A one-stop source about accessory dwelling units, multigenerational homes, laneway houses, ADUs, granny flats, in-law units…
Over Thanksgiving weekend in late November, more than thirty Portland homeowners emailed the Administrator Humphrey of the Oregon Department of Revenue with a formal request to return to the common improvement tax method for the taxation of ADUs:
(This is Part IV of The Death of Detached ADUs in Portland and What To Do About. Part I, Part II and Part III and Part V are also available. This post will make more sense if it is read with the context of the other three posts.)
A week later, Administrator Humphrey replied:
Then, on December 16th, the Department of Revenue shared an explanatory opinion that divulged the rationale behind their reclassification of detached ADUs as a ‘rezoning’. It’s great that they have shared this opinion, as it is a key to understanding their thinking.
I truly appreciate and applaud the DOR for sharing this opinion, as this step was not required of them. Unlike Multnomah County’s tax assessor, I have found the Department of Revenue to be transparent about their thinking and process throughout this tax debacle.
That said, below the document in question, I’m going to spend some time refuting the logic of DOR’s confusing opinion, and explaining why it is bad public policy to allow this unsubstantiated opinion to hold.
To check in on the definitions of what would normally be classified as a ‘rezoning’ by professional zoning officials, I asked the following questions of Phil Nameny, AICP Bureau of Planning and Sustainability, City of Portland:
Me: Would planning/zoning officials in your departments classify the design code changes that took place in 1998 that allowed for detached ADUs, be classified as a “rezoning”?
Phil Nameny: This is not a legally vetted opinion, but I don’t believe the changes approved in 2/98 constituted a rezoning, since they did not change the types of uses/accessory uses allowed in single dwelling zones (household living), nor change the zones themselves. They did expand how accessory structures on a site may be developed by allowing a detached accessory structure to include full kitchen and bathing facilities to be an ADU. This is where the distinction lies.
Me: Would planning/zoning officials in your departments classify the design code changes that took place in 1998 that allowed for detached ADUs, be classified as a “change in the authorized uses of the property”?
Phil Nameny: See 2) above, as well as the information in the intro. Prior to 1998, we considered an Accessory Rental Unit an accessory use in the Household Living Use Category, subject to the standards in 33.205. In 1998, we changed the language to be accessory dwelling units, subject to the same chapter (but different standards). We also added ADUs as a housing type, acknowledging that a detached structure could be an ADU, and not just internal to the house.
In recent conversations I had with with two land use planning specialists at the Department of Land Conservation and Development, the state agency charged with overseeing zoning changes throughout the State of Oregon, it does not appear that their technical staff concur that the allowance of detached ADUs in 1998 was a rezoning either.
So, neither local nor state government staff who specialize in zoning regulations in Oregon government consider this change a rezoning. In fact, I don’t think anyone who works in the field of land use law and planning and zoning would concur that there was a rezoning. No professional planners and professional architects that I’ve spoken with concur that the allowance of detached ADUs was a rezoning. Here’s how one architect, Willie Dean of Ground Up Design Works, put it.
When you build an ADU you are still held to the same residential occupancy rules as any other lot that only has one single family house on. This means that you can have no more than 5 unrelated people living on your property even after you build an ADU. When you have a house you can have as many related people as you want living there but ONLY 5 unrelated people. My understanding is that this rule doesn’t change when you build an ADU. Therefore, the County’s assertion that one who has built an ADU has effectively changed their zoning to “multi family” is totally false! Please correct me if I’m wrong, but this is my understanding of the rules and it is pretty clear to me that building an ADU does not allow you to operate your property like a multi family zoned property.
Common Interpretations of Rezoning
The term “rezoned” is uncommon, which makes it challenging to prove how it is typically used and what it typically means. Besides the cursory reference in the taxation statute in question to rezoned property, the only substantive reference to “rezoning” in Oregon Administrative Rules occurs in ORS 660-007-0020.
This section also doesn’t explicitly define what “rezoning” means, but alludes to how a local government could instigate a rezoning to allow for increased residential density under certain conditions. It explains the process and justification and policies that would justify a rezoning.
The Rezoning Process
A local government may defer rezoning of land within the urban growth boundary to maximum planned residential density provided that the process for future rezoning is reasonably justified:
(1) The plan must contain a justification for the rezoning process and policies which explain how this process will be used to provide for needed housing.
