Portland Metro faced with challenges as it starts to recover

By Cliff Hockley, President of Bluestone and Hockley Real Estate Services
Executive Director, SVN | Bluestone and Hockley

A review of the issues facing us in 2021

With the re-election of Mayor Ted Wheeler and Mingus Maps and Dan Ryan as City Commissioners, the city of Portland has turned a corner towards moderation, and it is not a moment too soon.

Portland has been gripped by so many challenges this year that it makes your head spin. This overview will give you a taste of some of the challenges ahead for the next twenty-four months.

Homelessness

The Homelessness problem has grown in leaps and bounds over the last few years. Portland and Seattle seem to have become meccas for homeless people. There are shelters, warm food, medical care, and organizations standing by to help. Word is on the street, so to speak, that homeless people can set up camp in the public right of way and not face arrest. There are so many homeless, that even if they were arrested, they would be released the next day because there is not enough jail space.

It appears that the city and Multnomah County have finally arrived at a strategy of encouraging homeless people off of tenants in the city’s right of way and parks, and into buildings and camps, where services such as clean water, power and restrooms exist. This takes many of the homeless off of the street and is a good start. The next necessary step is to reduce the cost and regulations involved with new construction of workforce housing, in order to deliver rental units to the marketplace for lower-income renters.

The mayor has a plan: Move the tents and campers into large, managed camps.

“We’re also gonna have to look at bigger strategies, like extending our managed camp system, potentially creating areas that are safe camp areas where people know that if they pitch a tent and there are some areas – perhaps out by the airport – there are some areas closer to the central city, if we identify those places and say look, in a pinch you can camp here,” he said.

Additionally, the Bybee Lakes Hope Center has opened in North Portland which could house close to 500 people in emergency and long-term beds once renovations are completed. At this moment close to 25 people are living and working on their recovery in what was once the Wapato jail. Founder Alan Evans said the Bybee Lakes Hope Center is transitioning to operating as a homeless shelter in North Portland. The number of occupants is far lower than the goal, because of ongoing COVID-19 restrictions.

The goal of this program is to transition homeless people off the streets. It provides services to those experiencing homelessness who are ready to make sustainable changes to achieve self-sufficiency. They serve men, women, and children and operate sober campuses. They have two eligibility requirements for their clients: they must be willing to be clean and sober and they cannot be a registered sex offender.

In addition, METRO the regional government for the Portland metro area is raising a tax base of upwards of $250 million per year to support people experiencing homelessness in the Portland region. It will enact two new taxes starting in January 2021:

1% marginal income tax on individuals earning more than $125,000 annually or couples who earn more than $200,000; and
1% tax on the profits of businesses with annual gross receipts of more than $5 million.

Those taxes will be distributed to the tri-county area based on population and will fund services including case management, rental assistance, and addiction and mental health treatment.

Civil Unrest

Riots affected downtown Portland after the death of George Floyd. Many buildings in downtown, close to the justice center and the police headquarters were damaged and spray painted. With the advent of the winter and the cold weather, and the increasing Covid cases, the riots have slowed, but not evaporated. Originally started as a response to the Black Lives Matter, the movement has been challenged by anarchists protesting against big business, who prefer to damage property rather than march peacefully to accomplish change. You can read the full OPB article HERE.

The protests are limited to commercial areas of the central business district and the inner northeast and southeast sides of town, but they are a threat to businesses and are a sober reminder that it continues to be difficult to do business in Portland.

The word has spread across America, via press coverage, and national businesses are hesitant to invest in Portland until the protests and concomitant property damage is stopped. The city council recognizes this and is working through solutions to this problem.

Covid

What can one say about COVID-19? The world is locked down and businesses, especially downtown businesses in office and retail buildings, have encouraged their staff to work from home. This is good and bad. A double-edged sword so to speak. With no workers downtown, retail businesses are having trouble staying open because they lack sales. At the same time, those workers are better able to protect themselves from Covid. Unfortunately, reduced sales revenues mean more layoffs and a reduced tax base as well.

Oregon’s governor issued Executive Order 20-65 on the 17^th of November 2020 that instituted a “Temporary Freeze” to control the surging Covid 19 cases. This Order intended to reduce the circulation of Oregonians and protect the most vulnerable from Covid 19 and included new limitations on gatherings of people, with a particular focus on Holiday gatherings, travel, and work.

On December 2^nd, the date Executive Order 20-65 was set to expire, the Governor issued Executive Order 20-66 which replaced the previous Order and provided for a county-by-county risk-based metrics approach.

The biggest challenge to this order is the restriction on food and drinking establishments, basically limiting them to delivery service options and outside dining. This is a repeat of a former order and squeezing the surviving restaurants and bars bottom lines, not to say anything about increasing the unemployment statistics.

