Preliminary city budget data for fiscal year 2021 projects a tax rate hike of at least 1.8 percent, or 42 cents, right out of the gate.
The data does not include school spending or City Council desires, which could drive the mil rate even higher.
Finance Director Brendan O’Connell discussed some of the expenses that will increase in the coming budget, including debt service and contractually obligated wage increases for city staff, during a Jan. 6 City Council workshop.
The council has approved contracts with the Labor and Trades, Pro-Tech and City Employee Benefits Association unions, all for wage increases of 2.75 percent and additional increases for such things as stipends, cell phone reimbursements and shift differentials. If five remaining union contracts to be negotiated also average a 2.75 percent increase, O’Connell said, the costs will increase the tax levy by $2.6 million.
In response to questions from Councilor Kimberly Cook, O’Connell clarified that the estimate does not include any wage step increases that may occur for personnel this year, nor does it include increases in health insurance or pension costs. He said his staff will be working on projections for those costs this month.
Debt service is another known expense that will be increasing for fiscal year 2021.
The city took out pension obligation bonds in 2001 to settle outstanding liability to the state on future pension payments. The payment structure was set up so that there were no principal repayments for the first 10 years, but now the payments are increasing by about
$1 million per year. The total payment due for fiscal year 2021 is $16.45 million, an increase of $976,000 from 2019. The amounts due will continue to increase until the final payment of $22.3 million in 2026.
Combined with existing city and school debts, this brings the debt service for fiscal year 2021 to almost $34 million. In addition, the city has approved a $40 million bond for capital improvements that will be issued February and $64 million in school bonds, $14-15 million of which have been issued in bond anticipation notes.
The state valuation will have a major impact on the city budget because it is what county tax assessment, education subsidy and revenue sharing is based on. The state’s valuation of property in the city rose 8.5 percent, from $9.69 billion in 2019 to $10.57 billion in 2020. O’Connell noted that were it not for properties sheltered in tax-increment financing districts, the valuation would have been $150 million higher.
Portland’s valuation went up more than the average increase of 7.5 percent across Cumberland County. Only Yarmouth, Gorham, Gray, Standish, Scarborough, Baldwin and Chebeague and Frye islands had higher percentage valuation increases than Portland.
The county is waiting to hear what it will receive in jail funding from the state before finalizing its tax assessments on municipalities, but the tax assessment for Portland is projected to increase by 5.6 percent, or $375,000.
Had Portland been valued at $10.57 billion last year, the education subsidy from the state would have been about $4.6 million less than it was, O’Connell said. However, he noted there are many other factors that will offset some of that loss in this year’s subsidy calculation, including formula changes, the increase in valuation in other municipalities, and the state budget, which increased school funding overall.
Portland Public Schools Superintendent Xavier Botana told the council he expects the schools to lose around $2 million in state funding when taking those other factors into account.
Likewise, if the valuation of $10.57 billion had been in place in fiscal year 2020, O’Connell estimated the city would have received $622,000 less in revenue sharing. But because the Legislature increased revenue sharing to 3 percent for fiscal year 2021, he projected the city will actually receive between $760,000 and $1 million more than it is expected to receive by the end of fiscal year 2020 in June. The state is expected to issue its revenue sharing projections for 2021 in March.
The city’s assessed property value will not increase by the same amount because it is calculated differently, but O’Connell anticipated an $85 million increase in the local valuation, which translates to about $2.3 million in increased tax revenue that will be split between the city (50.1 percent) and the schools (49.9 percent).
While the projected increases in staff wages, debt service and the county tax would increase the city budget by 2.1 percent, projected increases in revenue sharing and property tax revenue would offset some of that, bringing the increase down to a starting point of about 1.8 percent, O’Connell said.
This translates to a mil rate increase of 42 cents from the fiscal year 2020 mil rate of $23.31, he calculated at the workshop. He emphasized that this figure was arrived at from early estimates and does not include increases from council goals and the school budget.
Additional costs may include increases in funding for organizations like METRO and the Portland Public Library, tipping fees for trash and recycling, and General Assistance and social service budgets.
Councilor Nicholas Mavodones asked about bonds for school construction projects. He pointed out that if construction is undertaken for multiple schools at once, rather than staggered, the school budget would have to absorb debt service for those projects — about $1 million per school — earlier than anticipated. Councilor Justin Costa said simultaneous construction was being considered because of increasing construction costs and other concerns, and suggested a joint workshop with the School Board to discuss the matter.
The council indicated it will be giving staff guidance on the budget in the coming weeks. Department budget requests will be reviewed by the finance and human resources departments in February and by the city manager in March.
A draft budget will be presented to the Finance Committee in April, and the full council is expected to vote on the proposed budget in May.