(2) Standards and procedures governing the process for future rezoning shall be based on the rezoning justification and policy statement, and must be clear and objective.
Getting rezoned is a big deal and is not something that happens lightly or frequently because it basically overrides the City’s existing comprehensive plan.
Here’s what one homeowner, Angie, who built an ADU and was reMAVed, asked:
Don’t we have to apply for a “rezoning”?
Yes, Angie, you do. In fact, if you want to rezone your property, it’s a year-long public process with many meetings, there are no guarantees that your request would be granted by the City, and the request to do this alone costs $20K. I’ve never heard of anyone successfully rezoning a residential property, much less rezoning a residential property whilst developing an ADU.
Building an detached ADU on a residential property is not even remotely close to what is normally considered to be a rezoning. When Portland allowed detached ADUs, it did not change either:
The only thing it changed was the allowance of a new structural form that was not previously allowed. This is not a rezoning.
Is the Department of Revenue suddenly allowed to use their own interpretation of critical land use terminology, when no one who works in the field of land use or zoning or planning in government or professionally would concur with their interpretation?
What exactly is the Qualitative Difference between an Attached ADU and a Detached ADU?
This is the type of more nuanced question that DOR should have asked themselves before advising a position on the matter to Multnomah County.
So what is the difference between the two? The difference between a detached ADU and an attached ADU is largely aesthetic. It’s not a substantive difference; many homeowners could do either one on their property, in fact.
Making the case that one form of an ADU should trigger a reassessment while the other form of ADU should not trigger a reassessment is an example of bureaucratic hairsplitting that serves no one. Should the property tax impacts of attached vs detached be the sole driver in a homeowner’s aesthetic decision? Is that an appropriate role for property taxes to play?
The Collusion of Dictionary Dogma and the Real World
In the embedded document above, the DOR justification wiggles its way into an untenable position that all changes to design regulations are equivalent to a rezoning.
Later, DOR again refers to regulatory changes buildings sizes etc, as a justification to authorize them to classify these properties as “rezoned”.
DOR is stating that changes in design regulations are equivalent to a rezoning.
The “rezoning” interpretation and application of this particular Measure 50 clause is unprecedented. I say that not metaphorically, but literally. Conflating the interpretation of a regulatory design change=rezoning as was done in this instance, appears to be the first time since 1997, when Measure 50 passed, when the Department of Revenue has authorized a county to classify a change in design regulation as a rezoning.
I first alluded to this interpretation as the The Scariest Interpretation of Them All in this series (in part III of this series). This opinion (unintentionally) puts DOR on the precipice of a major tax policy and public policy shift.
ADUs are just the tip of the iceberg. There are literally thousands of changes in design (aka development) regulations that have occurred since Measure 50 in Portland alone that have affected the size, height, scale and types of structures that are allowed on residential, commercial, and industrial properties in Oregon.
For some context on this, here is a list of over 100 code updates that have occurred in Portland since Measure 50 passed in 1997. Each code update below contains 10-100 changes in design regulations for residential, commercial and industrial properties. All of these 1000+ changes in design regulations are akin to the design regulations that allowed for detached ADUs instead of solely attached ADUs.
As you scroll through the list, you’ll see the code updates that happened in 1998 to ADUs. You’ll see the ADU code update right alongside code updates that relate to Sign Code Amendments, Tree Preservation & Planting, Citywide Parking Ratios, Odor Standards etc. Now imagine if any one of the changes mentioned within any one of these code update packages could trigger a reMAV akin to what has happened to properties with detached ADUs.
Actually, you don’t have to imagine it. Multnomah County is doing it. They’ve started with ADUs, but in November/December of this year, they started to question whether detached bedrooms and detached offices on residential properties also constitute a rezoning and reassessment. Hard to believe, right? Here’s an email (Nov 30th) from a woman named Tracy whose property was reMAVed.
I just got off the phone with Scarlet Weigel, the Residential Supervisor at Multnomah County (ph: 503-432-6575). She informed me that all Accessory Structures (not just ADUs) are now being considered for the re-MAV as well. This means anyone with a Detached Bedroom (such as myself), or planning to build a Detached Bedroom, will also be facing having the land value re-MAVed, same as an ADU.
