June 17, 2024

Gov. Tina Kotek’s advisory council floats possible massive tax increases to meet housing production goal

By Carlos Fuentes | The Oregonian/OregonLive
Experts on Gov. Tina Kotek’s housing production council have suggested that massive tax increases could be necessary to achieve the governor’s housing production goal of 36,000 new homes a year.

The Housing Production Advisory Council, composed of housing experts from across the state, detailed 59 potential solutions to meet Kotek’s ambitious goal in a draft proposal completed in December. The council will submit its final proposal to Kotek on Wednesday. One council member told The Oregonian/OregonLive he didn’t expect any recommendations in the draft proposal to change.

The suggestions include five recommendations for potential tax increases that the council says would collectively raise more than $3 billion. The draft document characterizes the proposed tax increases as “potential solutions” to fund local infrastructure and indicates that they would sunset by 2032.

Their recommendations include:

Increasing all personal income tax brackets by 0.5 percentage points to raise $699 million.
Establishing a $1 per $1,000 real property tax assessment above Measure 5′s voter-enacted limits to raise $504 million.
Creating a 0.5% retail sales tax to raise $501 million.
Establishing a 0.5% payroll tax to raise $620 million.
Doubling the state’s fuel tax to raise $686 million.

Elisabeth Shepard, a spokesperson for Kotek, said the governor will not propose any tax increases during this year’s legislative session. But she didn’t say whether Kotek would support new taxes to fund housing production in the future.

“The governor’s housing production proposal for the 2024 session is separate from the Housing Production Advisory Council recommendations,” Shepard said in an email. “She looks forward to hearing the council’s final recommendations on Jan. 17.”

Daniel Bunn, CEO of Rubicon Investments and a council member, said the tax increases are suggestions and are not meant to be implemented immediately or all at once. He also acknowledged that some of the proposals had little chance of being approved, including the request for a retail sales tax.

“Number one, that’s just not politically feasible,” Bunn said. “Number two, I don’t think it’d be the right policy, even if it was politically feasible.”

However, Bunn said the proposals are meant to give lawmakers a sense of just how much it will cost to meet the governor’s goal of building 36,000 housing units per year.

“Let’s say one of the recommendations we need is to subsidize system development charges and you need $400 million for that,” Bunn said. “You can look at this list and say well, ‘We have to adopt one of these things.’” System development charges are fees housing developers must pay to local governments to cover the costs of streets, parks, sewer lines and other infrastructure that jurisdictions must add to support new housing.

Christine Drazan, the failed Republican nominee for governor in 2022, decried the proposals Wednesday.

“Oregonians across the state are hurting right now from inflation and high housing costs,” said Christine Drazan, founder of a centrist political nonprofit called A New Direction. “It should be obvious that problems like housing supply and affordability are not solved with higher taxes.”

State Rep. Vikki Breese-Iverson, a Republican from Prineville, is a member of the housing advisory council.

“First and foremost, I do not support new taxes and did not vote in favor of them,” Breese-Iverson said in an email. “The majority of (the advisory council’s) recommended suggestions would need to go through the legislative process, which unless already included in language of a 2024 session bill, will be difficult to move forward at this time.”

Council members said they hoped lawmakers would take up some of their other proposals more quickly. These include suggestions to increase property tax exemptions for affordable housing developments and to get rid of the mortgage interest deduction for second homes.

Breese-Iverson and fellow Republican Sen. Dick Anderson of Lincoln City, who also sits on the council, sent a memo Wednesday to legislative leaders on housing committees outlining their priority recommendations from the long list.

The two lawmakers included six recommendations as vital housing production policies that they believe can get bipartisan support during the short session. Those include establishing a 90-day requirement for cities to process building permits, changing fee and grant structures to promote affordable housing development, directing state funding to infrastructure, creating new land development and redevelopment incentives and directing the Department of Land Conservation and Development to develop model development codes for different sized cities.

They also pointed to a recommendation to allow cities a one-time expansion of their urban growth boundary to promote development. A Kotek priority bill that would have eased the process for cities to expand their urban growth boundaries to build more housing failed last session.

“The best way to achieve these goals is to remove government-imposed burdens and increase some supply of land in the system,” the two lawmakers wrote in the memo. “The items outlined above can make a tangible difference today while keeping sight of the long-term housing goals of the governor and Legislature.”

Several council members, however, said they believe new taxes will ultimately be necessary to achieve Kotek’s housing production goals.

“I voted for all the recommendations because I think they’re all worth exploring, even some of them I find a bit controversial,” Bunn said. “We’re at a point in this housing crisis that we need to have everything on the table to look at, because it’s bad. It’s a serious problem.”

Sen. Mark Gamba, a Democrat from Milwaukie and vice-chair of the House Interim Committee On Housing and Homelessness, said taxes will have to be addressed at some point to boost housing development and fund other local services.

“Oregon at some point is going to have to have an adult conversation about taxes in the state,” Gamba said. “It’s an exceedingly broken tax system. … At some point, we’re going to see cities start to have difficulty even maintaining the services that they’ve held onto because they just can’t afford them.”