As you can see from the four-county dashboard of cases (focusing on Oregon’s counties that make up the Portland Metro area), Covid Cases are hitting a winter high and as a result, the state legislature passed several bills in a special session on December 21^st. Chief among them is Senate Bill 5731 and House Bill 4401 which provide for an $800 million relief package for Oregonians impacted by the pandemic and this summers’ wildfires. The bills include a six-month extension of the residential eviction moratorium that will now stretch until the end of June, $50 million in rental relief, and $150 million to pay landlords up to 80% of what they are owed by struggling renters. Landlords who accept the assistance will have to forgive the other 20%, at least for now. The restaurant industry also received a boost with the passage of SB 1801 which will allow restaurants to start selling cocktails and single servings of wine to go.

In the near term, COVID -19 is here to stay until the country is immunized. The direct impact is a slowdown of the national and regional economy, but the silver lining is that businesses are retooling and finding other ways to continue operating in Portland, the region, and the world. Below are several links to relevant articles on this subject.

https://www.bain.com/insights/the-great-retooling-fm-blog/
https://www.bizjournals.com/portland/news/2020/10/30/covid-manufacturing.html
https://www.wweek.com/promotions/2020/06/16/from-socks-to-reusable-face-masks-a-portland-business-pivots-in-the-wake-of-covid-19/
https://www.tigard-or.gov/business/spotlight.php

Taxes

The combined tax measures in 2019 and 2020 many effective in 2021 and 2022 significantly increase the cost of living and working in the Portland, Oregon metro, especially those individuals with a high net worth.

Oregon

Corporate Activity Tax Modified Receipts: The CAT is applied to taxable Oregon commercial activity in excess of $1 million (Gross receipts – some subtraction for Cost of Goods sold). The tax is computed as $250 plus 0.57 percent of taxable Oregon commercial activity of more than $1 million. Only taxpayers with more than $1 million of taxable Oregon commercial activity will have a payment obligation.57%. If you collect or make over $1,000,000 in annual rent expect to have to pay some of this tax.
Metro: In May 2020 voters in greater Portland approved a measure to raise money for supportive housing services for people experiencing homelessness or at risk of experiencing homelessness. The program is funded by a 1% tax on taxable income of more than $125,000 for individuals and $200,000 for couples filing jointly, and a 1% tax on profits from businesses with gross receipts of more than $5 million. They expect to generate $250 Million a year in revenue.

Portland

City of Portland rental tax–$60/Unit, which is similar to a tax charged by Gresham to inspect units for habitability.
Measure 26-211 City of Portland – Library Bond. The passage will increase library space by 50% through the expansion of seven library branches and the development of a new East County flagship library in Gresham. The bond measure will cost $387 million and cost property owners an average of $0.61 per $1,000 in assessed property value for eight years. For a property that is valued at $2,000,000, they will pay an additional $1,220 on their property taxes in 2021.
Measure 26-213, the new Parks and Recreation Bond measure passed. The levy will prevent ongoing reductions to park services and recreation programs, preserve and restore park and natural area health, and center equity and affordable access for all. Levy is $0.80 per $1,000 assessed value. For a property that is valued at $2,000,000, they will pay an additional $1,600 on their property taxes in 2021.
Multnomah County: Measure 26-214 Tuition-free preschool, (effective Jan 2021). – The “preschool for all” initiative will be funded by an income tax on higher-income earners: individuals with an income over $125,000 will be taxed at 1.5%, and another 1.5% on county residents who earn more than $250,000 for a total of 3%. That rate could rise another 0.8% to 2.3% in each category, in 2026, depending on the needs of the program, which the county expects to be serving 7,000 new students by that time.
Measure 26-215 – the Portland Schools Bond passed – This bond measure provides $1.2 billion in funding for facilities and educational investments. The measure is not expected to increase tax rates above previous targets, because debt service is scheduled to decline.

Where does this leave Portland and Multnomah County?

As we reported in the December Quick Facts edition, 2021 Portland Tax Changes, local and state tax increases of over 40% over three years are making high net worth individuals very nervous. We have been told that as soon as their leases expire, businesses are moving out of Multnomah County to seek financial relief in other states and counties. This will significantly impact the money available to fund the aftermath of the pandemic. 2021 will be a benchmark year as immunizations take hold and the potential for economic recovery takes root.

Local political leaders need to take a careful look at how they handle all of the above-outlined issues. There are no easy answers to the challenges caused by homelessness, riots, coronavirus response, and the current tax policies. The challenges are significant, the decisions difficult, the risk is high. Only time will tell if the correct decisions will be made.