Skip to main content
It is a truth universally acknowledged, that a Multnomah County taxpayer in possession of a good fortune, must be in want of relief from the Preschool for All tax.
With apologies to Jane Austen, it really is old news that Portland-area high earners despise the marginal income tax that funds the county’s universal preschool initiative. They hate it enough that they talk of leaving the county—and the state.
Enough of these big payers (or “whales” in the parlance of casinos and tax collectors) have made good on that threat to alarm Gov. Tina Kotek and state lawmakers, both of whom now regard Preschool for All as a significant threat to Oregon’s tax base.
Just how seriously they take that threat became clear late on June 23, when an amendment to a previously anodyne Senate Bill 106 called for Multnomah County to stop collecting the Preschool for All tax and required it phase out the program by June 2027, using existing reserves to pay for its final two years. It would bar the county from raising income taxes whose proceeds “are to be used for the purpose of providing preschool…services that are not in alignment…with the standards and criteria required of state preschool.”
At press deadline on June 24, it wasn’t clear if the bill had a path forward. It carries the fingerprints of key players in the Senate: Sen. Kate Lieber (D-Portland), co-chair of the Joint Ways and Means Committee; Sen. Kathleen Taylor (D-Portland); and the chair of the Senate Committee on Finance and Revenue, where the bill currently sits, Sen. Mark Meek (D-Gladstone). But Meek says it won’t advance out of his committee.
The most likely outcome, according to people familiar with the conversations in Salem, is that the bill will die this session but its existence will allow Kotek in the coming months to make a threat of her own to County Chair Jessica Vega Pederson: Change this tax or I’ll kill it.
Kotek has been in discussions with Vega Pederson for at least two months. The nature of those conversations became public in a June 10 letter Kotek sent to Vega Pederson, which WW first revealed on June 18. In it, Kotek asserted that PFA was driving high earners out of Multnomah County.
“I am concerned that the program’s current direction is not responsive to the economic realities of 2025,” Kotek wrote. “And if Portland does not rebound in the way we think it can, the downstream impacts on our economy will end up costing our most vulnerable and lowest income Oregonians the most.”
In a June 18 response, Vega Pederson disputed Kotek’s major talking points, arguing there is a need for the program and that there are more people filing the tax than there were in 2021, which indicates that people aren’t fleeing Multnomah County. (The program is funded by a tax of 1.5% on income over $125,000 for single filers or $200,000 for joint filers, and an additional 1.5% on income over $250,000 for single filers or $400,000 for joint filers.)
It’s unusual for the governor to publicly single out one particular local tax for rebuke, and Kotek has been more closely aligned with organized labor than with corporate boardrooms, whose CEOs largely backed former Sen. Betsy Johnson in the 2022 governor’s race. But her stance on PFA has earned her some chits with business groups like the Portland Metro Chamber, while the Portland chapter of the Democratic Socialists of America, who regards PFA as one of its crowning achievements, has condemned her for waging “war on preschool.”
But it seems PFA has become a sticking point with the governor and, now, some senior Oregon legislators. There’s a lot to comb through on this conflict, from numbers to shifting legislation. WW is wading into the war.
What is Kotek suggesting Multnomah County do?
A last-minute information session about SB 106 on June 24 saw lawmakers seek to impress upon Vega Pederson the gravity of their concerns.
Their intention appeared to be pressuring Vega Pederson into listening to Kotek’s three suggestions to ease the marginal income tax rate for the county’s higher earners. (At 13.9%, it’s the second-highest marginal income tax rate in the nation). One striking indicator that its architects have been biding time: the amendment was drafted back on May 7, likely in the heat of the pair’s conversations.
Kotek’s recommendations include pausing collection of the tax for three years and reducing the tax rate. Both these ideas hinge on a third, more interesting recommendation: to clarify “what is financially necessary to achieve the original goals of the program and provide increased budget transparency for plans to achieve the goal.”
As WW reported in October, county auditor Jennifer McGuirk flagged one such example of mission creep, writing that while the ballot measure language pledged full-day preschool for only low-income families, it’s currently available to all preschoolers, regardless of income. Clarifying the scope of the program, Kotek wrote, is crucial.
