As amended 10/26/2016
Previous Directive b deleted.
New Directive b added.
Second Reading Dec 7, 9:30 am.

Ordinance No.

Authorize a surtax to the City’s Business License Tax for publicly traded companies subject to
U.S. Securities and Exchange Commission disclosure and reporting requirements if a subject
company reports that the ratio of compensation of its chief executive officer to median worker is
equal to or greater than 100:1 under the Commission’s Pay Ratio Disclosure Rule (Ordinance;
amend Code Section 7.02.500)
The City of Portland ordains:
Section 1. The Council finds:
1. According to economist Thomas Piketty in his book Capital in the Twenty-First Century,
inequality in the United States has exploded during the past four decades. In the 1970s,
the top 1 percent collected less than 10 percent of total income in America; by 2010, the
disparity had grown even larger, and the top 1 percent had 20 percent of total income.
Much of the gain of the top 1 percent has actually been the gain of the top 0.1 percent.
Between the 1970s and 2010, the share of income held by the top 0.1 percent went from 2
percent to between 7 and 8 percent. Wealth inequality is also growing as wealth
concentrates among the richest 0.1 percent of Americans; even a conservative analysis
presented in a note by the Board of Governors of the Federal Reserve System shows that
in 1992 the top 0.1 percent had 11 percent of the wealth in the United States, compared to
14 percent by 2013.
2. The explosion of chief executive officer pay is a major contributor to growing inequality.
According to Piketty, the increase in inequality in the United States after 1980, “was
largely the result of an unprecedented increase in wage inequality and in particular the
emergence of extremely high remunerations at the summit of the wage hierarchy,
particularly among managers of large firms.” Piketty’s research shows that 60 to 70
percent people in the top 0.1 percent of income in the United States are these very highly
paid executives.
3. The Center on Budget and Policy Priorities reports that between 1979 and 2007, average
after tax income for the top one percent of income earners rose by 314 percent, while
average after tax income for the middle 60 percent rose by only 42 percent.
4. Average worker compensation has grown just 10.3 percent since 1978, while
compensation of chief executive officers has increased about 941 percent. Data from the
Economic Policy Institute show that chief executive officers in the nation’s largest firms
made an average of $15.5 million in compensation in 2015, or 276 times the annual
average pay of the typical worker.

1

 5. A 2016 report by the Economic Policy Institute found that, over the last three decades,
chief executive officer compensation nationally has grown faster than other highly paid
workers. Chief executive officer pay is growing faster than company profits, the pay of
the top 0.1% of all earners, and stock market growth.
6. Rising inequality nationally is a major factor in Portland’s housing crisis because huge
disparity in income allows high income people moving to Portland to drive housing costs
out of reach of middle class Portlanders.
7. A 2008 paper by researchers Janna Matlack and Jacob Vigdor concludes that, “in the
United States, tight housing markets tend to be those where incomes are rising rapidly at
the high end of the distribution, while incomes at the low end trend upward only slowly,
if at all. In these areas, the poor have experienced greater crowding, higher quantityadjusted rents, and have less income available for savings or other consumption once they
have covered their housing costs.”
8. In October 2015, City Council declared a housing emergency, allowing the City to
establish temporary housing, emergency mass shelters, and storage units for homeless
people. In September 2016, City Council extended the housing emergency declaration
until October 2017.
9. In June 2016, the Portland City Council and the Board of County Commissioners for
Multnomah County approved an Intergovernmental Agreement establishing the Joint
Office of Homeless Services. The Joint Office will centralize funding, policy, and
planning efforts for homeless services consistent with community plans.
10. According to Multnomah County, the Joint Office will help at least 4,300 people move
off the street into permanent housing and assist 5,600 people in avoiding homelessness
altogether. The Joint Office will administer contracts for services, conduct homeless
street counts and one-night shelter counts, and manage systems of care.
11. The Intergovernmental Agreement between the City and Multnomah County commits the
City to an additional $3.5 million beyond the $11.5 million already budgeted for the Joint
Office. Identifying ongoing resources will require prioritizing new forecast resources,
raising additional revenues, or reducing funding for other City programs paid for with
General Fund dollars.
12. In 2015, the U.S. Securities and Exchange Commission adopted a rule requiring public
companies to disclose the ratio of the compensation of its chief executive officer to the
median compensation of its employees. The new disclosure will help shareholders better
evaluate chief executive officer compensation based on performance, and it offers local,
state, and federal policymakers a tool for penalizing or rewarding companies based on its
ratio of chief executive officer to median worker pay. Publicly traded companies will
report the pay ratio for fiscal years that begin on or after January 1, 2017.
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 13. Research indicates that companies with high estimated chief executive officer-worker pay
ratios have lower employee morale and lower shareholder returns compared to companies
with lower ratios. For example, the job site Glassdoor analyzed 1.2 million chief
executive officer ratings from current and former employees, finding that higher chief
executive officer compensation is statistically linked with lower approval ratings for
those executives. And, a review of pay ratios and long term shareholder returns by CtW
Investment Group found that companies with high pay ratios perform worse than
companies with lower ratios over the next five years.
14. The spectacular concentration of income and wealth among the top 1 percent and 0.1% is
bad for the economy and bad for democracy. If other jurisdictions follow Portland’s lead
in enacting policies based on the Securities and Exchange Commission disclosure,
shareholders may realize that extreme chief executive officer to median worker pay ratios
reduce their profits and, with this result in mind, make changes to their pay structure.
NOW, THEREFORE, the Council directs:
a. City Code Section 7.02.500, Tax Rates, is amended as set forth in Exhibit A.

