Portland could backfill budget gaps with funds voters designated for climate response

The Portland Clean Energy Fund was created by a voter-approved ballot measure in 2018 that passed with 65% of the vote. It has been celebrated as a first-of-its-kind environmental justice and climate action program created and led by communities of color. The goal of the fund is to create more renewable energy projects, focus on decarbonization and produce more climate action-related workforce development.

But the fund has brought in far more in tax revenue than advocates expected. And that’s left staff of city bureaus facing budget cuts eyeing the massive fund as a possible cure to their budget woes.

PCEF committee members, who are charged with recommending how those dollars should be spent, have now set a plan in motion for city bureaus to receive hundreds of millions of dollars over the next few years, potentially reaching over a billion.

If the City Council agrees with PCEF committee recommendations, money will go toward climate action-related projects six city bureaus are already working on. Those include tree planting and maintenance, energy-efficient retrofits to some city bureaus, and transitioning from gas-powered leaf blowers to battery-powered ones.

There are also pushes to use money for things unrelated to climate change — funding Portland Street Response or plugging the fire bureau’s $11 million budget gap.

“I do sympathize that many of the city agencies are facing major funding challenges,” said State Rep. Khanh Pham, who helped build the campaign to create the clean energy fund as a community organizer with Asian Pacific American Network of Oregon and OPAL Environmental Justice Oregon. “…But I know that the ballot measure was very clear about where the money should be directed.”

Pham worries that if city leaders begin to stray away from voters’ intent it could endanger the fund.

Tight timeline leaves lingering questions

After nearly nine hours of deliberations and under a tight deadline, the Portland Clean Energy Fund committee unanimously recommended allocating a combined $282 million in climate funds to six city bureau’s proposals over the next five years. The recommendation offers a green light for each city bureau — transportation, housing, finance, parks and recreation, water, and environmental services — to include PCEF funds in their own budget proposals. It’s a move that should provide bureaus relief as the city juggles a budget crisis.

The clean energy fund committee also recommended allocating $100 million for tree planting and maintenance.

These recommendations open the door for government entities and businesses to seek more access to PCEF funds.

PCEF committee co-chair Megan Horst said she’s optimistic that the recommendation and partnership with city bureaus will have a positive impact on the city’s climate action goals and will benefit the fund’s priority communities, which include people of color, people living with disabilities and people with low incomes.

But the committee only had two weeks to respond to numerous requests from city bureaus and make recommendations about which to fund, which was an “extremely frustrating” timeline, Horst said.

“I do have some lingering frustrations and concerns about the pressure and the timeline that we were under,” she said to OPB. “I think we truly did the best we could to deliberate upon these and check that they really did meet PCEF goals and put some accountability measures in place. Overall, I feel reasonably optimistic and good about it, but with those caveats that it was an unideal process.”

Horst said it was unfortunate that PCEF funds were a last resort for funding city projects that otherwise would have been on the “chopping block.”

“It’s a reality of the budget woes and I guess deliberations other agencies have made,” she said.

Apart from the pressure to quickly respond to budget requests with funding recommendations, committee members had lingering questions about how city programs would target the people at the heart of the fund — PCEF’s priority communities or residents most impacted by climate change.

So far nearly $200 million of the $1.29 billion PCEF expects to collect in the next five years has been exclusively allocated to nonprofit organizations that work closely with the fund’s target populations. According to PCEF staff, the amount of money going to these nonprofits will increase as the next round of community response grants is awarded. But state and city leaders that pushed to create the fund have warned that using PCEF money to backfill city climate-related programs could jeopardize the climate action fund and steer it away from its original intent.

Where the money comes from — and where it’s going

The Portland Clean Energy Fund receives revenue from a 1% tax imposed on retail businesses. It was expected to bring up to $60 million a year, but has brought in more money than city officials forecast. A city economist estimates that, from its inception in 2019 through 2028, the fund could potentially generate close to $1.5 billion— soaring past initial estimates by about a billion dollars.

Before this year, the fund had already allocated $145 million to programs like Cooling Portland, which distributes energy-efficient heat pumps and air conditioning units to Portlanders in need. That program was quickly created and implemented in response to the 2021 Pacific Northwest heat dome event.

As the fund’s pot of money grew due to inflation and an increase in consumer spending habits, PCEF underwent a yearlong overhaul in which the city created a $750 million five-year Climate Investment Plan. City Council also altered the way programs are funded.

