Item 4: Adoption of Resolution 5023 Calling a City Election on May 17, 2011, on a Temporary City Income Tax to Raise Funds for Local Schools

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Start-up and on-going administration of a local income tax would be complex. Implementation activities would include: policy work with the council regarding the tax; staff and contractor costs; election costs; economic modeling of tax projections for budget and planning purposes; negotiation of an intergovernmental agreement with the City of Portland or the Department of Revenue to administer the tax (if at all possible, rather than creating a new City revenue collection infrastructure from scratch); legal costs; cash flow borrowing costs (if needed) for implementation activities; education of taxpayers; set-up and maintenance of a computerized billing and collections system; set-up and staffing of customer service phone lines; creation and maintenance of a web site with tax information, ability to file forms on line and payment acceptance abilities; processing of payments, deposits and refunds including acceptance of credit card payments; audit activities to ensure taxpayer compliance, including matching data with state income tax information and local address verification; and collection of delinquent taxes. With regard to tax evasion and tax avoidance, the EcoNW report included in Attachment D describes some of these activities. Both activities result in reduced revenue to the City. The very preliminary estimates of the cost of implementing and administering an income tax program, including the cost of tax avoidance and evasion and tax implementation and collection activities, are estimated between 10-20% of the gross revenue in the EcoNW calculations. When added to the estimated impact of the state-mandated exemption for PERS and federal pension benefits, the total difference to get from gross potential revenue to net receipts for distribution to schools is approximately 16-26%. Economic Impacts: EcoNW describes some of the economic impacts on businesses and the community as a whole. The analysis included two aspects. First, EcoNW reviewed literature on the effects of tax rates on economic development and provided some conclusions based on that review. Second, EcoNW estimated the impact on the local economy from a City income tax to fund local schools using an economic model. The analysis is included in Attachment D. Governor’s Budget for Education: According to the Governor’s Budget, which was released last week, it establishes a stable funding floor for Oregon’s public school system. It provides $5.56 billion for the biennium. However, 52% ($2.9 billion) will be distributed during the first school year of the biennium, equivalent to a $5.8 billion budget for school funding. The effect is to provide an increase in state funding for the 2011-12 school year. Front-loading the funding also provides a year to find cost savings through consolidation and other efficiencies to maintain this level of classroom support during the 2012-13 school year. In addition, the Governor is recommending shifting funding for State Police patrol officers from the General Fund to the State Highway Fund, freeing up an additional $93 million in General Fund support for 2012-13 school funding. The shift would require voter approval. The budget includes significant governance changes that direct a greater share of available resources to the classroom and give schools more flexibility in how they provide education services to their children. An excerpt from the Governor’s Budget with regard to education funding is included as Attachment E. Election Information: The council will consider whether to place the measure on the May ballot, or wait until November. A chart comparing some of the factors that will influence the decision is included as Attachment F. The school districts provided some of the information and had the opportunity to review and edit the chart. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110214\S1102144.doc