Portland to transfer more than $7 million from city’s climate action fund to general budget

Portland’s government is diverting $7.6 million in funds earmarked by voters for climate action towards the city’s general budget, months after politicians in the city first suggested the idea. The move marks the first time climate action funds will be used outside of their intended purpose.

Earlier this month, Portland commissioners passed a resolution amending city code to allow the city to transfer a portion of the interest the Portland Clean Energy Fund has generated for use in the general budget.

That change for the first time allows Portland Clean Energy Funds to be used in a way that does not align with the mission voters approved in November 2018. PCEF was created to fund community-led climate action projects that reduce carbon emissions and support its priority communities, which include people of color and people with disabilities. It’s brought in far more tax revenue than originally expected, leaving city budget-writers eying PCEF’s coffers as they face cuts to many bureaus.

Earlier in the year, city commissioners drew criticism when they proposed using the climate fund’s interest to fill budget gaps in other city programs, like the Portland Street Response or Fire Bureau’s budget gap of $11 million.

The code changes were introduced by Mayor Ted Wheeler and Commissioner Carmen Rubio on June 26, less than a week before the new budget would go into effect on July 1. They passed on July 3.

Although the code change only allows a one-time interest transfer, it does not guarantee City Council won’t vote to transfer more interest in the future. At recent PCEF committee meetings, Wheeler and committee members have expressed concerns that the well-endowed climate action program could be asked to fund other city programs again.

On Friday, PCEF committee co-chair Ranfis Villatoro called the code change allowing the climate fund’s interest to be used on other programs disheartening.

“I think voters should expect that spending of any tax, bond, or levy measure they approve, that spending stays within the intent,” Villatoro said in an emailed statement Friday. “This sets a precedent not just for PCEF interest but for other programs.

But he said he recognizes the city’s challenges in balancing a budget to avoid cuts in city jobs and services.

“PCEF funding provided a lifeline to the City General Budget,” he wrote in his email to OPB. “I do worry this does not address some of the root challenges in the City and its ability to present a balanced budget in future fiscal years without PCEF support.”

The code changes formally allow the city government to transfer the fund’s interest generated during the fiscal year 2022-2023, a little more than $7.6 million, to the general budget for “needs determined by the Council.”

Related: Portland Mayor Ted Wheeler turns to clean energy tax to fix budget woes

The mayor’s office acknowledged that the idea to transfer PCEF funds to Portland’s general fund originated with Wheeler, but did not respond to questions about how the funds will be used after that transfer, or if the spending will align with PCEF’s mission. Instead, his team emphasized that the mayor met publicly with PCEF leadership, and pointed to comments he made during a May 16 PCEF committee meeting in which he expressed gratitude to the committee members for saving the city’s budget. At that meeting, he also said he understood the challenges they faced, including calls for sending PCEF back to the ballot.

“We don’t want it to go back to the ballot,” Wheeler said during the May 16 meeting. “It’s really the greatest opportunity we have as a community to invest in the kinds of things that the committee had intended around climate action and climate justice. We don’t really have another source. So it’s critically important that it stay in place.”

Wheeler said because the fund was “thriving” there needed to be a middle ground that allowed him to not “eviscerate the city budget,” but he also questioned if the decisions made this year will hold in the future.

“I don’t know and that’s part of the discussion that we’re going to have going forward,” he said. “What are the brackets? What are the parameters, where do you wanna be? Where does the city wanna be and how do we get there together?”

The Portland Clean Energy Fund was created through a voter-approved measure that imposes a 1% tax on large retailers in the city. It was expected to generate $60 million a year but has instead raised tens of millions of dollars more in a short amount of time. That prompted the PCEF committee and staff, following months of public input, to restructure how the fund distributes money and to create a $750 million five-year climate action plan. A few months later, City Commissioner Carmen Rubio introduced a $540 million city bureau five-year plan, which allocates PCEF funds to existing climate projects in the city government.

Through 2028, the fund could generate close to $1.5 billion, a city economist estimated in February. So far, those tax collections have generated a little more than $23 million of interest since 2019.

PCEF committee takes no position on interest changes

During a June 3 meeting, PCEF committee members did not take an official position on the City Council vote to use a portion of that interest for city programs, co-chair Megan Horst said.

“We could have made a recommendation for or against the idea, and we did not,” she said Friday in an emailed statement.

She said the PCEF committee was told it did not have any authority over the use of the fund’s generated interest, only City Council had that decision-making power, creating a gray area on how the funds should be used.

Horst said the committee wanted to ensure that the interest transfer was indeed a one-time use of PCEF funds and would not set precedents for the future.

“As you know, the political pressures to balance the budget were enormous, and there was, and continues to be, pressure on PCEF from all directions,” she said in her email to OPB. “I chose to use my political capital as a committee member to ensure it was a one-time use of interest for non PCEF goals, and to advance the Code Amendment language to try to ensure more committee and public involvement in all PCEF decision-making going forward.”

Horst said it’s critical that PCEF is not seen as a source of revenue for the Portland general fund or for things outside its climate core mission and that PCEF-funded efforts be held accountable to that mission.

Villatoro agreed.

He suggested there needs to be better development and understanding of goals and policy, and to include more input by impacted stakeholders of the fund. Overall, PCEF staff and the committee need space to move thoughtfully, he said.

“While having council play a role in keeping the program accountable to its goals and purpose without tilting the favor to the next emerging City need, but balancing the needs with the broader public,” he said in an email.

“Our city, and broadly the state and country, is unprepared for a rapidly hotter climate that is beginning to have a toll on human life and will come at a cost to how we adapt. Where we could be celebrating PCEF as a mechanism to invest in climate action and mitigate impacts, we unfortunately are dealing with the tough challenges of using PCEF to balance a budget.”