Copyright 2005 the Oregonian

November 13, 2005, Sunday LENGTH: 1622 words

HEADLINE: Historic homes enrich the rich

BYLINE: By Betsy Hammond

BODY: Some of metro Portland's wealthiest people get big tax breaks on homes or businesses deemed historic, paying a fraction of the property tax rate other homeowners and businesses pay.

The tax break, begun in 1975 and expanded this year, is an incentive for property owners to place homes and businesses on the National Register of Historic Places and to undertake restoration. In many cases, it fosters preservation.

But it also has created a way for savvy investors and developers and wealthy homeowners to reap huge tax savings on highly desirable buildings that likely would be preserved even if taxed at the normal rate, an analysis by The Oregonian shows.

The state, which has never analyzed whether the tax break is too generous, does little follow up to determine whether homeowners make promised renovations.

Property taxes are due this week across Oregon. In the Portland area alone, historic properties will get breaks worth about $ 6.5 million.

"How many of these big, beautiful homes are the owners going to desecrate? Very few, I would guess," says House Minority Leader Jeff Merkley, D-Portland, who voted against expanding the tax credit during the recent session. "In some places, this largely becomes a tax credit for affluent families and affluent neighborhoods who can and should do their part to support services to the community."

Property taxes pay for police and fire departments, local government services and help fund schools.

The typical Multnomah County homeowner, living in a house valued at about $ 240,000, owes about $ 3,000 in property taxes this year.

Thanks to the historic property tax break, owners of 67 Portland-area homes worth $ 1 million or more will pay, on average, half the normal tax rate.

Some homes and businesses -- most of them in Portland's trendy Pearl District -- pay 10 cents on the dollar or less compared with the property tax rate paid by ordinary Multnomah property owners, the newspaper analysis found.

Few states are as generous as Oregon with property tax breaks for preservation, according to Susan Haylock, the state preservation specialist who decides whether to grant the tax break. Oregon's tax abatement is among the nation's longest -- 15 years -- and it does not hinge on how much the property owner spends on restoration.

James M. Hamrick Jr., Oregon's deputy historic preservation officer, has tried for years to get the law changed. He wants a state income tax credit equal to one-fifth of what a property owner spends on historic preservation. That would encourage more preservation of inexpensive historic homes and buildings, he says.

But his plan has gone nowhere.

Instead, Rep. Tom Butler, R-Ontario -- whose chief of staff lives in a $ 700,000 Salem historic home where the tax break was about to expire -- persuaded the Legislature to make historic homes eligible for a second 15-year tax break, provided the affected city or county agrees. Market changes, law doesn't

The special deal for historic properties is one of many property tax breaks in Oregon that range from exemptions for churches and charities to breaks for cemeteries and logging tools. Those tax breaks total more than $ 200 million in Multnomah County this year.

Oregon's historic tax break locks in the taxable value of a property before renovations and freezes it at that level for 15 years.

Thus, former Trail Blazers star Rasheed Wallace owes $ 15,700 -- not the normal $ 43,000 -- in property taxes on the $ 4.5 million gated home in Dunthorpe where his family lived until 2004 and that he still owns, The Oregonian analysis shows.

Chris Patterson, the new chief executive officer of Freightliner, paid $ 1.2 million for his brick row house in the Pearl this year, but he is billed $ 137 -- not the normal $ 7,700 -- in property taxes this year, the analysis found. Schnitzer Steel's new CEO, John Carter, bought the row house three doors down for $ 2.3 million last month -- and will pay about $ 150 a year in property taxes through 2011.

Property owners paying less than 10 cents on the dollar of normal tax rates also include advertising mogul Dan Weiden and his co-owners of the $ 32 million Weiden + Kennedy building, created in a former cold-storage warehouse in the Pearl, and Debra Bellos, wife of Paccess CEO Harve Bellos, for her $ 1.4 million Avenue Lofts condo.

