Portland has fallen short of its pledge to spend 95 percent of arts tax revenue on music and art programs.

City officials have devoted almost 8 percent of the funds on administrative activities, exceeding the 5 percent cap promised to voters who approved the tax in 2012, a report presented to the city council Wednesday showed.

The difference has amounted to $1 million from 2012 to 2015. The city also learned that about a quarter of Portlanders are not paying the tax, which brings in about $10 million each year – $2 million less than anticipated.

The tax pays many art and music teachers in schools, supports arts organizations in the community and funds grants to expand access to the arts.

"This 5 percent thing is really important to me because it's a bellwether on how we're spending the dollars," Mayor Ted Wheeler said. "If you're spending it on overhead, that means you're not spending it on access and equity issues around an arts education."

Portland's Chief Revenue Officer Thomas Lannom said that the high overhead spending is a "pretty good deal" and necessary to maximize revenue for the city through collections.

The city spends about $850,000 a year to collect the tax. Costs include employees to answer phones and contact delinquent taxpayers, flyers educating the public about the tax and notices of delinquency.

Lannom said spending only 5 percent on overhead costs was an unrealistic goal. He asserted that voters would prefer spending more to collect more money to ensuring 95 cents of every dollar collected goes to the arts.

Commissioner Dan Saltzman said he did not buy that argument. He said the city should pose that question to voters before eliminating or changing the cap.

"Nobody wants to go there because nobody wants to ask the voters to reconsider the arts tax because everybody is afraid they'll can it," Saltzman said.

The city projected how much it should spend on overhead based on expectations that it would make $12 million in revenue each year, said Commissioner Nick Fish, the city council's liaison to the Regional Arts and Culture Council that staffs the tax's oversight committee. Because it fell short of that by $2 million, Portland's administrative costs exceeded the 5 percent cap, Fish said.

Fish suggested spending "a couple hundred thousand" dollars from the city's general fund of taxpayer money to help boost the tax's average annual collection rate above 74 percent.

He urged the council to not "prejudge" the dilemma at Wednesday's city council meeting.

"I know we're going to have strong feelings and a very good debate," Fish said.

Lannom plans to propose changes to the spending rules before the council in a few weeks.

Many Portlanders have already been skeptical of paying the $35 tax voters approved in 2012 to fund arts education and programs.

It has drawn concerns, and a legal debate before the Oregon Supreme Court, about whether or not it violates Oregon's Constitution. The Constitution prohibits a "head tax." Retired attorney George Wittemyer argued in court that the arts tax violates this rule because it imposes a fixed amount per person.

The Oregon Supreme Court is still considering whether the tax is legal.

Update: This post has been updated to correct and clarify some information about tax collections.

--Jessica Floum

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