January 15, 2021

The Board of County Commissioners formalized an agreement with the City of Portland Thursday, Jan. 14, allowing the City to collect and administer the personal income tax for the Preschool For All program passed by voters last year. 

Multnomah County residents approved Ballot Measure 26-214 on Nov. 3, 2020, authorizing the County to impose a personal income tax to fund universal, tuition-free early childhood education for all 3- and 4-year-olds. An additional 1.5 percent marginal income tax will be applied to individuals making more than $150,000 and couples making more than $200,000. The rate goes up another 1.5 percent for the highest income earners.

Currently, Multnomah County does not have the capability to collect and administer the new tax. The City has a history of administering taxes on behalf of the County, which fund homelessness programs and other services. 

Under the agreement, the City will deposit all taxes collected under the agreement into an account on behalf of the County. In turn, the County will compensate the City of Portland for ongoing staff and service costs. The one-time cost will be approximately $14 million over three years. The County will also pay the City of Portland for the cost of ongoing tax administration services. The term of the agreement is 10 years. 

“They had experience working with the County on a personal income tax and they had the software and the timelines to be able to do that on our behalf,” said Eric Arellano, the County’s Chief Financial Officer. “We felt like that was probably the best avenue to facilitate any new tax for taxpayers but also to minimize the cost for taxpayers as a whole.”

As Multnomah County takes on more responsibility administering more tax programs, Commissioner Sharon Meieran asked about whether it would make more sense for the County to create the infrastructure to collect taxes, itself.

In order for that to happen, Arellano said, the Internal Revenue Service would have to change its information sharing rules to include counties. Currently, the IRS only exchanges certain electronic records with cities, which prohibits the county from collecting revenue for some types of taxes.

“The City has an ability to essentially exchange information directly with the IRS and get that information in an electronic way that the County would never have access to from a legal standpoint,” Arellano said, “which brings a huge benefit in having the City actually collect a business income tax and a personal income tax.”

With the Board’s action on Thursday, experts from the County will immediately join project managers at the City to begin the process of administering and collecting the tax. By early 2022, families will be able to apply for slots, and preschoolers will begin learning in fall 2022. 

Praising the joint effort, Commissioner Jessica Vega Pederson described the agreement as “important for everyone,” allowing the “tax dollars that we need to fund these crucial programs of homeless services and preschools.”