Amend Arts Tax Code to provide tax relief, promote sustainability of Arts Access Fund, define critical terms, and respond to community and audit recommendations (amend Code Chapter 6.10)

The City of Portland ordains.

Section 1. The Council finds:

1. On June 27, 2012, Portland City Council adopted Resolution 36939, referring changes to Title 3 and Title 5 of Portland City code to implement a local tax to fund arts education and access in the City of Portland;
    
2. On November 6, 2012, Portland voters passed the resulting Ballot Measure 26-146, establishing the Arts Education and Access Income Tax (AEAIT) to restore arts and music education in schools and to fund arts access through an income tax of $35 per year;
    
3. The Arts Education and Access Income Tax has raised more than $150 million since its inception for the Arts Access Fund, directing $85M to fund public school arts educators in Portland's six school districts (Centennial, David Douglas, Parkrose, Portland Public, Reynolds, and Riverdale), ensuring that every school now has at least one visual art, music, drama, or dance teacher on staff. The Fund has also provided $36 million in grants intended to sustain the arts in Portland and make arts and culture experiences available to K-12 students and underserved communities.
    
4. Portland City Code Section 6.10.030 provides a hierarchy of the disposition of funds raised by the AEAIT, such that funds will be:
   1. First, used to recover collection and administration costs;
   2. Second, "distributed to the school districts for the purpose of hiring certified arts teachers for elementary school students";
   3. Third, "distributed to the Office of Arts & Culture for the purpose of coordinating, supporting, and reporting on arts education services within school districts"; and
   4. Finally, "[a]ny funds remaining after distribution" will be directed to non-profit arts organizations, organizations providing artistic experiences in schools, and programs improving access to artistic experiences for K-12 students and underserved communities.
       
5. While the Arts Education and Access Income Tax is referred to as the "Arts Tax," funding to what is colloquially understood as "the arts" is the lowest priority of the Arts Education and Access Fund.
    
6. On March 1, 2024 City Council voted to amend City Code to identify the City Arts Program (now known as the Office of Arts and Culture) as the receiving entity for the "funds remaining after distribution" to be used for grantmaking, replacing the Regional Arts and Culture Council (RACC) in that position and terminating a mandate in Code for the City to contract with RACC to manage those funds.
    
7. On July 31, 2025, Mayor Keith Wilson issued an executive order titled "Compliance with Federal Nondiscrimination Laws," directing City bureaus and programs to comply with nondiscrimination laws as interpreted by the courts, and suspending implementation of some programs pending review for compliance with the executive order.
    
8. The Arts Education and Access Income Tax is not indexed to inflation and has reported flat receipts since Fiscal Year 2017-18, reflecting a 25 percent reduction in buying power of the Arts Education and Access Fund in inflation-adjusted terms.
    
9. From Fiscal Year 2017-18 to Fiscal Year 2024-25, the Regional Arts and Culture Council and the Office of Arts & Culture received an average of $3.7 million from the Arts Education and Access Fund to distribute to arts organizations. In Fiscal Year 2025-26, this disbursement was reduced by the Portland Revenue Division to $2.1 million due to flat revenue receipts, escalating costs of collection, and increases in certified educator salaries, and, absent a path to increased revenue, a need to retain fund balances for future shortfalls. This cut totaled $1,641,047 and was a 44 percent year-over-year reduction in funding available for arts organizations.
    
10. On October 23, 2025, the Office of Arts & Culture announced $1,293,538 in annual grants to arts organizations, a 32 percent reduction from the previous year, without an additional grant category for organizations prioritizing underserved communities.
     
11. On December 19, 2025, the Arts Access Fund Oversight Committee released its annual report to City Council and its first such report under full City control of the Arts Access Fund. This report called for indexing the AEAIT to inflation, adopting a reserve fund policy to address ending fund balances, and greater definition of what constitutes an "underserved community" and service thereto.
     
12. On March 9, 2026, Portland Arts and Culture for Equity (PACE) and Portland Arts Leaders (PAL), along with 48 other signatories, sent a letter to City Council requesting: a) "a multi-year, structured drawdown of reserve funds to stabilize and preserve arts nonprofits across the City over the next several years"; b) restoration of the $1.6M reduction in Arts Access Fund disbursement in the current fiscal year and a commitment to disbursement at the Fiscal Year 2024-25 level in the following fiscal year; c) improvements to the outlook for small organization grant funding; d) restoration of an "equity" grant category for organizations prioritizing underserved communities; e) clarification of the geographic status of a "Portland arts organization" for grant eligibility; and f) a commitment from the City Council to long-term improvements in City-level support for the arts.
     
13. On March 18, 2026, the Portland Auditor released an Audit titled "Arts Tax: City needs to make improvements to deliver on voter approved arts education and grants commitments," and the City Administrator released a response.
     
