Portland

Multnomah County Reviewing Two Tuition-Free Preschool Measures for November Ballot – Both Seek to Tax High-Earners

Multnomah County has two tuition-free preschool measures that may go to the ballot this November. The first campaign, Universal Preschool Now, has received enough signatures to be considered by the Multnomah County Board of Commissioners. This campaign has been developed by an independent task-force group. The other campaign, Preschool For All, is developed by a county-based task force. The Preschool For All measure is spearheaded by County Commissioner Jessica Vega Pederson, and since it is backed by the county, it will not need to collect signatures before being referred to the ballot this fall.

Background

The Universal Preschool Now has collected enough signatures to send it to the Multnomah County Board of Commissioners for consideration. The Board of Commissioners has until September 3 to decide what it will do with the measure. It can either send the measure to the ballot for voter approval this November, or it can adopt the measure and have it become an ordinance of Multnomah County. If the Board of Commissioners elects to adopt the measure, it will still have the ability to take action and amend the measure as it sees fit. The Preschool For All campaign is still being developed by a county-based task force, but it will likely be put on the ballot as well this fall.

Tax Structure

Universal Preschool Now

The Universal Preschool Now measure is the more aggressive tax of the two tuition-free preschool measures. If voters pass the measure in November, Multnomah County residents will be subject to a 3.9% tax on personal Oregon taxable incomes over $165,000 and joint incomes over $190,000. A taxpayer is considered a Multnomah County resident if they are domiciled in Multnomah County for any portion of the taxable year. If passed, the tax will begin on or after January 1, 2021. Multnomah County single-filing residents would be subject to a 14.8% (4.9% Local + 9.9% State) incremental state and local tax rate on income over $165,000. This new tax, coupled with the recent 1% tax to fund housing services for homeless people in the metro area would cause Multnomah County taxpayers to pay some of the highest taxes in the country.

The County Attorney, Jenny Madkour, stated that since the measure was not born in Multnomah County, it would likely need to be right-sized, reviewed, and revised to make sure it fits within the County’s administrative functions and processes. She did state that the measure is “tax legal” and is going through the proper process, so it would withstand legal scrutiny.

Preschool For All

The Preschool For All measure targets a broader range of taxpayers, at lower rates. If this measure passes in November, single filers with incomes over $125,000 and joint incomes over $200,000 will be subject to a 1.5% tax. Single filers with incomes over $250,000 and joint incomes over $400,000 will be subject to an additional 1.5% tax (3% total). Both taxes will get an automatic bump of 0.8% in January 2026, which would raise the rates to 2.3% for the lower-income level, and 3.8% for the higher-income level. The tax would be imposed on both resident and non-resident incomes that are earned in Multnomah County. The Preschool For All measure will also go into effect on or after January 1, 2021.

Implications

With potentially two tuition-free preschool measures on the ballot this fall, there is a chance that both measures will pass. If this happens, both would be a part of the Multnomah County ordinance structure. The Board would then have the authority to change, alter, or amend these ordinances, as long as it is lawful. The Universal Preschool Now measure needed 23,000 signatures in order to be referred to the Multnomah County Board of Commissioners, and it collected over 32,000 signatures, which is a strong indication that one of these measures may pass if it goes to the ballot this fall. This measure is also similar to the education levy passed by Seattle voters in 2018, which passed by a wide margin. If either measure is passed, high-earners in Multnomah County can expect to pay some of the highest incremental tax rates in the country.

Additional Payroll Taxes Looming for Portland Metro Area Businesses

The Metro Council has recently outlined its plan to raise the necessary funds for the $7 billion “Get Moving 2020” transportation initiative that will be voted on this November. An overwhelming majority of council members support an increase in payroll taxes on employers in the metro area. Although the plan is not final, it is more than likely that Portland metro area businesses will face some form of payroll tax.

Payroll Tax Proposals

Five of the seven officials stated that they preferred an aggressive payroll tax approach. This approach would impose a 0.65% payroll tax on all employers in the Portland metro area which would allow projects to break ground immediately. Other council members support a more gradual increase in payroll tax with rates starting at 0.1% that would increase to 0.6% by 2028. The gradual increase in rates would likely be preferred by Portland metro businesses that are facing economic stress due to the pandemic. The current plan would also exempt businesses with twenty-five or fewer employees from the payroll tax, further helping smaller businesses that are facing financial stress.

Feasibility and Future Implications

The Metro is projecting that it needs $300 to $350 million to pay debt service on bonds for the projects. The Metro Council also wants to impose a $56 vehicle registration fee across the Portland metro area, but this alone will not be able to service the debt. That is why the aggressive approach is supported by the majority of council members. This approach is also more likely to give the Metro the immediate cash it needs to service the bonds instead of waiting a few years to begin the transportation initiative.

The payroll tax will be an additional challenge for Portland metro businesses that are facing financial stress from the pandemic. Also, the new payroll tax comes in the wake of the recently passed 1% tax on businesses to fund housing services for homeless people in the metro area that is slated to begin in 2021. The Metro Council is hosting a series of online listening sessions to hear public input on the potential funding measure. The first session is June 30 for residents who live in Clackamas County. Three more sessions will follow on July 6, 7, and 9 for residents of East Multnomah County, Central Multnomah County, and Washington County, respectively. All sessions will begin at 5:30 p.m. The Metro Council is planning a final vote on July 16 to finalize the funding plan.

Washington, Clackamas, and Multnomah Counties Pass 1% Tax on High-Wealth Individuals and Large Businesses to Fund Housing to Reduce Homelessness

On May 19, 2020, voters in Washington, Clackamas, and Multnomah counties approved Measure 26-210, which funds services, including health care, case management, job training, and rent assistance, for people experiencing or facing homelessness. These services will be funded by a marginal 1% tax on households (both residents and nonresidents earning income within the district) with taxable income over $200,000 ($125,000 for individual tax filers). Businesses with gross receipts in excess of $5 million will also be subject to a 1% tax on business profits.

The tax will begin with the 2021 tax year and is set to expire on December 31, 2030. An extension beyond 2030 will require voter approval.

The Metro Council will release implementation guidelines including forms and documents on which to file; due dates; penalties and interest for not filing; refunds and deficiencies; overpayments; estimated tax payments; exemptions; and other procedural provisions. The Council will also evaluate individual income tax residency determinations and business profits tax determinations, including an issue with double taxation for partners and shareholders of pass-through entities. The Council intends to use an Oregon tax agency to facilitate the collection of the tax.

This 1% tax comes in the wake of other recent taxes on businesses like the Oregon Corporate Activity Tax (CAT). Now, certain businesses and individuals in the Oregon metro area are subject to Multnomah County Business Income Tax; Oregon Corporate Income/Excise Tax; Oregon CAT; City of Portland Business Income Tax; City of Portland Clean Energy Surcharge; City of Portland Pay Ratio Surcharge; and now the Oregon Metro Area Homeless Housing Tax.