More Houses, Higher Costs: Why City Budgets Can Still Fall Short

When we talk about city finances, Measures 5 and 50 keep coming up. And I understand the questions that follow: “Those measures have been around for decades. Why are they a problem now?” Or, “Look at all the houses we’ve built. How can the city possibly be short on money?”

Those are reasonable questions. We can see the new neighborhoods. We see property tax bills arrive every year. When the city is also talking about difficulty funding services, those things can seem hard to reconcile.

But understanding what comes from tax revenue is only part of understanding a city budget. We also have to look at what that money can pay for, how many people it serves, and what those services cost.

The short explanation of Measures 5 and 50

Oregon voters approved Measure 5 in 1990 and Measure 50 in 1997. Together, they limit property taxes, establish permanent tax rates, and generally limit annual growth in an existing property’s maximum assessed value to 3%. That is the value used in determining taxable assessed value—not necessarily what a home would sell for.

That means rising home prices do not produce an equal increase in city revenue. And the city cannot simply increase its permanent property tax rate to keep pace with rising expenses.

The 3% limit is not a cap on the city’s total revenue. New construction adds taxable value, so total property tax revenue can grow faster than that. But additional revenue and additional money available after expenses are two different things.

Yes, new houses bring revenue. They also bring responsibilities.

Let’s address this directly: new housing generally adds property tax revenue. That money is clearly helpful to a city.

But a homeowner’s entire property tax payment does not go to the city. The bill includes taxes for multiple public entities, such as schools, fire, the county, and other districts. The city receives its portion of the tax bill, not the entire amount.

Meanwhile, a growing community has more people relying on police services, parks, the library, and other city functions. Depending on the development, it may also have more public infrastructure to maintain over time.

Costs do not rise by a fixed amount with every new house. Sometimes existing staff and facilities can serve additional residents. Other times, growth eventually requires another employee, more equipment, or additional maintenance capacity.

Whether a particular development generates enough revenue to cover its service costs depends on the development and the services involved. We should not assume that every new house loses money—or that every new house creates a surplus.

More houses can increase the city’s revenue without closing an existing budget gap. They also do not stop the cost of serving the rest of the community from increasing.

What about the fees developers pay?

Development also generates one-time payments, including system development charges, often called SDCs. These can be substantial, but they are not a general-purpose account for city services.

SDCs help pay for eligible infrastructure capacity associated with growth, such as water, sewer, transportation, and parks. Oregon law restricts their use; they cannot pay for ongoing operation or maintenance of those facilities.

For example, money collected for eligible water infrastructure cannot simply be redirected to keep the library open. A city can have funding for a particular construction project while lacking enough ongoing revenue to operate community services.

Seeing construction underway does not tell us how much money is available to pay next year’s operating expenses.

Why does the pressure build over time?

The measures have affected city funding since they took effect. What can change is how much room a city has left to absorb the financial pressure.

Think about the cost of providing the same services over ten or twenty years. Insurance, equipment, contracted work, utilities, and employee compensation can all become more expensive. Maintaining the same hours, staffing, and service levels can cost more even without adding a new program.

When ongoing costs rise faster than ongoing revenue, a gap develops. It may start small enough to manage through a vacancy, a delayed purchase, or reserves.

But postponing a purchase does not eliminate the eventual need. A vehicle still wears out. A repair still comes due. Reserves used to pay this year’s expenses cannot pay those same expenses indefinitely.

A city can make its budget balance for a time while its ability to sustain services becomes weaker. Residents may not see the full effect until the remaining choices involve hours, staffing, maintenance, or access to services they use.

That is why “the law has been around for years” does not mean its impact should have disappeared. Years of pressure can accumulate. The League of Oregon Cities describes communities across the state reaching the limits of years spent finding efficiencies and absorbing cuts.

A shortfall deserves questions—and evidence

When people see growth alongside financial trouble, some conclude that money must be disappearing or that someone must be pocketing it.

But that conclusion does not follow from those two facts. A growing tax base and a budget shortfall can exist at the same time.

Public money should be accounted for, and residents should expect clear explanations of revenue, spending, and restrictions. Budgets and financial reports are where we can examine those questions. An allegation of misuse needs evidence of misuse; new houses alongside a shortfall are not, by themselves, that evidence.

Spending decisions still matter. Measures 5 and 50 do not explain every financial problem or excuse every budget choice. We should examine local decisions alongside the statewide limits.

For Independence, that means looking at what revenue growth actually provides, what it costs to maintain services, and how past decisions affect today’s budget.

Understanding our city’s finances means looking at the whole picture: the limits on revenue, the rising cost of services, the responsibilities that come with growth, and the consequences of local decisions over time. City spending deserves scrutiny, but labeling every shortfall “mismanagement” skips the work of understanding what is actually happening. If we want an honest conversation about Independence’s finances, we have to look at the evidence and all the factors shaping our budget.