City Councilor Questions Legality of Proposed Climate Tax Increase

Portland city councilors on Thursday debated a controversial proposal to increase the Portland Clean Energy Fund tax and use that delta to backfill holes in the city’s general fund.

Three councilors—Steve Novick, Angelita Morillo and Jamie Dunphy—last week proposed increasing the 2018 climate tax from 1% to 1.33% and using the additional revenue to backfill the city’s general fund deficit.

The trio says the increase would bring in about $66 million annually for the general fund to support city functions.

Predictably, the nascent proposal immediately generated controversy. Portlanders in general feel overtaxed, polling shows, and some high-profile businesses have left Portland, complaining the city makes it untenable to keep their doors open. In addition, Gov. Tina Kotek asked all local governments in early 2023 to impose no new taxes or tax hikes for a period of three years.

In the Thursday meeting of the City Council’s Climate, Resilience and Land Use Committee, members raised questions both about the politics, efficacy and unintended consequences of such a tax hike, but also about its legality.

Councilor Candace Avalos, a staunch supporter of the original PCEF tax and the climate-related projects its funded across the community, read a prepared statement about the proposal, expressing deep skepticism about potential unintended consequences of such a measure and the legality of it.

“Have we received a formal legal opinion on whether this reopens the door to litigation or further charter amendments?” Avalos asked, saying that the measure could introduce “real legal uncertainty.”

“Reopening that mechanism, even slightly, for general fund purposes risks weakening the firewall between PCEF and city budget politics,“ Avalos said. “Chair Novick, you’ve said this won’t affect PCEF. But we know that’s not how this works. PCEF was never intended to be a a contingency fund for the rest of the city. It’s not a piggy bank to be tapped when the general fund runs low. Using the same tax base for a different purpose does affect the fund: structurally, legally and politically.” (Prior to taking office, Avalos was the executive director of the climate nonprofit Verde, which received PCEF funds.)

City spokesman Cody Bowman has told WW repeatedly that the City Council could opt to increase the tax without sending it back to voters who initially approved the PCEF tax in 2018. The City Council “has the authority to raise the PCEF tax from 1% to 1.33% with a majority vote, without voter approval,” Bowman said last week.

Novick, who’s leading the charge for the tax increase, has said the same.

The City Attorney’s Office has not offered a formal written legal opinion on the matter. In fact, it’s not even clear if there’s been such a formal legal opinion offered internally to the councilors behind the proposal.

Avalos tried to ask that question during the Thursday committee meeting, but was shut down by Novick, who asked her to ask those questions of the City Attorney’s Office behind closed doors so as not to violate attorney-client privilege.

Avalos hit back.

“I understand your point…but I will leave that to attorneys to make that judgment,“ Avalos said. “This was the platform by which I could ask these kinds of questions.”

Morillo said she agreed with Novick, saying that the city wants to ensure “we’re not giving away our legal analysis if there is action taken against the city.”

Novick dug in, asking that Avalos not ask those questions of the city attorneys.

“Are you prohibiting me from asking my questions?” Avalos asked.

Novick responded: “Of the city attorney, yes.”

Avalos said back: “I completely reject to the idea that you get to tell me I don’t get to ask a question of our legal attorneys in a formal committee meeting.”

Novick replied: “I will ask them not to answer.”

Avalos said that was “fine” and continued to ask questions.

Though city spokesman Bowman has insisted that the City Council may increase the tax by a majority vote, some external tax experts have disagreed, saying a change to a voter-mandated tax would have to go back to voters for approval.

One such person is Jeff Newgard, a local tax policy expert.

“I’m very confident that the city is wrong,” Newgard told WW last week. “It will end up in court. And previous court decisions do not bode well in the city’s favor.”

The former City Council last spring tapped excess PCEF funds to plug some budget holes in various city bureaus, including in the water, transportation and parks bureaus. And the council also approved over the past two years using $740 million in PCEF funds over the next five years for various climate-related functions within city bureaus.

Avalos said PCEF backers already compromised once when the city faced political pressures,

“That was already us moving further away from the purpose. Every year, it’s always the same fight. It’s always, oh, it’s just a little bit here. But it never stops there,” Avalos said. “I just don’t believe that the arguments that have been represented to me give me confidence that we’re actually protecting PCEF.”

Councilor Dan Ryan, a favorite of the business community, said he didn’t like the premise of a new tax.

“Simply put, I just don’t think we can go from doom to boom or bloom by raising taxes,“ Ryan said. ”And I just want to listen to our remaining retailers downtown," adding that large retailers often threaten to leave the city.

Morillo replied: “We can’t make all of our decisions with multibillion-dollar corporations based on the threats that they might levy against us, because most of those are rooted in propaganda, frankly,“ Morillo said. ”And that propaganda only serves to hold us hostage so that we can never do anything right for working-class people."

Nearing the end of the meeting, Novick said he hatched the proposal after participating in recent city-led budget listening sessions in which Portlanders begged councilors not to cut parks and other basic city services. He says that if Mayor Keith Wilson manages to narrow the cuts in his proposed budget released in early May, Novick may very well abandon the tax increase.

The City Council’s Finance Committee will discuss the proposal later this month.