In just a few months, the city of Portland will begin investing the proceeds from a groundbreaking new tax on large companies.

No other city in the U.S. has such a tax.

"It's a model for the rest of the nation," Mayor Ted Wheeler said recently. "A beacon and a testament to our community's belief in doing things a different way."

The Portland Clean Energy Community Benefits Fund, or PCEF, will raise as much as $60 million a year from a new tax on big retailers. The money is supposed to supply clean, efficient energy and jobs to people the city has long slighted.

The overarching goals: to provide members of underserved communities with valuable skills while insulating, caulking and tweaking inefficient heating and cooling systems and installing rooftop solar panels at the homes of low-income Portlanders.

The new tax, and the still-developing ideas for how to spend the money, signal a sea change in Portland politics.

At its core, the concept transfers wealth from big corporations such as Walmart to low-income Portlanders of color. It's a local version of the Green New Deal proposed in 2019 by U.S. Rep. Alexandria Ocasio-Cortez (D-N.Y.). It's also part of a larger political effort to reshape who calls the shots—and who benefits—in America's whitest big city.

The new tax, created by a 2018 ballot initiative city voters passed by an overwhelming margin, is part of a power shift that saw two outsiders—Chloe Eudaly in 2016 and Jo Ann Hardesty in 2018—defeat establishment candidates for seats on the Portland City Council. The trend could continue this year with the probable election of the council's first Latinx commissioner: Carmen Rubio, executive director of the Latino Network.

It's long past time for Portland, a city with a history of institutionalized racism, to move aggressively toward equity, Hardesty and others say.

"Before PCEF, we had zero dollars dedicated to creating opportunities for folks who have been left out of the economic engine of the city of Portland," Hardesty said recently. "We're going to start creating some awesome opportunities for people in our community who could have never imagined them."

Never has City Hall had so much money to spend with so few strings attached. The guidelines for spending the tax are squishy, as are the yardsticks for measuring the effectiveness of those expenditures.

"One of the biggest tasks facing this effort is, what are the key metrics of success?" says David Heslam of Portland's Earth Advantage Institute, a supporter of the new tax. "They haven't communicated that yet."

That uncertainty concerns observers such as Maurice Rahming, an owner of O'Neill Electric, one of the city's largest African American-owned contracting firms.

"What are the accountability means they are going to use to track outcomes?" Rahming asks. "At the end of the day, it's about accountability and delivering on services."

Hardesty, the first black woman to serve on the City Council and the self-described "mother of the Portland Clean Energy Fund," promises she won't let it fail.

City Commissioner Jo Ann Hardesty’s successful 2018 campaign for City Council overlapped closely with the campaign for the new tax. (Motoya Nakamura / Multnomah County)
City Commissioner Jo Ann Hardesty’s successful 2018 campaign for City Council overlapped closely with the campaign for the new tax. (Motoya Nakamura / Multnomah County)

"I am the biggest champion of PCEF," Hardesty said recently, "and I stake my reputation on making sure it is implemented exactly as we envisioned."

Last month, the City Council made some last-minute adjustments to the new tax, exempting some companies, including national waste haulers and construction firms, leaving large retailers such as Walmart, Target and Home Depot to pony up.

On Dec. 12, while considering those tweaks, the council got a warning from Oriana Magnera, a spokeswoman for the coalition that put the measure on the 2018 ballot.

"These exemptions take money out of the hands of black, indigenous and other communities of color and put it instead in the pockets of corporations," testified Magnera, who works for Verde, a social justice nonprofit active in passing the ballot measure and making preparations for deploying the money. "We will fight fiercely if any future erosion occurs."

Magnera and her fellow advocates face both an unparalleled opportunity and a daunting responsibility: to spend the new money transparently and well.

Across the nation, elected officials are looking for ways to help marginalized communities that also stand to bear the brunt of global warming. The fund could provide a road map for other cities—or it could end up a cautionary tale.

Robert McCullough, a Portland energy economist, says the fund faces two challenges: the declining effectiveness of energy efficiency measures, and the city's poor track record of fiscal prudence.