Most properties getting the tax break are in Portland. Only 32 homes and businesses in Clackamas County and 11 in Washington County benefit.

Oregon was hailed as a pioneer when it enacted the nation's first property tax break for historic property in the early 1970s. Lawmakers wanted to encourage Oregonians to carry out historically accurate renovations of homes and stores to preserve the state's cultural heritage.

But 30 years later, market conditions have changed, and few average Oregonians benefit from the tax break.

Of nearly 700 Multnomah County properties getting the break this year, just 13 are single-family homes worth less than the median home sales price of $ 300,000 -- and their tax breaks average $ 1,300 a year.

The tax break benefits owners of more than 100 commercial properties, including office buildings, apartment complexes and stores, valued at $ 2 million to $ 35 million apiece. On top of their property tax breaks, those owners can get federal tax credits equal to one-fifth their costs for restoring historic property or adapting them for modern use.

Four downtown hotels -- Embassy Suites, the Benson Hotel, Hotel Lucia and Fifth Avenue Suites -- together reap a yearly break of more than $ 700,000.

There is even a property break for historic parking garages.

Cathy Galbraith, executive director of the Portland-based pro-preservation Bosco-Milligan Foundation, says it is essential to offer incentives to preserve important buildings that otherwise might be razed or renovated in ways that ruin their historic integrity.

Jim Heuer, a preservation activist and owner of a historic Irvington home, agrees. "You go into the Pearl and think, 'Everything here is spanking-new,' " he says. "And then you turn the corner, and there is something rooted in history, something still rooted in a sense of place, something that tells you it's still Portland. I don't begrudge them their tax break one bit."

Preservationists want historic buildings to become listed on the National Register of Historic Places. That's because, once listed, buildings in areas with strong local landmark rules, such as Portland, can't undergo major renovations that might compromise their authenticity without approval from state or local preservation experts.

But few property owners are motivated to get their buildings onto the national register without a financial incentive -- in this case, a 15-year tax freeze, said Amy McFeeters-Krone, whose company, Building History, specializes in qualifying properties for the national register and the state and federal tax break.

Gregg Miller and Christine Howell-Miller, owners of a $ 2.35 million mansion on the Alameda Ridge, bought the property for $ 875,000 seven years ago -- then poured an estimated $ 500,000 to $ 750,000 into restoring historic brick work, replanting gardens, bringing back period light fixtures and more.

Christine Howell-Miller has loved the Tudor mansion, which occupies an full triangular block, since childhood. But without the tax break, the family could not have afforded to buy and restore the house, says Gregg Miller, CEO of Northwest Pump & Equipment. "We took a lot of pains to do it to the period," he says.

State rules do not require such ambitious efforts, however.

Since 1995, property owners have had to file a 15-year preservation plan. Routine maintenance and minor upgrades that most homeowners carry out over 15 years to preserve their home's value -- painting the exterior, putting on a new roof, updating 1980s bathrooms or refinishing floors -- all count toward qualifying the home for a tax break.

Mimi and Doug McCaslin bought their 8,000-square-foot Dunthorpe home for $ 1 million in 1992. The home, built in 1916 for wealthy banker Elliott Corbett, was in excellent shape. The couple pledged to repaint the shutters, touch up historic paint where needed, replace balusters that had succumbed to dry rot and undergo an energy audit. The result: a 15-year tax break worth $ 6,000 to the McCaslins this year.

Getting a plan approved is not difficult. Haylock warns off a few half-hearted applicants by telephone when she learns they don't want to do much work or they plan to replace historic windows or siding with modern aluminum -- blasphemy in preservation circles.

But she cannot recall the last time she turned down a formal application for the tax break -- nor the last time Oregon repealed a tax break because an owner did too little to preserve the building.

The last time she and the Multnomah County tax assessor got tough with an applicant was in 1993, when the Benson Hotel sought a tax break for its 1959 addition. They said it was newer than the 50-year minimum for the federal register.

The result?

Owners of the Benson sued and got the tax break.