policy standpoint.

We set forth the proposal as it would appear, if submitted as an amendment to Measure 6, in full:

"Article _________ [Measure 6] of the Oregon Constitution is amended to read:

"SECTION 1. [(a)] (1) The maximum amount of any ad valorem property tax on real or personal property shall not exceed one and one-half percent of the [full] true cash value of such property. The one and one-half percent tax shall be collected by the counties and apportioned according to law to the districts within the counties.

"[(b)] (2) The limitation provided for in subsection (1) of this section shall not apply to [ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective] that portion of any tax levied which is for the payment of bonded indebtedness or the interest thereon.

"SECTION 2. [(a)] (1) The [full] true cash value of real property means the county assessor's valuation of the real property as shown on the 1975-1976 tax bill under [full] "true cash value," or thereafter, the appraised value [of real property] when [purchased,] newly constructed [, or a change of ownership has occurred] after the 1975 assessment. The true cash value of personal property means the market value of the personal property. All real property not already assessed up to the 1975-1976 tax levels may be reassessed to reflect that valuation.

"[(b)] (2) The fair market value base for real property may reflect from year to year the inflationary rate not to exceed two percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction.

"(3) Nothing in this Article shall affect the determination of true cash or assessed value for purposes of computing state or local bonded debt limitations. For purposes of computing such debt limitations, market value of property may be used.

"SECTION 3. On and after the effective date of this section, any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods of computation must be imposed by an Act passed by not less than two-thirds of all members elected to each of the two houses of the Legislative Assembly, except that no new ad valorem taxes on real property or sales or transaction taxes on the sales of real property may be imposed.

"SECTION 4. Cities, counties and special districts, by a two-thirds vote of the qualified electors voting at the election of such district if less than 50 percent of majority if 50 percent or more of such qualified electors vote, may impose [special] taxes [on] for the purpose of increasing the revenues of such district, except ad valorem taxes on real or personal property or a transaction tax or sales tax on the sale of real property within such city, county or special district.

"SECTION 5 This Article shall take effect for the tax year beginning on July 1 following the passage of this Article, except section 3 of this Article which shall become effective upon the passage of this Article.

"SECTION 6. If any section, part, clause or phrase hereof is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected but will remain in full force and effect."

[Bracketed material would be deleted from Measure 6 by the amendment; bold print material would be added.]

Section 1. In subsection (1), the 1.5% limitation is made applicable to ad valorem taxes on personal

property as well as to such taxes on real property. In our previous opinion we held that the limitation would be applicable to personal property as well as real property by virtue of existing statutes, but that this could be changed by legislative action. Question 4; see also questions 3 (centrally assessed property) and 28 (mobile homes). The amendment would accordingly not require any different result than applicable under our previous opinion, but would remove the possibility of legislative amendment permitting taxation of personal property at a higher rate.

In subsection (1) and in section 2(1), the term "true cash value" is substituted for the term "full cash value," and the term "true cash value" is defined in section 2(1). (The terms "appraised value" and "fair market value" are still retained in section 2(1) and (2).) This eliminates most of the uncertainty requiring our answer to question 18 in the previous opinion, since "true cash value" has been part of the law of the State of Oregon for a long period of time and has a definite meaning which is understood by all. This amendment requires no change in result.

Section 1(2) is significantly changed. Any tax levied for the payment of bonded indebtedness or for interest thereon is made exempt from the 1.5% limitation by the amendment; under Measure 6, such a levy would be exempt from the limitation only if approved by the voters before the effective date of the Measure (July 1, 1979). This probably would require a change in our answer to question 43, relating to section 4, which we will discuss in more detail below. This would also make it clear that our answer to question 15 as to bonds authorized but not issued before the effective date of the measure would be correct. A levy to pay bonded indebtedness accrued before the effective date but not authorized by the voters would also be clearly exempt from the limitation. The change, however, leaves unmentioned indebtedness other than bonded indebtedness incurred before the effective date of the measure, so the impairment of contract discussion in answer to question 16 would remain applicable to such indebtedness.

Question 22 in our previous opinion related to urban renewal bonds, the tax increment form of financing. The proposed amendment to section 1(2) does not eliminate or answer any of the difficult problems discussed in our previous opinion, since there is no levy, as such, to pay principal and interest on such bonds. Rather, a portion of the levy of every taxing district in which the urban renewal project area is located, including levies for general operating purposes and for repayment of bonds for those other districts, becomes available for payment of principal and interest on tax increment bonds. That portion of the levy of those other districts, not the urban renewal agency, on value of taxable property in the project area which exceeds the base "frozen" value, goes to the urban renewal agency for payment of its expenses, including bond interest and principal. The reduction of taxable value below actual value, rather than the 1.5% limitation, is the primary problem caused for tax increment bonds by Measure 6, and the proposed amendment would not change this.

The last sentence of section 1(1) will probably present more problems, if Measure 6 becomes law,

than any other part of the measure. The proposed amendment does not change the sentence and leaves the problems unsolved. The sentence reads:

"The one and one-half percent tax shall be collected by the counties and apportioned according to law to the districts within the counties."

Clarification of this sentence, and in particular of its relationship to art I, sec 32 and art XI, sec 11, should have a very high priority in any attempt to revise Measure 6 to make it better conform to existing requirements of the Oregon Constitution. The discussion under questions 1, 2, 9, 10, 11, 12 and 13 of the previous opinion remains applicable; particular attention is called to our discussion under questions 11 and 12.

