Portland Mayor Ted Wheeler pictured at a press conference in April, 2024. Wheeler says the city will face budget cuts in 2025.
Kristyna Wentz-Graff / OPB
Portland’s new city government will start in the throes of a budget crisis. On Friday, Mayor Wheeler sounded the alarm about significant budget cuts on the horizon.
In a message sent to city officials Friday, Wheeler said city departments should be prepared to make at least a 5% reduction in their baseline budgets in the next fiscal year, which begins July 1. He’s asking the bureaus to draft budgets that reflect both a 5% and 8% cut, to allow city leadership options when drafting the citywide budget next spring.
“These reductions are necessary for the city to maintain current allocation levels for programs with ongoing funding,” Wheeler wrote.
As in the past, Wheeler said the public safety bureaus — Portland Police Bureau, Portland Fire & Rescue, and the Bureau of Emergency Communications — will not be subject to these mandatory cuts. He also directed the Portland Water Bureau and the Bureau of Environmental Services to propose rate increases that lead to a combined increase of no more than 5.9% above current rates.
“This guidance provides a starting point,” Wheeler wrote, “so that the City can collaboratively develop a budget recommendation that will balance needs and priorities with our fiscal reality.”
This grim budget outlook doesn’t come as a surprise.
Earlier this week, staff in the city’s budget office told commissioners that the city’s financial troubles are based on a simple equation: The city is spending more than it is collecting.
“Since our revenues aren’t keeping up with our expenses, that is going to have to drive cuts,” said City Economist Peter Hulseman.
According to City Budget Director Ruth Levine, city expenses have grown an average of 8% annually over the past decade. She said most costs are linked to the inflation of necessary items, like computers, software, and vehicles.
“We are both buying more [things] and we are buying more expensive things,” Levine said.
Expenses also include debt repayment for city buildings — like the $195 million renovation of the Portland Building — and growing facility maintenance costs. Staff salaries and benefits have also increased with inflation, impacting the city’s bottom line.
While these costs have grown, city revenues have remained flat. Some 75% of revenues come from property taxes and business taxes. According to Hulseman, property taxes grew at a historically low rate and business taxes dropped 10% in the past year. From an increase in vacant office buildings to a drop in population size to stagnant employment rates, a mix of conditions contributes to this downturn.
“The way this is all going to play out is it’s going to be much slower [revenue] growth rates than we’ve historically had,” Hulseman said.
This isn’t the only reason for the budget woes. Since 2020, Portland’s budget has leaned heavily on federal pandemic relief funds to fill revenue gaps. Yet those dollars have all but dried up, leaving critical budget holes. The city will also have to account for a patchwork of other funding given to ongoing projects that will expire in the next year. This includes about $16 million of the city’s homeless shelter budget, more than $4 million in Police Bureau operations, $7 million in Fire Bureau costs, and nearly $10 million more in programs that focus on removing homeless encampments and cleaning up trash. With limited short-term resources, it’s not clear whether those programs will continue.
Wheeler has called for budget cuts in recent years, but this year’s proposed cuts of up to 8% are the largest.
His budget direction isn’t set in stone. On Tuesday, Wheeler said his guidance is really meant to inform just the next few months of budget planning before new city electeds take office in 2025. Next month, Portlanders will elect a new 12-person city council and mayor. (Wheeler is not running for reelection.)
“I’m very, very open to the new mayor and the new council directing what the guidance should be,” Wheeler said. “And if they have a different opinion than what we’re putting in here as a placeholder, so be it.”
Wheeler said Friday he plans on working closely with the new city officials after Election Day to prepare them for the constrained budget season. With an all-new City Council and mayor in office, next year’s budget cycle will start earlier than usual. The new mayor and city administrator are expected to present the first draft of a proposed budget to the City Council in February.