In an interview with WW, Vega Pederson says the program has been very intentional in its quest to expand to universal capacity by 2030. “[All decisions] were done in a very lawful way, within the authority of the department to implement something that the voters passed,” she says.
Of the bill’s timing, Vega Pederson adds, “I have no idea what the rationale for moving it when they did is.”
For now, the pressure is off. “The bill is not moving this year,” says Meek, who chairs the Senate Committee on Finance and Revenue. “I am thankful the chair and the commissioners came to testify. I was trying to convey the concerns from this body and from the governor about duplication of services and making sure that money is used efficiently.”
The amendment, however, sets up a nuclear option aimed at forcing the county to reduce the tax burden of PFA.
Why is Kotek so interested in Preschool for All?
The business community’s ire may have sparked Kotek’s interest, but the governor is also wrestling with the state’s economic reality. Spoiler alert: It’s not great.
State economist Carl Riccadonna told lawmakers on June 18 that unemployment was up and Oregon saw net job losses in May. Trade tensions are also hurting exports and manufacturing, industries Oregon relies on. “There is some real evidence of weakness in the state,” he said, citing significant job loss in construction and manufacturing.
Then there’s the implementation of the program itself, which is shaky. Multnomah County has struggled to ramp up preschool capacity, scaling back its own goalposts for creating seats. County officials announced 3,800 seats for the upcoming 2025–26 school year, which is behind their original goals.
The tax is also currently sitting on $485 million in funds, in part because it’s hauled in more revenue than it had anticipated. To be sure, the county has long projected that anticipated revenue would outpace anticipated expenditures in the program’s early years. But it forecast ending the latest fiscal year with $260 million left—$225.4 million less than what actually went unspent.
“When we have hundreds of millions of dollars sitting in reserves and we’re cutting essential services, we have a responsibility to dig into that,” says county Commissioner Julia Brim-Edwards. “Whether it’s the underspending or going beyond what was promised in the ballot measure, for me, [these] are all questions the board needs to dive into.”
Is PFA actually scaring away the tax base?
More people are paying the PFA tax than when it launched in 2021. At the same time, Multnomah County is seeing a net decrease in its very highest earners (those whales). The latter point matters because even though taxpayers sitting in the $500,000-and-up income bracket make up a relatively small percentage of people who pay the PFA tax, they provide the majority of the revenue it generates.
County economist Jeff Renfro says that as incomes grow with inflation, people are crossing a threshold into paying the PFA tax. County data indicates this is true. The number of people paying in the lowest income brackets that qualify them to file (less than $130,000 for single filers, between $200,000 and $225,000 for joint filers) has increased steadily between tax years 2021 and 2023.
At the same time, there’s been a decrease in taxpayers making above $500,000 in both single- and joint-filer categories since 2021, from 5,770 to 5,056. Their share of the percentage of PFA’s total revenue has also declined since 2021, from 80.5% to 69.4%. An additional breakdown from the county also indicates the number of filers making above $1 million has steadily declined over those years.
“Our assumption is that some of those people have left,” Renfro says.
So who’s right?
Both parties get parts of this right. The data Kotek used in her letter to Vega Pederson is old and incorrect. There are more filers paying the tax now than there were in 2021. But that there are more filers is not a direct rebuttal to Kotek’s main point, which is that the trend of the highest earners leaving—and that revenue not being made up by those in other brackets—is an “unsustainable” one.
To that point, Renfro says the county will need more time to see if that’s true. While he believes some of the exodus of high earners comes from people leaving, he says declines in capital gains income from 2021 could also play a role.
Renfro says he needs more time to know if the whales who are going to migrate out of the county have already left, noting that the declines between 2022 and 2023 are less steep. “Right now, when I look at the data, I see a mixed picture,” he says. “It’s hard to really draw a tentative conclusion.”
Why is Kotek stepping in now?
Insiders tell WW that Kotek’s letter follows months of conversation between the governor and Vega Pederson, though Kotek’s growing impatient. In the Oregon Legislature, it’s now clear that SB 106 is not just a study “of interdependence of the state and local tax systems in Oregon”; the Monday amendment suggests it’s an attempt to take down PFA. (If there’s need of clearer indication, the amendment only applies to counties with populations greater than 700,000, of which Oregon only has one: Multnomah.)
