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A technical advisory group tasked with advising Multnomah County’s Preschool for All on its economic outlook and sustainability is running into hurdles as it weighs whether to recommend indexing the tax to general inflation.
The group’s second-ever meeting, held Wednesday afternoon, reflected a renewed sense of urgency from the county to reevaluate its funding model for the universal preschool program. That urgency likely stems from a last-minute attempt by state lawmakers to kill Preschool for All in the Legislature and Gov. Tina Kotek’s concerns that the program could contribute to an economic drain in Oregon. As WW has previously reported, Senate Bill 106 is dead, but it gives Kotek more leverage to pressure the county.
In a letter to County Chair Jessica Vega Pederson in early June, Kotek urged the technical advisory group to convene sooner and make recommendations. But even as the County Board of Commissioners has warmed to the idea of indexing the tax, the seven-member advisory group was split on the proposal.
The group has no authority beyond making a recommendation on indexing (and other ideas to bolster the economic sustainability of the program). But its conversations are worth digesting because they offer a window into debates that will likely take place among county commissioners in August.
Preschool for All 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. Indexing would adjust those thresholds to match inflation.
Largely at issue during the meeting was whether indexing to general inflation would allow Preschool for All to break even, especially in years of high inflation. Multiple committee members outlined concerns that in a high-inflation year, expenses from the program might outpace general inflation, meaning that if the tax were indexed, it might bring in less revenue than the program would spend.
Taking a revenue-first approach would require adjusting the tax thresholds in different ways, said Mike Wilkerson, director of economic research at ECOnorthwest. (He was a presenter at the meeting, and is not a member of the technical advisory group.) He and others referred to this process as “rebasing.”
“When you’re talking about indexing, you can look at the implications on revenue, but it’s not being driven by revenue,” Wilkerson said. “The rebasing side is more like if you’re trying to solve for a revenue, you can then estimate what those breaks and what those rates would need to be.”
The group must decide whether to issue a recommendation regarding indexing by Aug. 15. The board will determine whether to index the tax by the end of August. County economist Jeff Renfro says that timeline is urgent because any changes made before Sept. 1 would apply to tax year 2026; after that, any changes would be effective starting in tax year 2027.
A presentation by ECOnorthwest during the meeting also displayed some “extremely preliminary” numbers on how much less the program would have hauled in had the tax been indexed to inflation. In tax year 2022, indexing would have drawn about $153.6 million, instead of $160.4 million (a net loss of about 4.3%). In 2023, those numbers were about $142 million and $148.1 million, respectively (a net loss of about 4.2%).
Presenter Will Terry, a senior economist at ECOnorthwest, said the same percent difference between the two years surprised him. “One could speculate that this is perhaps residual hangover from the historically high capital gains realizations from 2021 that are driving that,” he said. “I would expect the loss in revenue would be compounded, doubled in the second year.”
Though indexing the tax would generate less revenue, Preschool for All is also currently sitting on much more money than its architects anticipated. As of fiscal year 2024, it had $485 million in funds, in part because of unanticipated revenue. To be sure, the county has long projected that anticipated revenue would outpace anticipated expenditures in the program’s early years. But it originally expected to end the latest fiscal year with $260 million—$225.4 million less than what actually went unspent.
County Commissioner Julia Brim-Edwards, who has pushed for indexing the Preschool for All tax multiple times, tells WW that any projected losses from indexing must consider that large surplus. She referenced Wilkerson’s presentation early on in the meeting, which showed the county has lost about 31,000 jobs since the pandemic. That presentation also showed a net income loss to migration of $1 billion annually over the last two years.
“Indexing is a basic tax fairness principle built into many local, state and federal tax codes so that people are not pushed into higher tax brackets solely because of inflation, which is the case here,” she says. “It’s the same reason many employers, including the county, give cost-of-living adjustments to offset the impacts of inflation.”
But Renfro says county officials have determined implementing indexing would “require programmatic changes” for Preschool for All. It would also change the county’s expectations for revenue growth over time, Renfro says.
County spokesman Ryan Yambra tells WW those programmatic changes could include adjusting the timeline to achieve universal preschool, changes to who is eligible, or the types of services provided.
That was enough to stall at least one member of the technical advisory group, who is also a vocal supporter of Preschool for All, Dr. Mary King, a professor emerita of economics at Portland State University. “I don’t see how we could possibly recommend something without knowing what the impact on the program is,” she said. She called for a more thorough examination of the data to determine a more accurate picture of the county’s economic forecast.
But other members replied that the perfect shouldn’t be the enemy of the good, and said it was urgent the group come to recommendations on how to sustainably fund Preschool for All in future years. Graciela Gomez Cowger, CEO of law firm Schwabe, Williamson & Wyatt, says that in conversations with everyone from business leaders to manufacturing workers, the economic sense is “depressing.”
“If you actually talk to the business leaders leading businesses, trying to bring in more economic viability to the state, the outlook is not good,” she said. “It hasn’t been good for a while and we’ve got to do something to reverse that because if you don’t have economic viability, you have no revenue stream to fund such programs like PFA.”
