The Arts Tax Is Broken Now the City Might Tweak It Without Asking Voters

Danielle Chenette

THE PORTLAND ARTS TAX has underperformed and overspent.

When voters approved the oft-derided $35 tax in 2012, they did so with the understanding that about 95 percent of the money they forked over would pay for arts teachers and culture-related nonprofits. No more than 5 percent of the revenues, averaged over five years, was supposed to go toward administering the tax.

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These days, that assurance looks laughable.

“I think 5 percent polled very well in 2012 as a number to shoot for, but it was never realistic,” Thomas Lannom, the city’s revenue director, told Portland City Council last week. “That’s all come home to roost now.”

Since 2013, the city’s Revenue Division has spent 7.7 percent of the arts tax cash it collects trying to get citizens to fork over their $35. In the last three years, administrative costs have been closer to 9 percent, a figure the city says is “the most accurate representation of ongoing expenses.”

The tax is also falling short. When it passed in November 2012, Lannom was confident the city could get 85 percent compliance from taxpayers. So far the Revenue Division has maxed out at 73 percent compliance.

Now, another surprise might be on the horizon: The tax that 62 percent of voters approved might take on a new shape without their input.

In a frank memo to council members in August [PDF], Lannom laid out reasons the arts tax cannot continue in its current form, and presented a series of possible improvements. They include ratcheting up the proportion of arts tax revenue that can be spent on administration—upping the limit to 12 percent of collections, or setting a $1.2 million budget, or doing away with a limit altogether.

Another option, favored vocally by one member of council earlier this month, would be for the city to kick in hundreds of thousands of dollars a year from Portland’s general fund to prop up the tax—a move that could make it harder to pay for priorities like housing, homeless services, and road maintenance.

These tweaks would help city tax collectors rake in more money for arts programming, Lannom said last week. But there appears to be disagreement as to whether fundamental changes to the tax should go to citizens for a vote.

“I know no one wants to go there because no one wants to dare ask the voters to reconsider the arts tax,” Commissioner Dan Saltzman said at the September 13 hearing. “To me, that’s the most straightforward, straight-shooting approach.”

Commissioner Nick Fish disagreed.

“I don’t think we need to go back to the voters,” he said. “I think the city should step up with the general fund and supplement the difference” between the 5 percent cost cap and the price of enforcement. Fish has since walked back those comments, telling the Mercury he has “not settled on a fix yet.”

There’s little question that the arts tax has made a difference. Since its inception, the tax has collected nearly $48 million, with revenues rising each year. The tax’s central promise—to fund arts teachers for elementary students—is being met. It currently pays for more than 60 teaching positions among six Portland school districts.

“We went from one music teacher in the entire district to one in every building,” Carolynn Langston, a music teacher in the Parkrose School District, told council. “We are so grateful that the residents of Portland value the arts.”

But the tax’s secondary goal of funding local arts nonprofits has fallen short. Since collections have come in at lower-than-anticipated rates, there’s less money left for the Regional Arts and Culture Council (RACC), which was tapped to distribute arts tax funds. RACC has received between $1.4 million and $2.2 million less than planned each year, according to RACC interim Executive Director Jeff Hawthorne.

When approved, the arts tax promised something on the order of $12 million a year for arts funding. Council quickly cut into that potential revenue with a 2013 vote that created exemptions for people who make less than $1,000 a year.

Even taking that into account, the tax has underperformed. Lannom says that’s because it’s difficult to convince more than 360,000 people to pay $35 on top of their yearly tax filings.

The lower-than-anticipated revenue presents a thorny issue: With less revenue coming in, the city more quickly runs up against its 5 percent cap, meaning it has less money to convince people to pay.

Lannom uses 2016 as an example. By April of last year, the city had collected around $8.2 million in Arts Tax payments, but had already burned through more than $425,000 administering the tax, hitting its 5 percent cap. Officials pressed on anyway, spending an additional $524,000, which Lannom credits with scaring up $2.54 million more in revenue.

All told, the city reaped $10.75 million from the Arts Tax last year—the most successful haul to date. Lannom argues the extra spending—for collection letters, emails, phone calls, and payment processing—amounted to a “pretty good deal.”

Now, Lannom and his revenue division are recommending that council eliminate the 5 percent cost cap, and instead let them spend $1.2 million a year to collect the tax (more than has been spent in any year to date). A citizen committee overseeing the tax agrees.

RACC, meanwhile, is asking council to prop up the tax using general fund money—costs that could reach as high as $680,000 per year, depending on how the city moves forward—or even to dedicate more general fund money directly toward RACC.

It’s unclear when the matter will come before council for a decision.

“It is not going to be an easy conversation and it gets to the question of priorities,” said Mayor Ted Wheeler, who has called the arts tax “probably the most poorly implemented tax” in the city’s history. “We’re willing to be transparent with the public about the mistakes that we made and what we’re going to do to fix them.”