b. The City Budget Office will increase the ongoing Current Appropriation Level
target for the Portland Housing Bureau by $2.5 million starting July 1, 2018, to
support the Joint Office of Homeless Services efforts to help people move off the
street, out of shelters, and back into permanent housing, as well as services that
help people avoid homelessness.
b. The Bureau of Revenue and Financial Services and the City Budget Office will
prepare necessary adjustments to the Revenue Division’s budget in the Fiscal Year
2017-2018 budget process.

Passed by the Council:

Mary Hull Caballero
Auditor of the City of Portland
By

Commissioner Steve Novick
Prepared by: Katie Shriver
Date Prepared: September 18, 2016

Deputy

3

 EXHIBIT A
7.02.500
Tax Rate.
(Amended by Ordinance No. 187743, effective June 10, 2016.)
A.

The tax established by the Business License Law is 2.2 percent of adjusted net
income, except as provided in Subsections B, C:-.,_ aflEl-D and E. of this Section.

B.

Surcharges applicable to Tax Years 2002 through 2005. The following surcharges
are imposed in addition to the 2.2 percent tax established in Subsection A. above.
The proceeds of the surcharges are dedicated to supplementing the funding
provided by the State to the public schools within the City, and allocated to all of
the public school districts within the City of Portland.

C.

1.

For the tax year beginning on or after January 1, 2002, a surcharge is
imposed in the amount of 1 percent.

2.

For tax year beginning on or after January 1, 2003, a surcharge is imposed
in the amount of 0.4 percent.

3.

For tax year beginning on or after January 1, 2004, a surcharge is imposed
in the amount of 0.4 percent.

Surcharge applicable to Tax Years 2006 through 2007. The following surcharges
are imposed in addition to the 2.2 percent tax established in Subsection A. above.
The proceeds of the surcharges are dedicated to supplementing the funding
provided by the State to the public schools within the City, and allocated to all of
the public school districts within the City of Portland. The proceeds of the
surcharges must be used by the school districts only for programs and activities on
which the City is authorized to expend funds pursuant to its charter and state law.
1.

For the tax year beginning on or after January 1, 2006, a surcharge is
imposed in the amount of 0.14 percent.

2.

No penalties or interest for failure to make quarterly estimated payments in
the amount of the surcharge will be charged or imposed for the 2006 tax
year.

3.

For the tax year beginning on or after January 1, 2007, a surcharge 1s
imposed in the amount of .07 percent.

4.

If the surcharges raise more than $9 million plus City costs but less than
$9.5 million plus City costs for the 2006 and 2007 tax years combined, the
excess over $9 million, less City costs, will be dedicated to public schools
within the City as provided in Subsection C. of this Section. If the
surcharges raise more than $9.5 million plus City costs for the 2006 and
2007 tax years combined, the excess over $9 million, less City costs, will
be retained as a credit for taxes due in a later tax year. The Director will
apply the credit to taxes due no later than the 2010 tax year. The Director

 has the sole discretion to determine the method of calculating and
distributing credits.
D.

E.