Kotek’s office is being coy about her role. “The governor is aware that lawmakers are frustrated by Multnomah County’s lack of urgency to address issues related to the program and understands that legislative action is under consideration,” says Elisabeth Shepard, her spokeswoman.
Taylor’s comments at the June 24 information session made it more clear that Kotek’s got a hand in this. After Vega Pederson (who was present to answer questions) outlined how dismantling PFA would result in fewer county seats, Taylor disputed that this was Kotek’s intention. “Everyone has the same goal of maintaining the seats,” she said. “The question is, can we maintain the slots, maybe in a way that’s more economically responsible?” Taylor filed a chart as written testimony that showed the PFA slots could be absorbed into existing state programs. She added she was pleased to hear Vega Pederson was open to having conversations with the governor.
In her June 10 letter to Vega Pederson, Kotek hints at the same goal: replacing PFA with a statewide model to disrupt “unintended consequences of a significant local income tax only in Multnomah County.”
If Kotek’s not a fan of PFA’s economic effects, why is she suggesting taking it statewide?
Oregon already runs three preschool programs through the Oregon Department of Early Learning and Care: Employment Related Day Care, Preschool Promise, and Oregon Prenatal to Kindergarten, which share many similarities with PFA. Their biggest difference? While PFA is universal, many of the state’s programs are available to only low-income families.
That was appealing to a number of senators at the June 18 information session on HB 106. “Is it a good idea to have what is more or less the same program?” Taylor said. “I personally will admit my bias: I like things that are means-tested.”
Supporters of PFA have emphasized that the program’s universal accessibility is an essential component. “The whole point was to make it universal so it’s not means tested, so it’s not just for low income kids, but it’s for everyone,” says Olivia Katbi, co-chair of the Portland chapter to the DSA. “Any activity that is inclusive of kids from all backgrounds, it’s so much better for early learning, better for the families and easier to administer.”
Spokespeople for Kotek did not answer questions about what a statewide program would look like at this time or what it would mean for the Multnomah County program.
Is Vega Pederson open to this?
Vega Pederson is fuming about the eleventh-hour amendment to SB 106, which she called “shocking” and “anti-democratic.”
“This type of action is really unconscionable; there has been no opportunity for public comment on a bill that is going to have such a staggering impact for so many thousands of children and families in Multnomah County,” she says. To a statewide program, she wrote on June 18 that recent legislative budgets have reduced funding for preschool and that “any new initiative would need to have a great deal of support, be adequately funded, and consider how to develop funding mechanisms to ensure long-term success.”
Vega Pederson has company. A growing group called Friends of Preschool for All, which is protesting the changes to SB 106, has seen support from a number of Portland-area leaders and some Portland-area state representatives, including Sen. Khanh Pham (D-East Portland). Vega Pederson’s also joined by the group she engaged in delicate diplomacy with back in 2020 to pass Preschool for All: Portland DSA.
“It’s setting a precedent for all of us to see what happens to this program, and if we are able to win social programs in the city and the county and the state in the future, doing so in a way that is equitable and actually redistributes wealth,” Katbi says. “They’re trying their damnedest to make sure that’s not a reality.”
What is the county actually considering?
So far Vega Pederson has indicated she’s “confident” the County Commission will reach a point of agreement on indexing the tax’s income threshold in tax year 2026. That’s a change of heart from September, when commissioners, including Vega Pederson, shot down an attempt from Brim-Edwards to index the tax to inflation.
Brim-Edwards proposes indexing starting in tax year 2025 and adjusting thresholds to $151,000 for single filers and $236,000 for joint filers, with adjustments for each subsequent year. “Indexing is just a basic fairness issue,” she says.
In her letter, Vega Pederson says these are issues the board will work through in July and August, when the commission will also consider consequences adjusting the tax might have on PFA’s execution.
Brim-Edwards says she hopes indexing can be on the table for this tax year. “It’s a standard practice, and, frankly, saying that indexing might be considered for next year means that for five years, the people have been pushed into a higher tax bracket solely because of inflation, not because they have more earning power,” she says.