Op-Ed: Oregon sticks seniors with bill for problem they didn't cause
Editorial from The Oregonian, Nov. 5, on state tax deferral program for elderly and disabled homeowners:
In a hurry to "fix" a property tax deferral program, the Oregon Legislature created a crisis for thousands of low-income elderly and disabled homeowners. These vulnerable people deserve more time and more opportunities to remain in their homes.
Yes, lawmakers had to act quickly when they learned of a shortfall in the tax deferral program. But no, they didn't have to put thousands of homeowners in an impossible financial bind, or so tightly restrict the program that it now excludes homeowners who would not raise risks to the state or other taxpayers.
The program works like this: Homeowners who are disabled or at least 62 years old and have annual taxable income of less than $39,500 are allowed to defer their property taxes. The state pays their tax bills to the counties each November, and it later recoups the amount of the taxes, plus interest, when the homeowner sells the house, refinances or dies.
For half a century, the program worked well. But then came budget crises in Salem and a downturn in home values. In 2002 and 2008, the Legislature took millions of dollars out of the tax program's revolving fund to preserve other senior programs. Home values fell further. By last fall, there wasn't enough money flowing into the fund to pay $20 million owed to counties.
The Legislature had no choice but to tighten the rules and particularly confront the issue of participants whose homes were so encumbered by debt that when the homes were eventually sold the state could not recoup the deferred taxes.
But in their haste to reform the program, lawmakers made at least three serious mistakes. One, they booted thousands of low-income homeowners out of the program with little notice. These are not people with the means to handle an unexpected arrival of a $4,000 property tax bill.
Lawmakers should grant existing participants in the program an additional year to comply with the new rules, find ways to pay their tax bills or sell their homes in an orderly fashion. By some estimates, it would cost about $4 million to grandfather most of these homeowners for an additional year in the program.
The second error lawmakers made was lumping together every homeowner with a reverse mortgage and ousting them all from the program. Reverse mortgages allow seniors to stay in their homes by using the property's equity to pay the mortgage. We understand the risk to the state — reverse mortgages reduce the amount of equity in a home every year, and the holders of these mortgages are first in line when a home is sold or refinanced. In some circumstances, the state could be left with nothing.
But many reverse mortgages amount to less than half the equity in a home and in those circumstances there's little risk to the state. Why prohibit anyone with a reverse mortgage from being in this program? The new rules require that homeowners be recertified in the tax deferral program every two years. Why not require an equity test to assess the risk to the state?
The third mistake was to go after the few hundred homeowners in the program living in homes that have appreciated greatly over the years and now are worth more than $500,000. Of course, it's easy to inveigh against "millionaires," but in many cases these are widows still in homes that they and their husbands bought 40 years ago. Who benefits from kicking these old ladies to the curb? Not the tax deferral program. In virtually all of these cases, there's plenty of equity to repay the state for deferred taxes.
Don't lose sight of who is most responsible for tipping this program into crisis. It's the Legislature, which grabbed millions from the program fund in 2002 and snatched another $14 million in 2008. The new rules supposedly prohibit future raids. Fine, but the homeowners who have relied on this program shouldn't bear all the burdens of a problem they did not cause. Salem owes them more time, and a fighting chance, to stay in their homes.