"It's shocking how much the world has changed in energy terms," McCullough says. "And the time has come for us to be very careful with our dollars—not something the city has done well."

“The goal is ensuring the green economy benefits folks who are hurt first and worst by global warming,” says Oriana Magnera. (Justin Katigbak)
“The goal is ensuring the green economy benefits folks who are hurt first and worst by global warming,” says Oriana Magnera. (Justin Katigbak)

For all the talk about how new and innovative the Portland Clean Energy Fund is, the fact remains that the city tried something similar before—and not that long ago.

The results could be a wake-up call for Hardesty, Magnera and other advocates.

The promise of energy efficiency is seductive: Insulate walls, caulk some leaks and tune up the heating system, and the savings on utility bills will exceed the costs of the work.

Such savings are a big part of the allure of the Clean Energy Fund. But recent history shows they can be difficult to capture.

If anybody could have made an energy efficiency nonprofit thrive in Portland, Tim Miller seemed to be that guy.

He had the pedigree: a degree in economics and industrial engineering and an MBA from Stanford; five years at Intel; and a couple of decades doing green energy consulting before he signed on in 2012 at a Portland outfit called Clean Energy Works.

Clad on a recent day in a blue Oxford cloth button-down and a Columbia Sportswear fleece vest, Miller, 54, explained that Clean Energy Works had its origins in then-Mayor Sam Adams' office in 2009, when the country was mired in recession.

Clean Energy Works snagged a $20 million federal stimulus grant in 2010 and became an independent nonprofit whose mission was to deploy minority contractors to make 100,000 homes energy efficient.

"Our model was to retrofit," Miller says. "The idea was to create jobs now—and let's have them be good jobs."

The program aimed to benefit underserved communities—just as the new tax does. "From the beginning, equity advancement was a hallmark of the program—promoting worker diversity and career pathways into the energy sector, as well as development of contractors including minority- and women-owned firms," Clean Energy Works said in a grant application.

The similarities to the Portland Clean Energy Fund extended to granular details such as pay: Both programs specified workers should get no less than 1.8 times minimum wage.

The poorest parts of Portland are often hit hardest by environmental calamity—like the smoke and ash that covered the city during the Columbia River Gorge wildfire in 2017. The new tax aims to counteract that burden. (Emily Joan Greene)
The poorest parts of Portland are often hit hardest by environmental calamity—like the smoke and ash that covered the city during the Columbia River Gorge wildfire in 2017. The new tax aims to counteract that burden. (Emily Joan Greene)

"A lot of the participants in Clean Energy Works took that model and ran with it to create PCEF," says Rahming, who served on Clean Energy Works' board. "There are definitely similarities," Miller acknowledges.

Clean Energy Works conducted energy audits—and then, for a fee, referred homeowners to contractors for retrofits. "The feedback from the homeowners was almost universally positive," Miller says. "People said, 'We're more comfortable in homes and we save money on our bills.'"

But Clean Energy Works' services were expensive.

The Energy Trust of Oregon, a nonprofit funded by utility ratepayers, found the program's costs "significantly" higher than those of other contractors doing similar work without public funding.

Miller acknowledges Clean Energy Works was more expensive, but he says the nonprofit's holistic approach provided significant intangible benefits.

"What we were still working on is the health benefits of retrofitting," Miller explains. "If you do good air-sealing and are no long dragging air up from a rat-infested crawl space, you can sit by the window now that it's sealed. You don't see those benefits when you see how many kilowatts you saved."

By 2014, Clean Energy Works had spent the $20 million in federal stimulus money it received four years earlier. It then secured an additional $10 million state grant to keep going.

But it could never generate significant revenues from its contractor referral service—and when the state grant ran out in 2016, tax records show, Clean Energy Works began recording large operating losses.

"An energy efficiency-based program could not support itself," Miller says.

Although Clean Energy Works hoped to weatherize 100,000 homes, it only completed about 5,000.

Yet Miller judges the effort a success. "You got thousands of homes retrofitted, hundreds of jobs created, dozens of contractors, a ton of awareness," Miller says. "It was money well spent."