14. The Audit, which reviewed financial documents and reports up to and including Fiscal Year 2024-25, the first year the City managed the Arts Access Fund, found that:
    1. The City had only recently begun adopting standards for "high quality arts education" among revenue-receiving districts, and recommended codification of the "City Arts Education Framework," currently in its pilot year;
    2. "Grants [to arts organizations] are provided only after collection costs and payments to districts are made[, and b]ecause those costs are rising and the tax is not adjusted for inflation, the Fund's purchasing power is eroding";
    3. RACC and the City had not taken sufficient care in managing its agreements with school districts and had potentially been overbilled, and recommended review and recalibration of those agreements;
    4. Council, RACC, and the City had neither adopted a definition of "underserved communities" nor provided enabling code or reporting requirements adequate to ensure those communities were served by grants to arts organizations;
    5. Council, RACC, and the City had not adequately defined the membership, responsibilities, and rights to administrative support for the code-required Fund Oversight Committee, and recommended these be clarified; and
    6. Made twelve distinct recommendations to Council and the City to improve fidelity to the direction given to the City by voters in 2012.
        
15. The City Administrator's response to the Audit substantially agreed with and reported active progress on all of the Auditor's findings and recommendations, differing only in opinion on which recommendations should be adopted as code versus administrative rule.
     
16. Since 2013, the Arts Education and Access Fund has carried an ending balance of one full year of collections, which is utilized to pay for the following year's disbursements while collecting additional tax. The Fiscal Year 2025-26 ending balance was approximately $8.5 million. The City Revenue Division has estimated that a $5 million reserve fund policy would be an adequate minimum for the health and function of the Fund.
     
17. On April 15, 2026, City Council approved the requested transfer of $1.6M from contingency to operating within the Arts Access Fund, restoring and reversing the above-mentioned 44 percent cut to arts organizations.
     
18. Council has amended City Code related to the Arts Education and Access Income Tax since its initial passage by Ordinance 185827 (implementing residency requirements, confidentiality requirements, and penalties for frivolous filings), Ordinance 185960 (defining an "income-earning resident" and setting an income threshold for filing), Ordinance 187610 (implementing funding of charter schools), Ordinance 191037 and 191605 (appointing the City Arts Program as manager of activities required by the Measure), Ordinance 191876 (designating the Office of Arts & Culture as manager of activities required by the Measure) and Ordinance 188859 (removing the 5 percent limitation on administrative collections costs).
     
19. Council may by Ordinance make alterations to facilitate the administration and program delivery of a voter-approved tax measure.
     
20. The Arts Education and Access Income Tax is, as adopted by voters, a flat assessment of $35 in 2012 dollars on the income of most residents of the City, with certain low-income Portlanders exempted, and with limitations on the use of revenue to arts education and access as proposed in the measure;
     

21. Council may by Ordinance adjust the assessment, adjust its approach to filing and to exempting low-income filers, adopt clarifying definitions for "high quality arts education," "underserved communities," and "Portland arts organization," and otherwise amend Code.

    Related to collections of the Arts Education and Access Tax:

22. Under existing Code, all individuals in Portland making over $1000 in a year in gross taxable income are required to file for the Arts Education and Access Income Tax (AEAIT).
     
23. The $1000 threshold for filing is extremely low, requiring individuals who do not file a Federal or Oregon tax return due to low income to file for the AEAIT with the City.
     
24. The individual filing mandate is misaligned with standard tax filings, which allow filings as an individual, as a joint filer, and other statuses. The individual mandate requires individuals who do not file a Federal or Oregon tax return due to status as a joint filer or claimed dependent to file for the AEAIT with the City.
     
25. Under existing City Code, individuals making over $1000 in gross taxable income but who live in a household with aggregate income beneath the Federal Poverty Level (FPL) may affirmatively file for an exemption from the AEAIT.
     
26. Application of the FPL is commonly used for applications for public assistance programs but its use for claiming exemption from the AEAIT is unique among applications of tax code.
     
27. The intersection of the $1000 filing threshold and the household poverty exemption has a range of undesirable effects, including requiring individuals making between $1001 and $15,960 to submit paperwork to the City to avoid paying the $35 AEAIT, an unnecessary, administratively inefficient, and unduly burdensome requirement placed on extremely low-income Portlanders.
     
28. The population of individuals who do not file their own tax returns but are still required to pay the AEAIT is largely comprised of qualified dependents with some ancillary income, including full-time students under 24 years of age, adults with disabilities, and elders.
     
29. Transitioning to standard filing statuses would greatly reduce administrative complexity and inefficiency and improve public understanding of the AEAIT.
     
30. Termination of the household poverty exemption and transition to a filing threshold of taxable income at or above the poverty line would eliminate onerous AEAIT filing requirements.
     
31. Adopting a filing threshold of $20,000 (single) and $40,000 (joint) of Oregon Taxable Income would relieve approximately 218,000 Portlanders from the burden of having a requirement to file and/or pay the current AEAIT, a reduction of 44%. Of the 218,000 previously required to file and/or pay, 151,000 were payers and 67,000 were exempt.
     
