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City digs deep to fix $25 million shortfall

Services, programs on the line as Hales plots budget changes


by: TRIBUNE PHOTO: CHRISTOPHER ONSTOTT - Mayor Charlie Hales huddled with his staff to review solutions to the city's $25 million general fund budget shortfall.Just 10 weeks into his new job, Portland Mayor Charlie Hales says he inherited one of the three worst budget shortfalls in city history, if not the worst.

Are Hales and other city leaders “crying wolf,” and overstating the budget mess? Or is Portland really facing its own version of a fiscal cliff and a new era of austerity?

For answers, the Portland Tribune examined city budgets for the past decade, and consulted a variety of budget experts inside and outside the city.

Though no clear consensus emerged, some things are clear:

City finances — and staffing levels — have taken a beating since the Great Recession, and, like the economy in general, haven’t fully recovered.

City staffing peaked at 6,258 full-time-equivalent positions when the recession took hold in 2008, then declined three of the next four years. It’s now down to 5,788 positions, a loss of 470 full-time jobs in five years.

The city’s general fund shrank three of the past four years, and is lower today than it was five years ago, not counting inflation.

Total city spending declined each of the past three years, again not counting inflation.

The city’s $25 million general fund budget shortfall is serious, as Hales asserts, and could harm city programs and staff. But the shortfall of roughly 5 percent of the general fund is in line with, or lower than, cuts now facing most federal agencies.

Arguably, the city’s mushrooming debt load is a far bigger long-term fiscal problem. While Hales says he can’t deficit-spend like Congress and the president, that’s what occurred, in effect, the past several years under his predecessors.

The city’s outstanding debt has grown 31 percent since the recession hit five years ago, and the unfunded liability for its police and fire pension system has grown 40 percent. During the same period, the value of property kept off the tax rolls to pay for urban renewal debt has grown 45 percent.

As the city auditor reported last year, 51 cents out of every dollar in city property taxes paid in Portland now covers urban renewal debt and the police and fire pension system.

In 2010-11 alone, the city collected revenues of $1.4 billion and spent $1.8 billion, says Drummond Kahn, director of audit services in the City Auditor’s Office.

“The city’s expenditures are outpacing its revenues, and when you spend more than you bring in, the difference is made up with debt,” Kahn says.

That pattern of ballooning city debt started well before the recession, he says, and continued after it eased.

Time for fiscal honesty?

Hales concedes the public may be skeptical about the gravity of the $25 million general fund shortfall. A year ago, his predecessor, Sam Adams, faced a $14 million general fund shortfall, but somehow managed to find $7 million to send to area school districts.

“We are no doubt dealing with a public that has heard wailing and gnashing of teeth from government before,” Hales says. “At a time when governments all seem to be playing games with the numbers, we have to be relentlessly clear about what our numbers are and what our choices are.”

Andrew Scott, the city’s new budget director, says the $25 million shortfall is serious and unprecedented — more daunting than what the city faced during the early-1980s recession and after the Measure 5 property tax limitation of 1990.

Scott and others pin the shortfall largely on three unrelated factors. Voter approval of the county library district, city economists say, cut city property taxes by $10 million next year, due to “compression” caused by property tax limitation measures. (County analysts say that number is a bit high.)

Portland City Council voted last year to make $8.6 million of “one-time” items permanent, making them ongoing general fund expenses. That includes money for homeless shelters and other programs that have long been funded with short-term funding. Then the city’s settlement with the U.S. Department of Justice required $5.4 million in higher spending for police and mental health services, to stem police brutality against mentally ill residents.

Millions of dollars spent on other one-time expenses in the past year, such as the school payments, aren’t likely to be funded this year, Hales says.

The $25 million shortfall comes despite a new telecom tax pushed by Adams to help pay for the Justice Department settlement. The city is banking on collecting $3 million from that tax next year, Scott says, though affected telecom companies are challenging its legality.

On the chopping block

The projected shortfall is based on the city’s five-year budget outlook, so Hales seems intent on not resorting to one-year fixes, as occurred in the past. “I’m not interested in putting our Visa on our Master Card in order to get through a tough budget year,” he says.

That means eliminating services or other spending.

