Metro will consider asking voters to change homeless services tax to include construction funding

Funding to address homelessness — one of the largest issues in the Portland region — may be on the ballot again next May.

Metro, the regional government tasked with overseeing the supportive housing services tax, is considering a substantial change to the program: using surplus tax revenue to build more affordable housing. The change will need voter approval to go into place.

The Metro supportive housing services tax, approved by voters in 2020, pays for programs that help move people experiencing homelessness into housing — and keep people from becoming homeless — in Multnomah, Clackamas and Washington counties. That can include eviction defense, rent assistance, behavioral health programs, job training, or help retrieving legal documents that may be lost, among other services. It’s not meant to pay for new housing construction or for the cost of buying buildings to turn into housing.

Metro initially estimated the tax on high-income households and large businesses to raise $250 million annually. Yet it’s consistently overperformed, due to the region’s wealthiest taxpayers getting richer than expected in recent years. This year, the tax is expected to bring in at least $300 million in revenue. Without any changes to the revenue model, Metro anticipates the tax will bring in $1 billion in unexpected revenue by 2029.

The unanticipated funds have thus far been used by counties to pay for additional homeless services.

As this revenue has soared, another funding source to address homelessness is coming to an end. The 2018 Metro housing bond meant to build affordable housing is expected to use up its $652 million next year. The bond is slated to create nearly 5,000 new housing units — 1,000 over its initial goal.

But Metro officials say that’s still not enough to meet the region’s housing crisis. Last year, the Metro Council asked Metro Chief Operating Officer Marissa Madrigal to explore ways the government could continue to expand housing. She’s now proposing that Metro use the unanticipated housing services dollars to pay to build more housing — among other things.

“At the end of the day, if you don’t have a home, you are still going to be experiencing homelessness,” Madrigal told reporters Monday. “This [supportive housing services] program is really valuable to the people that it serves. But we do need to address our affordable housing gap. It’s a way to make the funding we’re providing work harder.”

Madrigal is recommending that Metro Council consider a May 2025 ballot measure that would allow the housing services tax revenue to cover housing construction and building acquisition along with services.

She also suggests the council reduce the original measure’s personal income tax rate and extend the tax beyond its current 2030 sunset. Madrigal did not propose how much revenue should be reserved for construction, how far the personal tax should be lowered or how long the tax should be extended — that part, she said, is up to council to hammer out in the coming months.

The supportive housing fund is currently made up of two taxes. The first is on people making above $125,000 annually (or couples making more than $200,000). Those taxpayers must pay 1% on any income made above those income levels. The second is a 1% business income tax on income for businesses making more than $5 million annually. Metro reports that 55% of the revenue comes from personal income taxes and 45% is made up of business taxes.

According to Metro, roughly 100,000 people living in Multnomah, Clackamas and Washington counties pay into the personal tax.

Madrigal said that it’s important Metro doesn’t push the personal income tax rate too low.

“There is a point where you can undermine the success of the program, you can undermine the support that we’re giving folks,” she said. “We want to be very careful with that, while still acknowledging that the tax has raised more than anticipated.”

Madrigal also suggested the ballot measure add a new oversight arm to the tax: an independent commission appointed by the Metro Council to ensure counties are meeting voter expectations with the tax dollars.

Her proposal goes beyond a ballot measure. Madrigal also advises that the personal income tax levels be adjusted for inflation, beginning next year. And she suggests Metro renegotiate its contract with the three counties that receive the tax, to improve transparency and accountability in whatever ways the council sees fit.

Madrigal and her team aren’t acting alone. A group of regional politicians, business leaders, housing and social service providers, and other representatives has been meeting regularly since the start of the year to discuss how — or if — the housing services tax could be tweaked. Their recommendations informed Madrigal’s proposal.

Not all local elected officials support the idea.

The chairs of all three counties that receive supportive housing funding have repeatedly urged Metro to keep the surplus supportive housing revenue going toward their counties’ supportive housing programs. They say that’s because the cost of programs has risen in recent years, and that they’ve already calculated the expected revenue surplus in years to come into their budgets.

Yet counties have struggled to use up their annual allotment of supportive housing tax revenue since the tax began.

That’s been particularly challenging for Multnomah County, which reported spending just 53% of its $170 million program budget in the first three quarters of the last fiscal year, which ended last month (the county has yet to release its spending for the full year). The county has blamed this lag on staff recruitment and retention issues.

Madrigal said she believes tweaking the tax to allow for construction will help the counties more effectively address homelessness.

“There are a lot of important things that the counties are currently funding,” she said. “At the same time, they will not achieve their goals if there is not enough deeply affordable housing. So we have to be able to prioritize, and that may mean reprioritizing some things.”

Whether there’s voter appetite for a tax-related ballot measure remains to be seen.

Poll after poll has shown that Portlanders believe the region’s taxes are too high compared to the level of services they receive in exchange. This growing sentiment inspired Gov. Tina Kotek to call for a moratorium on all new taxes in the Portland area until the end of 2026.

It’s one of the reasons why Madrigal suggested making adjustments to a current tax instead of introducing a new tax or bond to cover housing.

“Folks in our region have been very willing to support tax increases for the betterment of the community,” she said. “But what we’re seeing out there is the sentiment that folks are starting to reach their limit.”

The proposal will need Metro Council’s support to place it on a May ballot. Madrigal was to present the recommendations to council members Tuesday morning.

Council will need to vote before February to refer the measure to the ballot.