January 13, 2002 11:00 pm

By Ray Linker

Observer Staff Writer

There goes the neighborhood!

Or perhaps just the downtown area.

The continued existence of the relatively new La Grande Urban Renewal District and all such districts in the state has been called into question as the result of a December decision by the Oregon Supreme Court.

The case was brought by Mark Hemstreet, owner of the Shilo Inns, against the Portland Development Commission, an urban renewal agency.

Hemstreets attorneys successfully argued he was due a refund of $6,123, claiming some of the property taxes collected on Hemstreets two motels in an urban renewal district were above the legal limit. Some of the taxes collected did not go for schools, but went instead to the urban renewal agency, which Hemstreets attorneys argued was against the law.

Applied statewide, the decision could have devastating results on urban renewal districts, various city and other officials maintain.

This would destroy any citys incentive to even bother with having an urban renewal district, La Grande City Manager Wes Hare said.

We could end up just paying off the two projects we have going now and not do anything else. Another question is: Do we have to give back the money weve already collected in the district? And it appears that we will be severely limited in the amount of money we can collect in the future.

I think this could spell the end of urban renewal in Oregon. And its a good tool. A lot of other states use the same method.

The issue before the Supreme Court, which reversed a State Tax Court decision on appeal of the case, was whether all taxes assessed on property situated within an urban renewal area and used to pay urban renewal indebtedness must be characterized as taxes raised to fund government operations other than the public school system, as that phrase is used in the Oregon Constitution.

Measure 5, passed by voters in 1990, limits school taxes to $5 per $1,000 of real market value on each property and other governments to $10 per $1,000.

Hare said he has been unsuccessful in getting any specific answers or opinions from other city managers on the decision.

They are all saying they dont know what is going to happen. It appears this decision would limit our urban renewal districts ability to collect revenue up to the $10 cap.

Martha Richmond, spokeswoman for the Portland Development Commission, said, unfortunately, we do not have answers yet. Until a specific method is developed and applied to implement this new categorization of (how to collect and distribute) urban renewal taxes by the Oregon Department of Revenue and the Tax Court, it is impossible to determine how tax increment revenues will be effected.

Urban renewal districts since 1960 have used tax-increment financing borrowing against future tax revenues leveraged by planned improvements in the district to help finance various projects in the districts.

The Supreme Court ruling brings such financing under a more stringent interpretation than has been used since Measure 5 passed.

The La Grande urban renewal district now brings in $7 per $1,000 for the city, $5 for the schools and $3 for the county. But all that money goes into the urban renewal district. Using Hemstreets logic, which the court supported, the money collected in the name of the schools should not be levied.

Hemstreet claimed Measure 5 requires all taxes ultimately disbursed to the urban renewal agency be treated as having been raised for a non-school purpose and be added to the government operations other than schools amount shown on the tax statement. Thus they would have a $10 per $1,000 limit.

Now we get a total of $18 per $1,000 in urban renewal revenue. It looks like we would be limited to collecting a limit of $10 per $1,000 (for other than schools), Hare said.

The district includes most of the downtown area and extends to a light industrial site near Highway 30 and Gekeler. City Planning Director Mike Hyde said the city should receive $123,697.71 for the tax year 2001-02, according to an estimate from the county tax assessor.

La Grandes two projects purchasing the burned-out Bohnenkamp store site and purchasing 15 acres of light industrial land are small compared to other cities. Portland spent more than $74 million in tax-increment revenues in 2001 and had planned to spend almost $134 million this year.

Richmond of the PDC said that until more is known about the impacts of this case, we cannot speculate or comment further on its effects on PDC activities in our 10 urban renewal areas.

Until legal and financial experts finish reviewing the case, PDC has put a hold on most urban renewal expenditures, Richmond said.

You can reach Ray Linker at 541-963-3161 or via e-mail at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it