Finances strong

The city and its utilities have healthy cash balances.

There are still some areas that need to be looked at to ensure financial stability in the future.

Ross Hagen of financial consulting firm Baker Tilly provided a comprehensive financial plan report to Portland City Council on Monday recommending that the city look at increasing water rates over time and keeping an eye out for the financial impact of Senate Enrolled Act 1.

Hagen told the council current cash balances are about $11.2 million currently citywide for operating funds including the general fund, motor vehicle highway, local road and street, parks and recreation, local income tax and aviation, $4.5 million in its wastewater fund and $3.66 million in its water fund. In all three cases, those are well above the recommended cash balances of $5 million, $2.5 million and just under $1 million, respectively. (The utilities are self-supporting through user fees and those funds are not part of the city’s regular budget.)

Looking at the city’s overall finances, Hagen said Baker Tilly’s study projects budget surpluses to continue through 2027 to a peak of about $15 million. 

The impacts of Senate Enrolled Act 1 — passed during this year’s legislative session, it makes various changes to tax policy including amending the structure of the local income tax – will be felt most heavily beginning in 2028. Hagen noted that there will be options for replacing some of the projected lost revenue from local income tax changes, but that the study projects that the changes will cost the city $500,000 in tax revenue annually.

“You’ve got a really good healthy cash balance above and beyond that recommended reserve level. So we have some time to be able to absorb some of those changes that are happening … and not make any drastic changes … You can take some time to evaluate and make changes as needed.

“I think you’re in a good position to be able to absorb those impacts. … It may require some tightening up of the budget in future years.”

Hagen pointed out that the projections do not include a potential $2 million police department renovation project, the purchase of a new firetruck (about $1 million) or the purchase of new radios ($1.12 million) for emergency responders and other departments. It also did not include a $400,000 commitment to the 68-acre infrastructure project toward a proposed housing development on the city’s west side. (See related story.) He said bonding could be used to support some of those projects.

Looking at the city’s wastewater department, Hagen said it fared a bit better than expected in 2024 in large part because of interest earned off of the nearly $24 million in the city’s construction fund for its ongoing project to build an equalization basin and a wet weather pump station.

Baker Tilly’s study projects an increase in the wastewater fund’s cash balance to $5.2 million at the end of 2026 and continued increases through 2029. It factors in the purchase of a new vacuum truck as well.

The water fund’s cash balance was down a bit in 2024, though not by as much as had been projected in the budget. Over the next five years, the balance is expected to dip to about $1.9 million.

Hagen noted that to maintain the current cash balance would require a 31% increase — about $6 per month — to the city’s rates for the average user of 4,000 gallons per month. He suggested that such an increase could be phased in over multiple years.

He also provided the council with comparisons to the state average for municipalities that are of similar size to Portland. The report indicates the city’s sewer rate of about $74 per month is about $21 higher (39%) than the average while its water rate of $19.60 per month is $11.90 lower (38%) than the average.

The combined rates of $85.60 per month are 1.5% higher than the state average.

Council member Dave Golden asked about the impact of Senate Enrolled Act 1 on bonds, saying he has heard reporting that changes in the legislation could impact ratings. Hagen said he has heard the same from rating organizations Standard & Poor’s and Moody’s, but that the changes may not directly impact the city.

He said he does not have that concern for the bonds for the city’s wastewater plant project because they are through the state’s revolving loan fund.

Golden also asked about a Baker Tilly study the city’s board of works recently approved to review trash collection rates. He noted that the city’s rate of $5.50 per month is well below the state average and questioned whether an increase would be recommended. Hagen said it is likely that the study will recommend a rate increase.