You may remember that back in 2012 voters in Portland, OR approved a $35 flat tax to benefit arts education in schools. The tax has survived a number of legal challenges, but according to a piece on Artsy, may fall prey to the dreaded overhead cost beast.
Even with the tax’s successes in schools, accounting concerns remain. The cost of administering the tax has risen above the allowed limits, while returns still have yet to reach the expected $12 million annually estimated at the time of passage.
In a memo to the city council last week published by the Portland Mercury, Thomas Lannom, Portland’s revenue division director, detailed some of the challenges—namely, that 7.7% of the total funds raised over five years has gone to administrative expenses related to collecting the tax….
Under the existing law, only 5% of the total raised by the tax should go to administering it. Think of it this way: Since the art tax began in 2013, the city has spent $3.69 million to collect a total of $47.99 million. Under the official cost cap, the city should have spent, at most, $2.4 million.
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…. 7.7% of the total funds raised over five years has gone to administrative expenses related to collecting the tax. Averaged over the last three years, that figure is an even higher 8.9%.
Much of the overhead costs are due to the fact that residents are mailed a tax notice which they must pay separately from federal and state tax. If they don’t pay, the city staff has to take follow up actions and assess penalties.
The process is partly to blame for relatively low compliance with the arts tax. Original estimates predicted that 85% of Portlanders would fork over the funds. But only 73% of residents on average paid in the first three years of the art tax.
While a city government isn’t a non-profit organization, imposing a 5% overhead cap on the program feels just as much an unrealistic expectation as those imposed on non-profits. In the Portland Mercury article, the revenue division director says as much and mentions the 5% cap polled well. What I had hoped the article would mention is the overhead cost typically involved with collecting other taxes in the city.
The other taxes Portland collects are business and occupancy related. People are more habituated to paying these taxes so if those collection costs hovered around 4%-5%, you know it isn’t practical to assume a once a year tax assessed on individuals would have comparable expense levels.