Section 2. We have already discussed the change from "full cash value" to "true cash value." Addition of the words "of real property," with addition of a provision defining true cash value of personal property, makes it clear that under the amendment personal property would be valued for tax purposes at current true cash value (market value), rather than at 1975 value. This does not change the conclusion reached in our earlier opinion.

Section 2(1) is further amended to delete purchase and change of ownership of real property as grounds for reassessment at current true cash value. Newly constructed property is thus the only real property not to be appraised at 1975 value, plus the 2% increments. This change would eliminate grounds for challenge to the measure based upon the substantial and increasing disparity in tax liability between property held in the same ownership since 1975, and property of the same value newly purchased. It will not eliminate grounds for challenge on equal protection grounds by owners of newly constructed property. The change would make moot questions 29, 30, and 31 of our previous opinion; the discussion in that opinion of questions 23 to 27 and 32 to 34 remains applicable without change.

The proposed amendments do not affect in any way our discussion in the previous opinion (questions 20 and 21) of the method of determination of the 1975 value base.

The addition of a new subsection 3 to section 2 would reverse the conclusion we reached in question 19 of the previous opinion, that the reduced appraised value under Measure 6 of property in the state and its districts would reduce the allowable amount of bonded indebtedness under art XI-A (veterans' loans) and other provisions measured by "true cash value." Section 2(3) makes it clear that actual market value of property, not a lesser appraised value required by the measure, remains the yardstick for determining the maximum bonded indebtedness authorized by such provisions.

Section 3. The proposed amendment makes no changes in section 3, so our discussion under questions 34 to 38 of the previous opinion remains applicable.

Section 4. Substantial changes are proposed in this section. The first set of changes, relating to the number of votes needed for a district to approve a new tax, moots question 42. We note that the result

of the change (simple majority needed if at least 50% vote, two-thirds vote required if a lesser number vote) is more in accord with Oregon traditions than is the provision contained in Measure 6. We also note an anomaly, however: if a district (for example) has 5,000 registered voters, and 2,500 vote on the proposed tax, a vote of 1,251 yes to 1,249 no will adopt it. But if one more voter stays home so that only 2,499 vote, 1,666 affirmative votes will be necessary to adopt the proposed tax.

The section is further amended to make it applicable not to the imposition of "special" taxes, but to taxes "for the purpose of increasing the revenues" of the district. This moots our discussion of the meaning of the term "special tax" under question 39, but raises questions concerning the proper construction of the rest of the section.

Any newly authorized tax would generate revenue not previously available. However, the proposed amendment does not refer to taxes in general, but rather to "taxes for the purpose of increasing the revenues. . . ." In interpreting constitutional provisions, courts seek to give effect to every word and phrase used. School Dist. No. 1, Multnomah County v. Bingham, 204 Or 601, 284 P2d 779 (1955). We must therefore assume that the modifying phrase "for the purpose of increasing the revenues" has some meaning.

Does the phrase perhaps mean that new taxes intended to replace revenues lost by reason of Measure 6 are not subject to the requirements of section 4? We doubt it. Measure 6 demonstrates an intent to decrease the tax burden imposed by government, and to make it difficult to impose additional taxes. To conclude that the measure on the one hand decreased the tax burden and on the other hand permitted governmental units to raise the tax burden back to its pre-Measure 6 level without approval by the people would be clearly contrary to the measure's purpose.

The phrase may also be construed to require compliance with section 4's requirements for any tax measure that would either impose any new tax, or increase tax rates, and thus the revenue derived from, any existing tax. We believe this construction is more in accord with the measure's apparent intent, but since any tax imposed would have this result, purpose of the added language remains in doubt.

We concluded - with some difficulty - that the remaining language in section 4 was intended to prohibit the imposition of new special taxes on real estate, i.e. new serial levies for a particular purpose, newly authorized bond levies, etc. See questions 43 and 44 of our previous opinion. Deletion of the word "special" leaves us in doubt that our previous conclusion would continue to be correct, if it ever was. Perhaps the section as amended should simply be construed to provide that ad valorem property taxes are not subject to the vote requirement set forth. Again we doubt it. However, note that any ad valorem property taxes would be subject to the 1.5% limitation, to the section 1(2) assessment freeze for real property, and to art XI, sec 11. We continue to doubt that section 4 is meant to prohibit increasing a tax base or authorizing a levy outside a tax

base (within the 1.5% limitation) as authorized by art XI, sec 11. We note a substantial possibility that the amended section 1(2) is intended to permit authorization of new bond issues outside the 1.5% limitation. It is accordingly very difficult to decide what sort of new real property taxes (other than sales and transaction taxes) are intended to be prohibited.

Most of the problems with original section 4 arise from its phrasing as a grant of authority when it is almost certainly intended as a limitation of authority. The proposed amendment does not change this; it retains most of the problems of construction resulting in part from this basic defect, and adds to them.

We see no point in attempting to come to any more definite conclusion concerning the proper construction of section 4. A redrafting is possible and would appear to be essential. We believe the construction problems discussed could easily be solved by such redrafting.

Our responses to questions 40, 41 and 45 would not be changed by the amendment.

Sections 5, 6. No changes are made in these sections, specifying an effective date and providing for severability. The answer to question 46 would be unchanged.

In conclusion, it appears that the proposed amendment to Measure 6 would solve some of the problems and difficulties in construction we found in the measure. Other major problems of construction are not solved, however, and some new problems are created. This particular proposal obviously requires some additional major redrafting before it can be considered to be a significant technical improvement to Measure 6.

"The parties have not demonstrated that the issue must be decided now . . . [W]e emphasize that we are expressing no opinion on the validity or invalidity of the proposed measure, . . . ." Slip opinion, p. 4.