The mayor asked bureau chiefs to submit budgets for next year that included cuts of 10 percent. Some of the proposed cuts were derided as “Washington Monuments,” a term for items so popular that the City Council wouldn’t dare approve them. Examples are the proposed elimination of mounted police patrols and the Buckman Pool, and closure of several fire stations.

“The mounted patrol’s been on the chopping block so many times I can’t count,” says Tom Feely, a retired city budget analyst and manager who worked for the city 26 years. He remembers that on lists from the early 1980s.

Katie Bretsch, another retired city budget analyst and manager, says there’s a good reason the same items appear on those cut lists. “The bureaus consistently put up things that are the lowest return for the buck,” she says. “I don’t think it’s cynical at all.”

Mounted patrols aren’t as essential or cost-effective as regular police patrols, and the Buckman Pool is the city’s smallest and least efficient to operate.

Hales says he got some useful ideas from the cut lists, though clearly not all the ideas submitted were practical.

Personnel savings

The city general fund — money available for any purpose — mostly pays for police, fire and parks services. Much of the $25 million must come from personnel costs, because that’s where the lion’s share of the money is spent.

City leaders show no political appetite for curbing expensive employee retirement payouts. However, if Gov. John Kitzhaber and the Legislature are successful at reducing Oregon Public Employees Retirement System costs, that will spill over to the city, Scott says.

Hales is working on other ideas, though.

“We hope to do some of this by eliminating vacant positions, as opposed to laying people off,” he says.

The police department alone has 29 unfilled positions, Hales notes.

He also asked city personnel managers to prepare new early retirement incentives. That would encourage some “more expensive” staff to voluntarily leave the city work force, Hales says.

Anna Kanwit, city human resources director, declined to discuss the potential savings or scope of the program, since employees haven’t yet been notified and an ordinance hasn’t been prepared to take to the City Council.

Hales says the city also will explore savings in employee cost-of-living adjustments or COLAs. That may be a relatively easy lift. The inflation gauges typically used for collective bargaining show a need for a lower-than-expected 1.8 percent COLA next year, Scott says. If negotiated at that level, that would prune nearly $2 million from the $25 million shortfall, he says.

Hales also asked the city to calculate cost savings from unpaid leaves — known as furloughs — as done recently by the state, the private sector, and, in coming months, by the federal government. Each furlough day would save the general fund $874,632, the city calculates.

However, those don’t work so well for public safety and other city jobs, Hales says. So far, the city hasn’t even raised the issue of furloughs in collective bargaining talks with Laborers Local 483, says Richard “Buz” Beetle, the local’s business manager.

One problem with furloughs is they’re one-time savings, not long-term budget fixes. The same is true of taking money from the city’s flush internal services funds, money charged to general fund agencies to save up money for vehicle and computer purchases, health insurance reserves and other items. “Since the economy’s taken a downturn, those reserve funds have continued to balloon,” says Rob Wheaton, a council representative for the American Federation of State, County and Municipal Employees Council 75. The 10 internal services funds now contain $106.7 million, up from $68.8 million five years ago, Wheaton calculates. Labor unions pushed Adams to tap those funds last year rather than cut city staff, and he obliged to some extent.

Hales says he’s open to looking at those as a source of funds, but notes it would be a short-term solution.

The city could realize savings by cutting back funding of programs deemed to be Multnomah County’s responsibility, or negotiating new terms with the county. A five-page spreadsheet prepared last fall lists $5 million in city spending on joint city-county programs and $3.5 million spent by the city for county services, not to mention the $70.3 million spent this year for the county’s Sellwood Bridge replacement.

The city pays for mental health, SUN schools, the jail, district attorneys, fingerprint technicians and others services, Hales says. “You could argue that those should be the county’s responsibility, but we’re not going to say ‘that’s your problem,’ “ Hales says.

He is engaged in talks with his counterpart, County Chair Jeff Cogen.

Cogen stresses that the county already agreed to assume $850,000 in annual SUN school costs from the city, and trimmed several million dollars from the city’s tab for the Sellwood Bridge, as tradeoffs negotiated after passage of the library district.

“In terms of the library district, that was the deal; that discussion’s closed,” Cogen says.

However, there is an “ongoing dialogue” about the two governments’ respective roles in providing services, Cogen says. “We’re just having conversations,” he stresses. “There’s no negotiations.”

And he sees no need to rush those talks to ease the county budget shortfall.