32. Providing a means for Portlanders to claim a dependent-child deduction against the Oregon Taxable Income reported on their AEAIT filing would ensure that the approximately 3,300 Portlanders who do not currently pay the tax due to the Household Poverty exemption but report income in excess of the unified filing threshold would not face an undue increase in local tax.
     
33. Thirty-five dollars in November 2012, adjusted for inflation by reference to the Consumer Price Index, is fifty dollars in Q2 of 2026.
     
34. Adopting a single/joint assessment of $50/$100 in concert with the above uniform filing threshold and annual inflationary adjustments is estimated to result in a stable year-over-year revenue for the Arts Education and Access Fund.
     
35. Adopting an automatic annual indexing of both the assessment and the filing threshold to the Consumer Price Index will allow the Arts Access Fund to remain solvent over time while providing a mechanism to relieve the AEAIT's burden on low-income Portlanders.
     

36. For tax year 2026 the intent of the Council is to approximate current gross revenue levels. In tax year 2027, indexing will begin. Changing multiple aspects of the tax simultaneously may lead to over- or under-collections relative to the forecast. Therefore, a rate or income threshold adjustment may be needed to arrive at the desired revenue target.

    Related to the Arts and Arts Education generally:

37. On Feb 6, 2025, the National Endowment for the Arts (NEA) issued major revisions to its Grants for Arts Projects criteria, re-focusing new funding on current administration priorities. In May 2025, multiple local arts organizations in Portland received letters from NEA terminating ongoing grant support and/or withdrawing grants awarded in the current fiscal year.
     
38. Americans for The Arts' Arts & Economic Prosperity 6 study reported that in 2022, Portland-based nonprofit arts organizations directly contributed $238 million to the local economy, and leveraged $167 million in additional economic activity from event attendees. Direct nonprofit industry investment from the Arts and Education Income Tax in Fiscal Year 2022-23 totaled $3.38 million.
     
39. Studies of the arts and culture sector and the creative economy consistently report economic multiplier effects and significant return on direct investment in concrete terms of workforce, spending, and tax revenue, as well as measures related to neighborhood vitality, public space activation and public safety, community cohesion, and public perception of the City.
     
40. The National Endowment for The Arts' February 2025 study, titled "Snapshots of Arts Education in Childhood and Adolescence: Access and Outcomes" found that "arts education is closely linked with positive academic outcomes and social and emotional development," "positive approaches to learning; greater interpersonal skills; and lower rates of exhibiting internalized or externalized problem behaviors," and that participation in extracurricular arts experiences, especially at upper-grade levels, is "generally associated with positive outcomes as recorded by math scores, high school GPAs, high school graduation, and college GPAs."
     
41. Publicly accessible arts and arts education are not optional, but are critical to the health and well being of our City by any metric, measure, or framework.
     

NOW, THEREFORE, the Council directs:

1. Amend City Code Chapter 6.10 as shown in Exhibit A.
2. The Office of Arts and Culture shall:
   1. Within 30 days of the effective date of this Ordinance, report in writing to Council plans to re-introduce a granting factor targeted to arts organizations prioritizing service to K-12 students and/or underserved communities, with total grants to any recipient not to exceed 30 percent of that organization's annual budget, in the Fiscal Year 2026-27 Operating Support grant cycle;
   2. No later than September 30, 2026, report to the Council on the status of actions taken to implement the Arts Education Framework, and actions taken towards review of agreements with school districts to ensure authorized and appropriate district uses of funds;
   3. No later than January 30, 2027, report to the Council on:
      1. Potential use of sponsorships as a method to support arts organizations and activities not prioritized by General Operating Support, which may include: support for organizations and/or projects larger than individual artist grants but below the GOS budget threshold, and support for organizations that provide affordable arts space;
      2. Options for the City to structurally support the provision of teaching artist programming in public school classrooms;
      3. Estimated fiscal demands of the contemplated programs.
3. The Revenue Division will:
   1. No later than December 30, 2026, report in writing to Council plans to transition from mailed paper returns to filing reminder postcards, and offer an assessment of the feasibility of pre-payment options for taxpayers.
   2. No later than February 15, 2028, report to Council on the status of the first year of AEAIT collections under the administrative structures adopted by this Ordinance, and propose to Council any necessary adjustments to City Code to ensure the health of the Arts Access Fund and fair treatment of taxpayers;
   3. Drawing from available ending fund balance in Fund 223, the Arts Education and Access Fund, work with the City Budget Office to increase the Fiscal Year 2026-27 Revenue Division budget by $1.15 million and add 2.0 FTE to implement changes to the tax.
4. City Council will work with the Office of Government Relations, over a 3- to 5-year time horizon, to inform and educate local municipalities throughout Oregon about Portland's Arts Education and Access Tax model and options to make it available to communities beyond Portland, inclusive of any tax collection's integration with the State of Oregon.