Adams, Portland's former mayor, served on Clean Energy Works' board. He says the work the nonprofit set out to do was much more expensive than expected. But he says it would be wrong to call the effort a failure.

"Clean Energy Works lasted a lot longer than other similar organizations across the country," Adams says, noting the nonprofit pioneered a method for financing retrofits that remains in use today. "We got one-time money, and when that ran out, there wasn't any more."

The lesson from Clean Energy Works' experience: Good intentions and an extensive background in the field were not enough to create an operation that could finance itself. What such a project needed instead was a spigot of money that couldn't be turned off when political goals changed.

So, two years ago, advocates set out to secure permanent funding.

When the city hired Sam Baraso (center) from Multnomah County’s Sustainability Office to administer PCEF, leaders of the campaign for the new tax—Khanh Pham, organizing director at OPAL Environmental Justice Oregon (left), and Tony DeFalco, executive director of Verde (right)—joined in the announcement.
When the city hired Sam Baraso (center) from Multnomah County’s Sustainability Office to administer PCEF, leaders of the campaign for the new tax—Khanh Pham, organizing director at OPAL Environmental Justice Oregon (left), and Tony DeFalco, executive director of Verde (right)—joined in the announcement.

In the sweltering summer of 2018, patrons exiting Powell's City of Books often encountered a signature gatherer, pushing a measure that would "ensure that the biggest corporations [pay a new tax] for climate resilience and wealth-building in low-income areas and communities of color."

That was a mouthful. The real question was: Did Portlanders want to tax Walmart?

They did. Voters approved the tax in November 2018 by a landslide, 65 to 35 percent. The result is a $60 million annual pool of money.

One of the leading evangelists for spending that money is Magnera, 32, a bookish, intense Columbia University graduate.

Magnera cut her teeth in Oregon working on Measure 98, which funds dropout prevention for underserved students, and then worked for the NW Energy Coalition, advocating for solar energy.

A homeowner who identifies as white, Magnera is not in the target demographic for PCEF. But with her background and fearless demeanor, she's good at advocating for the groups that are.

"It all comes down to the idea of justice for the folks who are most impacted and harmed historically," she says, adding that the changes taking place in the halls of power and at the ballot box are "long overdue and not happening fast enough."

Last year, Wheeler named Magnera to the Portland Planning and Sustainability Commission.

She shook up that influential, sometimes sleepy panel, demanding immediate action on issues ranging from exemptions for commercial and industrial property owners from the city's tree code (she opposed them) to requirements that private developers create space in new buildings to shelter the homeless (she favored them).

Magnera says she has a vision of what a favorable outcome for the Clean Energy Fund will look like.

"A number of successful projects that are supporting black, indigenous and other folks of color," she says. "Having lower energy bills, building resiliency and helping folks stay in their homes."

Oriana Magnera (Justin Katigbak)
Oriana Magnera (Justin Katigbak)

Over the past year, the city has set about translating such hopes into a framework that will put the new tax dollars to work.

Giving away $60 million a year in grants is a challenging proposition. The Meyer Memorial Trust, for instance, has a full-time staff of 38 and gave away just $36 million last year.

The Portland Arts Tax, which collects about $11 million a year, distributes its money based on a per-student formula.

And PCEF differs from another specialty tax—the Portland Children's Levy and its $20 million a year—in a key way: For the first 15 years of its existence, the Children's Levy required voter renewal every five years. There is no sunset mechanism for PCEF.

A nine-member citizen committee, staffed by a new office in the city's Bureau of Planning and Sustainability, will decide who gets the money.

The measure specifies that PCEF give money only to nonprofits. Groups such as Verde (Magnera's employer), OPAL Environmental Justice Oregon, and the Asian Pacific American Network of Oregon, which were instrumental in passing the measure, are likely to apply for grants but are not represented on the board.

The measure otherwise gives the all-volunteer grant committee broad latitude. There are wide ranges delineating where the money should go—40 to 60 percent for renewable energy and energy efficiency, for instance—and buckets of money whose purpose is barely defined at all: Five percent, for example, is earmarked for "future innovation."

