Eugene Weekly : Cover Story : 9.16.2010


School’s Out
Will Eugene tax the rich for kids?
By Alan Pittman

Local schools are desperate. Deep cuts in state funding have left 4J schools fully operating at five days a week only about a third of the time and that with some of the most crowded classrooms in the nation.

Next year 4J is forecasting that it could lose up to a quarter of the district’s already badly hit budget due to state recession cuts.

But it doesn’t have to be this way. The Eugene City Council could refer a local income tax on the rich to save 22,000 local kids from brutal cuts. The local tax measure would likely pass. In January, Eugeneans voted nearly 3-1 for a state ballot measure to tax the wealthy for state government and schools.

A Eugene-only tax increase similar to state Measure 66 would generate about $14 million a year, based on state tax data. The 2 percentage point tax increase on incomes above $250,000 a year would affect only about 1 percent of local households. About 99 percent of people would pay nothing extra.

A city income tax passed on to schools would get around the legal restrictions of Measures 5 and 50 on local property tax increases to help local schools. None of the property tax measures put any limits on income taxes.

The state also does not seek to equalize such local grants to school districts by reducing state funding. Donors, philanthropies and the federal government have given grants to school districts for decades without running afoul of state equalization formulas. 

The cities of Portland, Ashland, Lake Oswego and Multnomah County have also directly contributed to their schools without running afoul of the property tax measures or state funding equalization. 

Eugene had a city property tax levy for 4J and Bethel schools that successfully generated about $30 million from 2002 to 2006. In 2006 a judge ruled that the already expiring four-year levy violated Measure 5 property tax caps and couldn’t be continued. But the ruling and state law did not prohibit Eugene from using an income tax to fund schools. 

Local schools could sure use the money now. District 4J cut six school days out of its already short school calendar this year. From September to June, 4J kids are in school for a full, five-day week for only 16 out of 41 weeks. Eugene’s Bethel district (about one-third 4J’s size) has also cut about eight school days. 

When kids are in school, they are packed in. Oregon’s class sizes are about 25 percent larger than the national average and some of the most crowded in the nation, according to federal data. 

The future for local kids looks even more bleak. Next school year, 4J estimates a deficit in the range of $27 million to $38 million; that’s a 19 to 27 percent cut in the district’s budget. 

Neither the state nor federal governments appear likely to rescue local schools. The state has lost hundreds of millions from the deep recession with no end in sight. Neither the Republican nor Democratic candidate for governor has a credible plan for restoring school funding. 

Congress has backed away from big additional stimulus in the face of Republican opposition, and pundits are predicting a possible Republican takeover in November.

In Eugene, passing a local school tax at the polls may be the easy part. Historically, 4J property tax measures have passed by 2-1 margins and the Measure 66 income tax passed with 73 percent in Eugene voting “yes.”

The hard part may be getting the Eugene City Council to refer a tax measure to the ballot.  

The staff and council could view a school funding measure as competing with other tax measures they may consider a higher priority than kids. The inward-focused city government is now concentrating on how to get voters to pay $50 million for a new City Hall building. In the last five years, the City Council has spent 19 meetings and at least $3 million discussing the new offices for city staff.

A school income tax on the rich could also be opposed by powerful groups and individuals that have lobbied against tax increases on the wealthy. The Eugene Chamber of Commerce and the wealthy local families of Aaron Jones (timber), Giustina (land and timber), Papé (heavy equipment), and Alltucker (gravel, land and construction) contributed tens of thousands of dollars against Measure 66. 

If these groups can’t prevent the council from referring an income tax, they may try to make the tax hit more on the middle class and poor than the rich. Lane County conservatives successfully pushed to refer a flat income tax with a big hit on the poor and middle class in 2006. The measure failed at the polls with 51 percent opposed.

But the millions spent by millionaires to defeat Measure 66 had little impact on the 3-1 local vote for the measure. 