Heavy Vehicle Use Tax applicable to Tax Years 2016 through 2019. The following
tax is imposed in addition to the 2.2 percent tax established in Subsection A. above.
The proceeds of this tax are dedicated to supplementing the funding of City of
Portland street maintenance and safety and shall be deposited in a Street Repair and
Traffic Safety Program of the Transportation Operating Fund where street repair
and traffic safety expenditures are recorded.
1.

For the tax years beginning on or after January 1, 2016, January 1, 2017,
January 1, 2018 and January 1, 2019, a Heavy Vehicle Use Tax is imposed
on taxpayers who operate one or more Heavy Vehicles on streets owned or
maintained by the City of Portland. For purposes of this tax, a Heavy
Vehicle is any vehicle that is subject to the Oregon Weight-Mile Tax
pursuant to ORS 825.450 et seq. This tax is 2.8 percent of the total Oregon
Weight-Mile Tax calculated for all periods within the tax year.

2.

The minimum Heavy Vehicle Use Tax due for a tax year is $100. The
minimum tax would be in addition to the $100 minimum tax described in
Section 7.02 .545 , if applicable.

3.

No penalties or interest for failure to make quarterly estimated payments in
the amount of the Heavy Vehicle Use Tax will be charged or imposed for
the 2016 tax year only. Thereafter, penalties and interest will be calculated
as provided for in the Code.

4.

If the Heavy Vehicle Use Tax raises more or less than $2.5 million plus City
costs in the first or second tax year of the tax, the City will adjust the Heavy
Vehicle Use Tax rate for subsequent tax years of the tax to reach the four
year target of $10 million plus City costs. The Revenue Di vision of the
Bureau of Revenue and Financial services is authorized to adopt an
administrative rule to implement this change, if needed.

Pay ratio surtax applicable to publicly traded companies subject to U.S. Securities
and Exchange Commission pay ratio reporting requirements. The following surtax
is imposed in addition to the 2.2 percent tax established in Subsection A. above.
1.

For tax years beginning on or after January 1, 2017, a surtax of 10 percent
of base tax liability is imposed if a company subject to this section reports
a pay ratio of at least 100: 1 but less than 250: 1 on U.S. Securities and
Exchange Commission disclosures.

2.

For tax years beginning on or after January 1, 2017, a surtax of25 percent
of base tax liability is imposed if a company subject to this section reports
a pay ratio of 250: 1 or greater on U.S. Securities and Exchange Commission
disclosures.

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 Impact Statement for Requested Council Action

IMPACT STATEMENT
Legislation title:

Authorize a surtax to the City's Business License Tax for publicly traded
companies subject to U.S. Securities and Exchange Commission
disclosure and reporting requirements if a subject company reports that the
ratio of compensation of its chief executive officer to median worker is
equal to or greater than 100: 1 under the Commission's Pay Ratio
Disclosure Rule (Ordinance; amend Code Section 7.02.500).

Contact name:
Contact phone:
Presenter name:

Katie Shriver
503.823.3005
Thomas Lannom, Director of Revenue Division

Purpose of proposed legislation and background information:
This ordinance establishes a surtax to the City's Business License Tax for publicly traded
companies that are subject to U.S. Securities and Exchange Commission (SEC) disclosure and
reporting requirements. In 2015, the SEC adopted a rule requiring public companies to disclose
the ratio of compensation of the company's chief executive officer to the median compensation
of all of its employees beginning in 2017. The City of Portland surtax proposed by this
ordinance relies on data reported by companies to the SEC, and revenue from the proposal will
accrue to the General Fund and help the Portland Housing Bureau meet the City's commitment
to funding homelessness services

Income inequality in the United States has grown during the past four decades:
•

In the 1970s, the top 1 percent of income earners had less than 10 percent of total income
in America. By 2010, the disparity had grown even larger, to 20 percent of total income.

•

Much of the gain of the top 1 percent has been concentrated among the very top of the
income chart, the top 0.1 percent of income earners; between the 1970s and 2010, the
share of income held by the top 0.1 percent went from 2 percent to between 7 and 8
percent.

•

Like the income gap, data show a similarly large wealth gap. By conservative estimates,
the top 0.1 percent had 11 percent of the wealth in the United States in 1992, and the
percentage grew to 14 percent by 2013.