I am a NE Portland homeowner that built a permitted 220 sq ft Detached Bedroom in 2014. This is permitted as an Accessory Structure. When I got my new bill this week increasing my property tax from $1,181 to $4,041, I assumed that my Detached Bedroom had been incorrectly labeled as an ADU. Scarlet Weigel specifically said that she knew my property was not an ADU, and that mine and other properties with Accessory Structures like mine were also being re-MAVed.
Using DOR’s rationale, indeed, anything that wasn’t allowed on a property in 1997 could trigger a reMAV. So, what are assessors going to decide to reMAV next?
Were solar panels allowed in 1997? Was metal siding allowed? Were triple-pane argon-gas filled windows allowed? Were sheds allowed in setback? How high could your house be in 1997? How big could it be?
None of those other thousands of other changes in Portland, or apparently any equivalent changes anywhere in Oregon since the passage of Measure 50, have caused a property to be classified as a rezoning. If applied uniformly to all regulatory design changes since 1997, the impact of this regularly design change=rezoning interpretation is overwhelming and impossible to fathom. If County assessors were instructed to carry out this dogmatic interpretation fairly and uniformly, it would also be a nightmare for tax assessors to attempt to administer.
The changes that happened to ADUs in 1998 are akin to thousands of other regulatory changes that have occurred in Portland since Measure 50 passed. This kind of detached ADU vs attached ADU taxation hairsplitting rationale does not consider the real world impacts.
Here’s the real world impacts: Much like ADU development in Portland has been dramatically effected since news broke in November, this interpretation would cause all property improvement or development to dramatically halt. Arbitrarily conflating regulatory design changes with rezoning creates intolerable economic uncertainty for land owners and developers.
How will the financing sector react to this type of property uncertainty? What would this mean for mortgages and loans?
How this Mess Unfolded
For some reason, Multnomah’s tax assessor decided that detached ADUs should be targeted and applied this unprecedented interpretation of Measure 50. And then DOR, for some reason, authorized this approach.
To DORs credit, they can justify that they’re just interpreting the law–this is what they have tried to do. And, read with a certain lens, it’s possible to understand their interpretation. But, given the breathtaking scope of the interpretation that they were authorizing, it is surprising how cursory the analysis was.
The Portland Tribune article that broke this story quoted DOR saying,
If a conflict arises and different Oregon counties are treating ADUs differently, “We would step in,” he said, and likely form a work group to propose new, definitive state regulations. Changes also could come after property tax appeals to the Oregon Tax Court.
If DOR was compelled to recommend this new method, did they recommend this method for all counties? If not, why didn’t they just wait till after a rulemaking to adopt a uniform approach?
A New Precedent or Just an Accident?
DOR’s rationale does not provide any indication that ADUs are being subjectively treated differently than other changes in development regulation would be treated. For this, I am thankful. DOR shouldn’t target ADUs and I don’t think this was their intent.
If a ‘change to a development regulation’ being classified as a “rezoning” was only be applied toward ADUs, and not to other structural forms that were allowed only after 1997, it would be arbitrary and capricious. ADUs should not be singled out as one form of development that should be especially penalized by property taxes. This is good. ADUs should not be singled out or treated differently.
A government policy problem with targeting detached ADUs would be that the City of Portland promotes ADUs because they are a viable form of affordable housing in the middle of a bonafide affordable housing crisis, Metro (greater Portland’s regional government) promotes ADUs because they represent a viable form of urban infill, the Oregon Department of Land Conservation and Development promotes ADUs as an effective land use strategy for towns in Oregon to accommodate more housing within Urban Growth Boundaries, and the Oregon Department of Environmental Quality promotes ADUs because they are one of lowest carbon-emission forms of housing possible due t0 their small size.
So, the Department of Revenue (accidentally) opted to condone a Multmoanh’s selective and unprecedented interpretation on a type of development that many other government bodies in Oregon actively support.
There appears to be no precedent of the law being interpreted this way. Given the scope and scale of this impact, it is just a surprise that DOR felt it justifiable to allow Multnomah County to proceed with its interpretation.
If a change to a development regulation is allowed to be interpreted as a “rezoning” by the Department of Revenue, the scope and scale of the economic impact of this unprecedented interpretation would be boggling.
If this interpretation were applied uniformly and fairly, every homeowner, land owner, builder, remodeler, renter, lease-holder, business owner, and consumer would be directly impacted. It would shatter, or at least dramatically halt, Oregon’s building economy.
