Councilor Novick proposes 0.33-point hike to clean-energy surcharge to help close Portland budget gap

At a Portland City Council Finance Committee meeting April 21, Councilor Novick proposed raising the city's existing 1% corporate clean-energy surcharge to 1.33% and directing the additional 0.33 percentage point to the general fund as a way to reduce planned cuts to police, fire, parks and homelessness services.

Novick said the measure would use the same taxing mechanism voters approved in 2018 for the Portland Clean Energy Fund and estimated it would generate about $66 million a year before subtracting a proposed $3 million increase in the business-license exemption for small businesses and a 10% contingency reserve. "I am not particularly excited about making deep cuts in any of those things," Councilor Novick said, arguing new revenue would make it "easier to come to consensus" on the budget.

The proposal drew immediate pushback from colleagues and staff who raised legal, political and timing concerns. Councilor Avalos said the change would put the Portland Clean Energy Fund at risk by creating a political precedent for redirecting funds voters approved for climate work: "This proposal is the threat, to PCEF," Avalos said. Ruth Levine, director of the City Budget Office, recommended budgeting conservatively and placing a portion of the first year's receipts in contingency because of uncertainty about initial collections.

What Novick proposed

Councilor Novick asked the committee to consider an ordinance that would increase the surcharge paid by very large retailers (corporations with $1 billion national revenue and at least $500,000 in Portland-area sales) from 1.00% to 1.33%, with the extra 0.33 percentage point routed to the general fund. He said groceries, pharmaceuticals and some necessities currently exempted from the clean-energy surcharge would remain exempt under the proposal.

Novick also said he and co-sponsors Councilors Mariano and Dunphy would raise the business-license gross-receipts exemption for small firms from $50,000 to $100,000. Novick said that change would provide relief to roughly 9,300 small businesses and would reduce the proposal's revenue by about $3 million a year.

Revenue estimates and timing

City revenue staff and the City Budget Office told the committee the ordinance, as drafted, is forecast to raise approximately $66 million in a full fiscal year; after the $3 million small-business reduction and the recommended 10% contingency set-aside, Novick and city staff cited about $56 million net to the general fund.

Thomas Lanham, revenue-division director, told the committee the affected taxpayers are a small, highly compliant group (about 500 businesses currently paying the surcharge) and described an operational timeline in which the revenue bureau would notify taxpayers in July if council adopted the change; affected firms would then have roughly 10 months to make adjustments and remit under the new rate, with the bulk of receipts landing in fiscal 2025-26. "I would not anticipate confusion amongst taxpayers or a lack of compliance with this particular group," Lanham said.

Ruth Levine, City Budget Office director, recommended that council not assume the full projection in the first year. "I would recommend placing a significant portion of the first year's worth of revenue into contingency," Levine said, citing uncertainty in taxpayers' response, general economic conditions and accounting nuances.

Legal and political concerns

Councilor Avalos and others emphasized political and legal risks to the Portland Clean Energy Fund (the voter-approved fund created in 2018). Avalos argued that using the same legal mechanism but redirecting revenue to the general fund would create a precedent that could erode voter trust and subject the fund to future reallocation.

Novick and other councilors countered that the proposed increase is modest and that voters supported the basic mechanism in 2018. Several councilors urged consultation with the city attorney and the PCEF advisory committee before formal action. Novick said he was not seeking an immediate vote and expected to refine the proposal after further comments: "I'm open to other revenue options," he said.

Public input and internal review

Novick said he and staff have been soliciting community input, including meetings with 350PDX, the Sierra Club and the Coalition of Communities of Color, and planned to present full polling results and an ordinance to the full council. He said a poll of Portlanders commissioned by his office found 69% support for the surcharge increase when framed as an alternative to deep service cuts; Novick acknowledged that the poll question presented trade-offs to respondents when asking that question.

Committee process and next steps

No ordinance vote occurred at the April 21 Finance Committee meeting. Committee members directed follow-up questions to staff about revenue timing, the structure of the proposed allocation (Novick's presentation described redirecting roughly one-quarter of the new total rate to the general fund), and legal risks. The committee chair said the ordinance Novick sponsored to raise the surcharge and increase the business-license exemption would be before the committee at a future meeting; staff noted that any change incorporated into the city's adopted budget would likely need sufficient certainty to be reflected by the May 21 calendar deadline to be used in the FY 2025-26 budget.

Why it matters

Councilors framed the proposal against an estimated general-fund shortfall discussed in the hearing: Novick cited a February forecast that included a roughly $92.8 million gap (adjusted during the presentation by expiring one-time funds and other items) and described a $28 million mayoral shelter plan and other factors that reduce near-term flexibility. Proponents said the proposal would provide budget flexibility to avoid deep cuts to public safety, parks and homelessness services; opponents called for preserving the integrity of the voter-approved climate fund and for careful legal review.

The committee did not take a final vote. Novick said he planned to bring an ordinance forward for committee consideration and that he remains open to amendments and other revenue ideas as the council and staff continue budget work.