Levy ruling a blow, but schools move on.

Byline: Anne Williams The Register-Guard

With the dust settling from a surprise Oregon Tax Court decision last month on a city youth activities levy, officials with the city of Eugene and the Eugene and Bethel school districts now have a clearer picture of the fiscal implications.

It's better than many initially feared. While the ruling adds up to a loss of millions of dollars, the levy still will generate substantial revenue through next year, its last.

In fact, although Eugene, at least, will be turning to reserves to make up for some of the loss, neither district expects any cuts will be necessary either this school year or next, thanks in part to higher-than-anticipated state funding levels and lower-than-anticipated Public Employee Retirement System rates.

City Manager Dennis Taylor also announced this week that the city will appeal the decision to the Oregon Supreme Court, a process that could drag on for more than a year. But the school districts, in the thick of building their budgets for next year, can't place much stock in that.

Oregon Tax Court Judge Henry Breithaupt ruled on Feb. 16 that the city levy - approved by voters in 2002 to help fund music and physical education teachers, librarians, athletics and other activities considered separate from core academics - violated the state constitution by exceeding voter-approved property tax limits established by Measure 5 in 1990.

The tax generates about $8 million a year, 93 percent of which goes to the school districts, with the rest earmarked for city after-school and summer programs. Only the portion going to schools was under scrutiny. In the Eugene district, the money funds the equivalent of 78 full-time positions.

Under Measure 5, a constitutional amendment, school districts may collect up to $5 per $1,000 of market value in property tax. Breithaupt agreed with plaintiff Nick Urhausen and anti-tax activist Don McIntire, who backed the effort, that the city levy illegally circumvented Measure 5 by funneling city funds to schools and - in some cases - pushing the total tax collected above the $5 cap.

On properties that haven't bumped up against that ceiling, the city still may collect the levy revenue and pass it along to the school districts.

After an intense flurry of number-crunching in the days since the ruling, district officials now know what they can expect to collect.

The news is best for west Eugene's Bethel district, which, according to an analysis by the Lane County Assessor's Office, still should collect roughly $1.1 million of the $1.3 million it otherwise would have received. (Those numbers will be likely to change slightly for the 2006-07 school year, given fluctuations in property values.)

What that means is that the majority of revenue is coming from property tax accounts that fall below the $5 per $1,000 limit.

But in Eugene, the annual revenue collected falls from $6.4 million to $3.9 million. The primary reason for the discrepancy is that the Eugene district has its own, separate local option levy, which is factored into the total, pushing more properties above the $5 cap.

Because the assessor applies the levies in tandem, the district would also lose about $1.6 million from its own local option levy under the cap, reducing the total take from $11.1 million to $9.4 million.

Bethel will seek approval of its own local option levy in May, which - if passed - would also be factored into the total tax amount. Still, the assessor's office estimated that even with a district levy on the books, which would cost $1 per $1,000 of assessed value, Bethel would collect close to $1 million next year from the city levy.

Bethel spokesman Pat McGillivray said the district is concerned some voters might confuse its own levy with the city levy, and question its legality. "This is completely separate," he said. "We're absolutely legal."

One big unknown is whether the City Council will ask voters to renew the four-year levy in November. The council will discuss it at a work session in June and must decide by September.

"I think the assumption was that we we were probably going to renew this, and this definitely throws it into a new kind of dimension," said Councilor Chris Pryor, a former Eugene School Board member.

He, for one, is all for it, even though a renewed levy would be substantially less lucrative under the terms of the court ruling.

"I'm still extremely supportive of doing something for kids," he said. "That's really what it boils down to for me. These kids are Eugene kids, whether it's the city or the school district, and it's our obligation to make sure they have safe, healthy environments."

Caroline Passerotti, the Eugene district's senior financial analyst, said a renewed city levy - prior to the court ruling - probably would have made all the difference in the 2007-09 biennium, when the district expects a shortfall of $6 million to $7 million.

"We believe we would have been really close to whole" with a renewed levy, she said. "This has really been a huge contribution to our district when we've had years of cuts."

While the district has found a "temporary fix" to stave off cuts next year, the court ruling means the district will also have less reserve money to help cushion the blow the following year, she added.

CAPTION(S):

Corbin Krazanowski races fellow first-graders on Friday at Bertha Holt Elementary. A recent court ruling affects funds for physical education. INSIDE Impact: First casualty of the decision: Big Picture School / A8