Measure 66 opponents argued that businesses and wealthy individuals would flee the state if the measure passed. But there’s little actual evidence that such flight has occurred after the relatively small tax increase passed. Supporters point out that Oregon’s business taxes remain among the lowest in the nation, and Oregon’s livability is a strong draw for businesses.

Even with a local income tax increase on the rich, income taxes here would still be far less progressive than federal income tax rates. Under federal income taxes, the richest 1 percent effectively pay (after deductions) 27 percent of their income in taxes, and the poorest 20 percent pay 6 percent of their incomes. Under Oregon’s income tax, the top 1 percent now pay 7 percent of their incomes and the poorest pay 9 percent, according to effective tax rate analysis from the Institute on Taxation and Economic Policy.

Unorganized opponents of Eugene’s 2002 property tax for kids argued that a city tax for schools would unfairly subsidize the educations of children living outside the city but still within 4J and Bethel boundaries. About 27 percent of 4J families and 15 percent of Bethel families live outside Eugene. 

But tax supporters successfully argued that the city already pays for streets, parks, libraries, police and other services used by people residing outside the city, and schools are just as important. 

A new income tax could have the advantage of generating some of its revenue from residents who live outside of Eugene but work in the city. The tax revenue could also be distributed proportionately to Bethel and Eugene on a per-Eugene pupil basis.

In 2002 critics argued that education funding should be equalized across districts and funding needs solved by the state Legislature. But supporters argued that the local tax would reduce existing inequities caused by fundraising at schools with wealthier parents. 

A 2002, Register-Guard endorsement of the earlier local school tax debunked the idea of waiting for the state while local kids suffer: “The message would be that education is so important that Eugene refuses to wait, and refuses to force its children to wait, while the state gropes for a solution to the school finance puzzle.”

 The 2002 tax was also criticized for not directly funding core classroom programs. The city took an approach of funding peripheral school costs to free up other money for core instruction to get around Measures 5 and 50. But Measures 5 and 50 don’t mention income taxes and a city tax on the rich for schools could legally fund core academics directly.

Another advantage of an income tax on the rich over a property tax is that it is more progressive. In Oregon, property taxes hit the poor about three times harder than the rich, according to studies of taxes as a percent of income by the Center for Tax Justice (CTJ). An income tax increase on the rich has no impact on the poor. 

Another argument by 2002 school tax opponents was that schools would have enough money already if generous PERS retirement benefits were cut. But supporters countered that the PERS contract issue has plagued the state for decades and kids shouldn’t be held hostage to the never-ending debate. 

Supporters of local taxes for schools have also made a powerful argument for their passage in a recession: jobs. Not only will increased school funding keep scores of local teachers employed, high quality schools help attract and retain high wage employers, they argue. 

“Without quality education, a city cannot create and sustain a workforce capable of being competitive in the global workforce of the 21st century,” former Portland Mayor Vera Katz argued in passing her city’s $37 million city tax for schools. “The most important infrastructure are our children and our schools,” she argued in prioritizing kids over potholes.

Former Republican Eugene Mayor Jim Torrey joined in a 2002 opinion column with a strong jobs and crime argument for the city tax for local schools: “If we don’t invest in our schools and kids now, the long-term vitality of our economy will erode. Neighborhoods will decline as dropout rates, property crime and vandalism rise.”

Although local school supporters may see the case for taxing the rich for schools as clear, if they sit back and wait for local officials to act, nothing may happen. The city manager, mayor and City Council are focused on new city offices. The 4J School Board is focused on ideas from “Community Thought Leaders” to cut funding with even bigger class sizes and yet more four-day school weeks.

The Measure 66 tax on the rich passed overwhelmingly in every Eugene City Council ward (see sidebar). Ironically, local parents and school supporters now spend huge amounts of time fundraising a few thousand dollars for their schools or arguing about relatively minor cuts, while just a few calls or emails lobbying their mayor, city manager and council could reap millions of dollars for kids.