Court rejects Eugene tax levy.

Byline: Susan Palmer The Register-Guard

The Oregon Supreme Court on Thursday found a Eugene property tax levy that funds school programs unconstitutional, but local districts say the ruling won't hurt them much.

The top court's ruling upheld an earlier Tax Court decision.

Voters passed the four-year local option levy in 2002 to raise millions of dollars through property taxes for the Eugene and Bethel school districts during a time when state revenues had declined so much that schools were laying off staff, eliminating programs such as music and athletics, increasing class sizes and even shortening the length of the school year. The levy was carried out by the city.

But Eugene resident Nick Urhausen believed the levy was an end-run around the Measure 5 constitutional amendment passed in 1990 that capped the amount of property taxes collected for education to $5 per $1,000 of assessed value. He and three other area taxpayers sued the city, and in February the Oregon Tax Court agreed with them.

On Thursday, the Oregon Supreme Court issued a unanimous ruling written by Chief Justice Paul De Muniz, in support of the lower court, agreeing that 93 percent of the revenue raised by the levy went to schools and was therefore subject to the cap.

Urhausen said he was pleased with the opinion.

"It looks like there's one branch of government where there's some integrity," he said.

Urhausen and his fellow plaintiffs, John McVickar and Kip Rice, will receive tax refunds amounting to several hundred dollars, Urhausen guessed.

"It was never about the refund," he said. "It was about the principle."

Former Eugene Mayor Jim Torrey, who is a Republican candidate for the District 7 Senate seat, was among those who actively campaigned for the local option levy.

"I'm disappointed," he said when he learned of the court decision, "but I understand."

Those who crafted the levy said the money would not go to education directly but to programs that supported students, such as music, physical education, counseling, school libraries and nurses, and after-school programs.

"We proposed that measure at a time when the Legislature had decided that they weren't going to deal with issues of education," Torrey said.

The four-year levy was never meant to be a permanent source of money for schools, he said, but a stop-gap measure while Oregonians worked with the Legislature to develop more stable funding for schools, he said.

City attorneys argued, among other things, that because not all of the money raised was being used for education, none of it should be lumped under the "for schools" cap.

The court disagreed, pointing to a previous decision that stated: "Nothing in (Measure 5) suggests that taxes that are imposed by a local taxing district for two different purposes cannot be categorized separately."

The ruling was a speedy one for the state's high court, said attorney Jerome Lidz, who represented Eugene.

Attorneys had expected that a decision was a year to 18 months away when Eugene appealed the Tax Court ruling in March.

"They decided it very fast," Lidz said.

That's good news for the Lane County tax assessor, who has a window from September to mid-October to certify the taxes each district can collect from property owners.

Only the taxpayers who filed the suit are eligible for refunds, Lidz said.

Local schools won't feel much of a pinch from the decision.

An increase in state revenue this year will go some way toward covering the loss of the final year of levy revenue, school district spokesmen said.

The Bethel School District, which has budgeted $46 million for the 2006-2007 school year, will still receive about $1 million from this levy, about $200,000 less than they would have if the court had ruled differently.

That's because property owners in the Bethel haven't yet hit the $5 per $1,000 cap on education spending.

The levy had provided between $5 million and $6 million to the Eugene School District, but state funds and the district's reserves - about $14.8 million for the current school year - will fill the gap, district spokesman Kelly McIver said.

This year's budget of $134.9 million is a 6.1 percent increase over last year's budget, he said.

In the meantime, courts will continue to have some say over school funding.

Several students and school districts throughout the state filed suit against the Legislature in March for failing to adequately fund public schools, a requirement voters inserted into the Oregon Constitution in 2000.

Urhausen said he supports that lawsuit. "In the long run, if the school districts are successful and establish that they need more funding, it will affect all the children in the state," he said.