But, to me, it sure feels like ADUs are being targeted. Here’s a poster that was recently installed at Portland’s Bureau of Decelopment Services, where homeowners must go to apply for their ADU permit. The poster looks like a warning sign for hazardous waste.
Because ADUs are not being targeted in particular by DOR, my best guess at this point is that DOR just didn’t consider the real world impacts. Without considering the vast economic and political implications of this interpretation, it is possible to understand DOR’s logic. And, I also wouldn’t be surprised if no counties had ever tried to take advantage of the ORS clause this way before so maybe DOR hadn’t had to consider this hairsplitting type of question before. Perhaps this is why they didn’t think through the ramifications of this precedent.
Guerilla Property Tax Activist Advice on How To Be a Patriot and Lower Your Property Taxes
Using DOR’s interpretation uniformly and fairly, any tax assessor in the state could use this precedent as an authorization to classify almost anything as rezoning. For example, on December 2nd, Portland’s City Council passed a long awaited, significant zoning code update that relates to detached ADUs, and where they can be placed in relationship to the setback. This same code update also impacts where flagpoles can be placed on residential properties in relationship to the setback.
Flagpoles have been allowed since before Measure 50, but now they can now be placed within the 5′ setback. But, this ‘land use right’ is due only to the change in development regulations that DOR is lumping into a category of “rezoning”.
So, would placing a flagpole in your 5′ setback trigger a reassessment? Using DOR’s new interpretation, it should.
Therefor, placing a flagpole in your setback could raise your taxes by $3K/year like detached ADUs raised taxes for some homeowners this year.
Conversely, using DOR’s interpretation, if you have high property taxes (as some properties in SW Portland or outer east Portland have), you could place a flagpole in your 5′ setback, and make the valid claim using DOR’s own definition, that your property has been rezoned.
This ‘rezoning’ could save you thousands of dollars a year. Flagpoles=$3K tax reduction.
And if the County doesn’t classify your property as having experienced a rezoning and reassessment, just appeal it. You can now claim that DOR’s logic should apply to your flagpole placement as well.
DOR’s interpretation of ‘rezoning’ sets a ludicrous precedent with unimaginably large economic consequences for Oregon.
What is up with Multnomah County’s Tax and Assessment Division Directors?
Multnomah County Tax and Assessment Division has finally produced a web page about ADU taxation.
The only problem with this page is it provides NO helpful information or guidance. The page should attempt to describe what the financial impacts of an ADU would be. Instead, this page providing absolutely zero information about the financial impacts that Multnomah County’s tax assessor has arbitrarily chosen to saddle on ADU owners, beginning in tax year 2015/2016.
Why are they are hiding behind a veiled, vague page that only serves to scare people? Spell it out. What exactly are the tax impacts? Why? How would one calculate these impacts? Put it in writing. Or, is Multnomah County Tax and Assessment Division unwilling or unable to put it in writing because what they have chosen to do this year is indefensible, irrational, and impossible to administer fairly. As more questions arise, it quickly becomes incredibly difficult or explain. It’s also become clear to me that Multnomah’s County Tax and Assessment Division don’t like to put their policies or taxing calculation methods in writing; perhaps they don’t want to be held accountable.
“The amount of taxes levied each year and how they are determined is part of Oregon’s complex law…. Those tax laws, which are part of the Oregon constitution, make it nearly impossible to predict just how much taxes will increase or decrease if you build an ADU.”
Multnomah County’s current ineptitude to articulate which ADUs are effected by this tax change and how the property taxes are impacted, is just one small example of the bureaucratic and administrative difficulties opened if this type of interpretation is authorized.
This web page and handout is another glaring example of the lack of transparency and inadequate, confusing information that Multnomah’s County Tax and Assessment Division directors have been trying to manage ever since they unleashed this sneaky public policy change.
I call it “sneaky” because the County rolled this change out this year without telling anyone starting this past summer, and then tried to hide the fact that they had made any changes to the policy (Oct 22nd). It was only after a month of pressure from local media outlets and from those who were directly impacted that they ultimately admitted that they had made a tax policy change (Nov. 4th).
DOR had already developed an opinion by this time (Oct 12th), so it used this opinion to direct Multnomah. Multnomah finally admitting to this tax change under media pressure is what triggered DOR’s intervention (Nov 20th).
