The Oregon Secretary of State’s Office is calling for swift changes to a 99-year-old tax policy that auditors found benefits primarily white, wealthy homeowners in urban counties while leaving thousands of low-income, rural residents and Oregonians of color to fight for housing assistance.

The state mortgage interest deduction, mirroring the version for federal income taxes, allows homeowners to deduct from their taxable income interest payments on mortgages up to $750,000, including mortgages on vacation homes. It’s Oregon’s largest housing subsidy, with an estimated cost of $1.1 billion to the state’s coffers this biennium.

Auditors from Secretary of State Shemia Fagan’s office this month finished their first audit of the tax policy in its nearly century-long history in Oregon.

They said they found the policy to disproportionately benefit seven counties, all considered urban by state definitions: Clackamas, Columbia, Deschutes, Multnomah, Washington and Yamhill.

The audit also found that Black, Latino and Native American residents received disproportionately less benefit from the program than white Oregonians, and the top 1% of beneficiaries of the policy received more money back than the more than 700,000 Oregonians in the bottom 40% of people eligible for the tax benefit.

In her statement announcing the findings of the audit, Fagan urged legislators to find a “clear purpose” for the policy and to make changes to make sure it’s meeting that goal. She disparaged the money wasted on the mortgage interest deduction, and said the state should instead be better funding housing programs to help low-income residents.

“Every dollar spent keeping seniors and working families in their homes or helping renters stay housed has been scrutinized and debated by lawmakers. Meanwhile billions of dollars just walk out the backdoor with no questions asked,” Fagan said in a written statement.

Affordable housing advocates have called for an end to the policy for several years, saying it largely helps only the wealthiest homeowners that qualify, and provides no benefits for middle-class or low-income taxpayers.

A bill that proposed to modify the mortgage interest deduction policy failed in the 2021 legislative session. House Bill 2578 called for an end to the rule that allows homeowners to make deductions based on the mortgage from a second or vacation home, thereby benefiting from two tax breaks. The bill also proposed lowering the limit to mortgage debt of $250,000 or less.

Supporters, including the Oregon Association of Realtors, have billed the policy as one that benefits and rewards homeowners. Doing away with it, they said, would be unfair to homeowners when owning a home is already difficult and less affordable than in the past.

The audit notes that there have been several bills proposed in the past five years to modify the tax policy, but none have become law.