The SEC's new rule offers local and state governments, as well as Congress, the opportunity to
develop policies to address the growing gap between the very rich and the middle class. The City
of Portland surtax proposed by this ordinance is, on its own, unlikely to cause companies to
reconsider their pay structures. If other governments adopt policies based on the SEC's publicly
reported ratio, companies may consider changes. California and Rhode Island have already
considered proposals based on the new SEC filing.
Under this proposal, a publicly traded company that is doing business in Portland will be subject
to a surtax of 10 percent of its base Business License Tax liability if it reports that the ratio of
DECEMBER 2014 version

 Impact Statement for Requested Council Action

compensation for its chief executive officer and median worker is equal to or greater than 100: 1
but lower than 250: 1. The surtax rises to 25 percent of base Business License Tax liability if the
company reports a ratio equal to or greater than 250: 1. This means that if a company pays its
median worker nationally $50,000/year, it could pay its chief executive officer up to $4.9
million/year before it would be subject to a 10 percent surtax of its existing business license tax
liability. The chief executive officer could be paid up to $12.4 million/year before paying the
higher surtax of 25 percent.
Revenue from this surtax will accrue to the General Fund and provide additional resources that
Council is using to increase funding for services provided by the Joint Office of Homeless
Services.
The public hearing about this proposal is scheduled for October 5, 2016, at 2 p.m. The second
reading and Council vote will occur during the regular Council meeting scheduled for December
7, 2016.
Financial and budgetary impacts:
The Revenue Division estimates that the surtax proposed by this ordinance would increase
revenue by $2.5 million to $3.5 million annually, although the estimate of the amount of revenue
the City of Portland will actually collect during the first year of implementation, Fiscal Year
2017-18, is lower because of the lag between tax policy and actual collections and the fact that
publicly traded companies typically file extensions. Using the low end of the expected revenue
range, estimated revenue collections are $125 ,000 during FY 17-18, $2,275,000 during FY 18-19
and $2,500,000 each fiscal year thereafter. The Revenue Division estimates the cost to
administer the surtax would be about $50,000 annually.
This ordinance would increase revenue to the General Fund and allow Council to address the
ongoing funding gap for the Joint Office for Homeless Services. In June 2016, the Portland City
Council and the Board of County Commissioners for Multnomah County approved an
Intergovernmental Agreement establishing the Joint Office of Homeless Services. The City has
budgeted $11.5 million in ongoing funding for the Joint Office. The Intergovernmental
Agreement commits the City to an additional $3 .5 million beyond what is already budgeted for
the Joint Office after Fiscal Year 2016-17. The City needs to allocate $3.5 million in new
funding to maintain its commitment to fund homeless services beginning in Fiscal Year 201 7-18.
This surtax proposal increases the current appropriation level target for the Portland Housing
Bureau by $2.5 million on July 1, 2018, paying for homeless services provided by the Joint
Office of Homeless Services. This proposal reduces the funding gap for the Joint Office in the
second through fifth years of the forecast.
Community impacts and community involvement:
Housing affordability and homelessness are serious concerns of Portlanders. In October 2015,
City Council declared a housing emergency, reflecting the dramatic increase in housing prices as
well as increasing concerns about homelessness in our community. In September 2016, Council
extended the housing emergency declaration until October 2017.

DECEMBER 2014 version

 Impact Statement for Requested Council Action

The surtax proposed by this ordinance would be paid by publicly traded companies that are
doing business in Portland and that have a chief executive officer to median worker pay ratio of
at least 100: 1. Publicly traded companies are those that issue securities, like stocks. Publicly
traded companies, also called publicly-held companies, must file required documents with the
SEC, including registration statements for newly-offered securities, annual and quarterly filings,
proxy materials sent to shareholders before an annual meeting, and annual reports to
shareholders. Beginning in 2017, the SEC is requiring all publicly traded companies in the
United States to include the ratio of their chief executive officer compensation to their median
worker in the company's required filings.
The Revenue Division estimates that there are about 550 publicly traded companies that are
subject to and paying the City's Business License Tax. Collectively, their Portland tax liability
was $17.9 million annually based on recent tax filings.

DECEMBER 2014 version

 Impact Statement for Requested Council Action

Budgetary Impact Worksheet
Does this action change appropriations?
D YES: Please complete the information below.
D NO: Skip this section
Fund

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Center

DECEMBER 2014 version

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