In other words, while DOR was developing its interpretation of the issue in September/October, it isn’t clear whether Multnomah County was still telling DOR that this ADU=rezoning interpretation was a new policy. Because up through November, Multnomah County Tax and Assessment directors were telling the media, the County Commissioners and communication staff, and everyone else, that this was just business as usual. Therefore, when developing its interpretation of the ADU=rezoning issue in September/October, DOR may have been under the impression, like everyone else, that Multnomah had always treated detached ADUs as a rezoning. This misinformation may have influenced DOR’s opinion.
The other irony here is that Multnomah’s current claim that “the tax laws of….the Oregon constitution, make it nearly impossible to predict just how much taxes will increase or decrease if you build an ADU” is untrue.
In fact, calculating the likely property tax increases for ADUs was easy to do till this year: ADUs were treated just like all other improvements. Assessors and lay people alike could all figure out what the approximate tax increase was going to be with ease. It was only when Multnomah inserted its outrageous reinterpretation of the law that it became difficult for them to provide an estimate of what the tax increase would be. Now, even there own professional, full time staff can’t figure out how to provide an estimate.
The Erosion-of-Improvement-Projects-and-Faith-in-Government Problem
The impact of this tax change has been profound and wide within Portland. If just 10 detached ADUs in Portland did not proceed in November because of this tax policy change, that’s roughly $1,000,000 not being spent in the local economy.
It’s impossible to know for certain how many ADUs are not being built as a result of this tax policy change. But, I personally know many small design/build companies that have lost prospective clients since the news broke. I know of other projects that are in a holding pattern. Some small design/build companies are cutting back employee hours, laying people off, and some businesses are sadly planning on closing their doors if the ADU tax situation sticks.
For middle income people in Oregon, a home is their largest personal asset. In an increasingly expensive real estate market flooded with international investor money, spiking the market value of land, ADUs are often the only viable real estate opportunity that homeowners have.
Multnomah County’s lack of ability to articulate the impacts of this change in a meaningful way has yet another damaging impact that is immeasurable. They are creating the preconditions of unpredictability. Lack of economic predictability is, in and of itself, a virus of sorts. It is a virus that cripples the faith of those who wish to make property improvements.
My understanding is that only certain types of ADUs would trigger a reassessment. But, Multnomah has even treated detached structures that are not ADUs as exception events that trigger reassessments. In some cases, they treated attached ADUs as triggering reassessments of the property, but in other cases, they only treated them as improvements. Selectively applying this arbitrarily policy, Multnomah County’s tax assessor has seeded fear into the ADU marketplace at large. By broadening Multnomah’s arbitrary and selective interpretation to now apply to all regulatory design changes, DOR has sanctioned concern for anyone who wishes to make any improvements to a property. Because, who knows what the assessor will decide to classify as a ‘rezoning’ next?
The problem with Multnomah’s County’s sneaky change this year wasn’t just that it was bad policy. It results in terrible uncertainty, eroding pubic faith in the very institutions to which our property taxes are funneled.
We have a right to expect that our government be transparent, fair, and predictable. Here’s a recent email Bill Griesar, whose family had spent $10K on ADU designs and was about to permit the project when the news of the ADU tax change hit the streets.
We decided to cancel our project – the water bureau will refund our permit cost.
We’re still out thousands from the city, and all our architect fees, and we are done with building in Multnomah county.
Did you run the numbers on the new [tax] calculator? What would the before/after [tax] impact be?
Hold on to your plans. The issue may get resolved by this summer.
We ran the numbers but the bigger issue is the uncertainty.
We don’t trust the process after the County secretly changed its approach, and the State DOR, also without public input, endorsed the “re-zoning” interpretation of the County with respect to the value of the land.
And we can’t proceed without a rollback of their punitive, money mining approach – and we also can’t leave our builder hanging for six months.
Frustrating, but if we do build, it will be somewhere other than this county.
But thank you, thank you for all your work here Kol & cheers!
Bill & family
This may not be a rational response, but it is an honest response. And, my sense is that a lot of people now feel this way.
The problem with this story isn’t just the economic hit that this deficient interpretation creates, is it the sense of the surprise—the lack of certainty that stems from it. It erodes faith specifically towards Multnomah County and the Department of Revenue, but results in a more general feeling of being let down by your government.
The question comes down not to what DOR can do, it’s what the DOR should do.