Projects and programs are now funded under three different pathways:

• Community responsive grants, which are awarded to nonprofit organizations,
• Strategic programs, which can be implemented through partnerships with nonprofit organizations, government entities or businesses,
• and tree canopy maintenance.

So far, nonprofit organizations are set to receive at least $200 million through the Climate Investment Plan. Nonprofits can also qualify for funds under the strategic funding pathway and partner with city bureaus. While PCEF funds represent a significant investment for local community nonprofit organizations, Horst called for more.

“I’m glad we’re meeting sort of the baseline level of $40 to $60 to $80 million or so a year,” she said. “That was sort of some of the original intent and I really hope that the money going through city bureaus will benefit PCEF priority communities.”

As city bureaus battle through a budget crisis, six bureaus have requested a combined $282 million for climate-related projects over the next five years. The proposal came three months after the city announced the nearly three-quarters of a billion-dollar Climate Investment Plan, as a city economist did an updated forecast that showed the clean energy fund is set to generate revenue beyond that amount.

Some of the projects the PCEF committee recommended supporting include streetcar replacements, funded with a one-time $30 million payment to the Bureau of Transportation; more city-owned electric vehicles for $25 million; and $1 million in energy-efficient retrofits for the Arlene Schnitzer concert hall.

Horst said there needs to be a balance between how much city agencies receive and how to increase capacity for nonprofit organizations to receive more in PCEF funds.

“I hear our community-based organizations, I hear some of them expressing concern and frustration,” she said. “I think that in the next round of deliberation, our committee will be discussing, making sure we increase some of the funding for community-based works to access in this next consideration of revenue.”

Staying true to PCEF’s vision

Two candidates for Portland mayor who now sit on City Council have also suggested other uses of PCEF funds.

Commissioner Carmen Rubio proposed using $3 million to fund Portland Street Response, with that money coming out of $12 million in interest the PCEF fund has earned. That would require changing city code to allow the city to use the funds to spend outside of the fund’s target population.

Commissioner Rene Gonzalez has proposed using the climate fund’s earned interest, to cover the Fire Bureau’s entire budget gap of $11 million. Under that proposal, Portland Street Response would also receive $3 million.

These types of proposals have created more worry for those who worked to get the measure in front of voters in 2018.

The ballot initiative that was put in front of voters was designed to prioritize funding projects that would put low-income and communities of color hit first and worst come climate change, said Pham, the state representative who helped with PCEF’s creation.

“We have so many nonprofits across the city that are doing really critical work, helping some of our poorest community members weatherize their homes, save on their housing costs and also have access to more jobs and job training,” she said. “It worries me that the needs are just only growing in our community and we need to protect the critical work that our nonprofits are doing, which was the intention of the program.”

Others, like environmental nonprofit Verde’s executive director Candace Avalos, said the recent code changes have added more confusion for what buckets of funding nonprofits can qualify for. Verde has been a close partner with other nonprofit organizations in developing PCEF, Avalos said.

“This is so far from the right time to be doing anything to divert these critical dollars at a time when cold snaps are killing people, heat waves are killing people, lack of climate resilience is just expediting the urgency by which we need to act and that is what PCEF is supposed to do,” she said.

City official: Process could have been better

Portland’s Bureau of Planning and Sustainability’s Director Donnie Oliveira said PCEF’s growing pot of money provides an opportunity to rethink how the city government is showing up for communities. It also offers a chance for a partnership between city bureaus and PCEF to determine where to best utilize funds in response to climate change.

But remembering the original fund’s intent, like who benefits from the fund, and staying true to delivering on its promise is essential, he said.

“If we can ensure that those resources are being applied to the bureaus in a way that are emphatically delivering the community benefits that PCEF Fund demands, then that’s going to be a win for the city and all of our communities,” he said.

But Oliveira said the short turnaround and lack of a months-long public process the previous set of allocations underwent could have been handled better, for everyone.

“This funding allocation was aligning with the city budget process,” he said. “I know that’s unsatisfactory to many but that was really what was the driver of how this fund was being looked at.”

Now, PCEF staff will be working with their city budget office to ensure they have an appropriate process for evaluating how city bureaus are using the funding, he said. PCEF Committee members recommended City Council adopt a process for city bureaus to generate annual progress reports, as well as a two-year formal public review that would involve community input.