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Refunds, legal challenges put city arts tax in limbo

by: TRIBUNE PHOTO: CHRISTOPHER ONSTOTT - Self portraits by students at Sabin Elementary School were sold to raise funds one of the few surviving art porgrams in Portland Public Schools that has not been cut. A new city arts tax is still in limbo because of legal challenges and refund issues.The city of Portland's arts tax is in a bind — again.

Mayor Charlie Hales' office said Tuesday that a new analysis shows some people who have received most or all of their income from Social Security or the Public Employees Retirement System have paid the tax. And those types of income are not taxable by the city.

This means some people who have paid the arts tax are eligible for refunds.

A notice explaining the refund process is posted on the city's homepage, portlandoregon.gov, with links at portlandorgon.gov/revenue and portlandoregon.gov/mayor.

This is the second revision so far for the tax, which was approved by voters in November. Early this spring, an analysis of the tax showed that anyone in a household above the federal poverty level was expected to pay the $35 per year, even if an individual in that household made less than $35.

The City Council adopted a revision to the arts tax, setting excluded people who made less than $1,000 in 2012.

The deadline for people to pay the arts tax is May 15.

"To date, the Revenue Bureau has collected over $4.25 million and thousands of checks are being processed daily," said Thomas Lannom, director of the City Revenue Bureau.

People who don't need to pay the tax are those who income derives solely or primarily from Social Security and PERS. Refunds are not applicable if people had $1,000 or more in other income that is taxable.

Social Security is not a taxable form of income in Oregon, even though it often is taxable at a federal level.

The Revenue Department has not estimated the number of people eligible for the refund.

"This arts tax puts us in a bind," Hales said. "We want to be true to voters, who approved it in November. We have to be good stewards of taxpayers' money. And we want to support the public schools and arts community. These problems — which stem from the way the tax was written — make it difficult to meet all those goals."

Hales said staff will continue to study the arts tax, and will recommend changes, as directed by City Council in March.

Legal challenges ahead

The tax was created last year with 58 percent of the vote to support arts programs in public schools, as well as the regional arts community.

Two lawsuits have been filed against the arts tax, both of which are pending.

On March 13, Lewis & Clark law professor and longtime conservative blogger Jack Bogdanski filed an Oregon Tax Court complaint alleging that the arts tax was unconstitutional. Two weeks later a similar claim came from George Wittemyer, a Northwest Portland resident in Multnomah County Circuit Court.

The arts tax has already withstood one legal challenge. A state court last August rejected a complaint by Eric Fruits, the Northeast Portland economist who'd led the campaign against PPS’ capital bond effort two years ago.

In his arts tax complaint Fruits called it an illegal head or poll tax. Judge John Wittmayer rejected that argument, stating: "The proposed tax at issue here is not a head tax or a poll tax because it is not assessed per capita — it is assessed only upon income-earning individuals age 18 or older in households above federal poverty guidelines."

Schools in budget limbo

As originally designed, the arts tax was expected to be distributed in October. It would be disbursed by the city to the six Portland school districts (to fund a full-time arts teacher in every elementary school) and to the Regional Arts & Culture Council.

Wary of the uncertainties, Hales recently advised superintendents of the six school districts to hold off budgeting for new hires with arts tax revenue. That hasn't stopped many of them from doing so — or trying to think of creative fallback plans.

Here’s what’s at stake for each of the districts:

• PPS Superintendent Carole Smith has proposed a school staffing formula that anticipates $4.5 million from the arts tax, to fund 45.5 arts teachers, one for every elementary and K-8 school.

• Parkrose stands to collect $300,000 to fund music positions in their four large elementary schools. The funds to hire three of those teachers are set aside until the city releases the funds, says Superintendent Karen Gray.

• Centennial would receive $450,000 for their seven elementary schools, each of which already have a half-time music teacher in place. The tax, plus general fund money, would be used to increase those positions to full-time.

"The question is whether we're getting it or not,” says Centennial Superintendent Sam Breyer says of the arts tax revenue. “We’ve been informed by the city they’re not releasing the money until the court challenges are clear.”

• David Douglas stands to get $954,000 from the arts tax, about $20,000 of which would go to the Arthur Academy, a public charter school. The remainder will support the district’s nine elementary schools, each of which have a full-time music teacher in place at a cost of about $980,000 from the district’s general fund. Those freed up funds will go to other budget needs.

“When the arts tax was conceived, David Douglas stood alone as a district that provided full-time music at the elementary level,” says Dan McCue, a district spokesman. “We’ve cut 150 teachers over the last couple years … so our agreement on the arts tax was as long as we’re getting revenue from it, we’ll preserve the elementary art program.”

• Riverdale would receive around $50,000 for their only grade school, which has two part-time art and music teachers in place. The tax will increase those to full-time. “We’re one of the very few (districts) that still has an art and music teacher at the grade school level,” says Kathy Rodeman, Riverdale’s business manager.

• The Reynolds district has part-time music teachers in each of its 11 elementary schools, but doesn’t know how much could come from the arts tax, how many positions it would fund or when it would come, according to district spokeswoman Andrea Watson.

“We haven’t put anything in our budget yet,” she says. “There are just too many questions to feel comfortable doing that.”