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Portland State University is the second largest public university in Oregon, and draws a high number of transfer and first-generation students.

(RICK BOWMER/The Associated Press)

Portland State University won't be pursuing a controversial ballot initiative this November that would've generated $40 million a year from a payroll tax on metro businesses.

PSU abruptly pulled back the payroll tax plan Friday morning at a press conference on the Park Blocks campus. The school and metro business leaders said they will team up to pursue a yet-to-be determined permanent funding source for PSU.

"This agreement is a very important breakthrough for the university and the region," President Wim Wiewel said in his opening remarks. A newly formed College Affordability and Success Coalition with big names from Portland's business world will search for a solution that brings in "a minimum of $25 million" per year by 2019.

Wiewel will chair the new coalition alongside The Standard insurance's chief executive Greg Ness. Ness said the business leaders, which includes prominent University of Oregon alum and donor Tim Boyle, understand PSU has unique funding challenges.

Ness said the disagreement centered on the payroll tax mechanism. "The collective human and financial resources of all of us are better put to use solving this problem," he said, "rather than engaging in a damaging and divisive political campaign."

The compromise comes after the campaign had ruffled feathers in the business world and failed to pull in contributions from groups other than its own foundation.

Portland Business Alliance CEO Sandra McDonough fought the measure in Multnomah County Circuit Court, but the campaign had continued to pull in cash from PSU's philanthropic arm as recently as two weeks ago.

The campaign had reported just $140 from non-foundation sources.

The PSU Foundation had chipped in $375,000 to back the campaign, with more than 40 percent of that money already being paid to campaign strategist Mark Wiener's Winning Mark organization.

It's not clear where the group will turn to for more money, but Wiewel and Ness said there's now a partnership between PSU and metro business leaders.

Ness suggested four options to get more money: philanthropy, a yet-to-be-determined regional tax, more money from the state or other incentives to increase private donations to schools such as PSU that benefit economically disadvantaged Oregonians.

He added that PSU is at a disadvantage versus the University of Oregon or Oregon State University because it doesn't depend on out-of-state students' tuition. He suggested the funding model for public universities could be tweaked. "It's too early to decide," he said, suggesting that future funding could be related to the demographics of various schools.

The new state funding model already benefits PSU due to its student body.

Last year, the state universities landed $665 million in general operating support from the Legislature. While that was a substantial increase from previous bienniums, it didn't change PSU's funding woes.

In the upcoming biennium, PSU and other universities will once again lobby for more money. But they face the possibility of massive retirement obligations hitting state payrolls. Wiewel said he's not banking on more money in the short-term, saying PSU is playing the long game. "Obviously that is going to be affected by how much the state as a whole has in terms of resources and other obligations," he said of any request for more state money. "We realize that's a complicated issue."

Wiewel said he previously discussed the payroll tax plan with then-Governor John Kitzhaber five years ago. He said the plan wouldn't have been possible if PSU didn't have its own independent board of trustees who largely backed the idea.

Campaign officials confirmed early polling showed broad community support for the measure, though they did not provide those poll numbers. "Obviously we would not have been conducting this campaign if we didn't think it could be won," Wiewel said. But he didn't want to move forward or win "in a way where you make a lot of enemies. We are here for the very long run," he added.

Wim Wiewel, Portland State University president, and The Standard CEO Greg Ness announced Friday May 6, 2016 that the business community and university would team up to try and find a permanent funding source. PSU had planned to pursue a payroll tax, but pulled the plan after working with local business leaders.

Ness agreed that PSU may've won the battle. "But it may have resulted in the loss of a war."

The Yes for PSU campaign had planned a day-long signature gathering event next Tuesday on campus, with the goal of collecting 5,000 signatures within the next few weeks. To qualify for the ballot in November, the campaign needed more than 34,000 signatures by the end of July.

That event has since been cancelled.

"We won without a public fight. we won without a vote," said Peter Zuckerman, the campaign's erstwhile organizer.

-- Andrew Theen

atheen@oregonian.com

503-294-4026

@andrewtheen