Unlike the retrofits Clean Energy Works did, PCEF's money can subsidize projects without meeting Oregon Public Utility Commission standards for financial return. That means low-income families can benefit from a direct subsidy. Grant recipients can simply pay for improvements that lower utility bills.

On one hand, this relieves PCEF from the economic pressure Clean Energy Works faced. On the other hand, Portland economist Joe Cortright worries an absence of clear guidelines could make for a lack of accountability.

"There oftentimes isn't a lot of discipline on this kind of stuff," Cortright says. "The thinking is, if we wrap it in green enough cloth, nobody will look under the hood."

Rahming says he will be also watching closely to see whether PCEF money genuinely builds management skills for minority contractors and provides meaningful training for workers.

"It's not difficult to find an insulation company that meets minority goals, because most of those workers are minorities anyway," Rahming says. "But helping build a real contracting business that understands cash flow, bidding and scheduling, that's another thing entirely."

Hardesty says she's confident protections are in place to make sure the new tax money is properly spent and will produce genuine training and job skills for members of underserved communities. She notes that the fund prohibits self-dealing by board members, all deliberations on grant proposals will be public, all awards must be ratified by the City Council, and the program will be audited annually.

"There's no free money here," Hardesty says. "We're going to have really smart people staying very connected to this process."

Older, low-income apartment buildings, which look much like this East Portland complex, are logical targets for environmental retrofits, which benefit the tenants and save energy. (Abby Gordon)
Older, low-income apartment buildings, which look much like this East Portland complex, are logical targets for environmental retrofits, which benefit the tenants and save energy. (Abby Gordon)

Hardesty and the 200 organizations who backed the clean energy measure—as well as everybody who voted for it—had no idea how much money it would raise.

In campaign materials, including Voters' Pamphlet statements, proponents repeatedly said the measure would raise about $30 million.

But after the measure passed, city officials ran their own numbers based on previous experience collecting taxes from large corporations. They concluded the take would be twice what the campaign expected.

Hardesty says the doubling of revenue projections came about because the campaign had no access to the city's corporate tax data (such information is confidential by law) and so harbored an incorrect understanding of which "retailers" the tax would hit.

"We did not know the definition of 'retail,'" she said recently. "Not until it passed did we find out it much broader than we anticipated."

Hardesty now has a strong incentive to make sure the tax succeeds. "There are a lot of eyes and ears from around the country on us," she says, noting that at least 15 jurisdictions have let Portland know they are interested in creating a similar tax.

One place for PCEF to focus its efforts could be on the thousands of units of low-income housing scattered across the city. Unlike market-rate buildings, where landlords pass along utility costs to tenants and so have little motivation to weatherize, nonprofits that own subsidized housing have a big incentive to save money but often can't afford to.

"That would set [PCEF] up for years of impactful work," says Earth Advantage's Heslam.

Phil Welker, retired executive director of Portland Energy Conservation Inc., which began working on efficiency 40 years ago, says he thinks Portland's new fund could do plenty of useful work, if it's judged on all the benefits it provides. That means including the health and climate benefits of weatherization, not just the financial savings on utility bills.

"In the old, utility model," Welker says, "any package of measures had to be cost effective at all times. But doing it that way, you miss out on dramatic opportunities."

He and Miller both see PCEF as a chance not just to save money for low-income Portlanders but to fulfill Portland's commitment to carbon reduction.

"Hopefully, there are the seeds of a new paradigm that will consider climate first and foremost," Miller says.

Both men say PCEF can thrive where the nonprofits they ran could not because the program won't be measured by the strict financial metrics that utility-funded projects are measured by. Instead, PCEF projects can focus more on less easily measured health and climate benefits.

Magnera says the fund's opportunity is even bigger.

"What we are seeing now is representation for communities that haven't been represented in our state and our city," she says. "Those doors are finally open."

The nonprofit Journalism Fund for Willamette Week provided support for this story.

In market-rate apartment buildings, landlords pass along utility costs to tenants and so have little motivation to weatherize. But nonprofits that own subsidized housing have a big incentive to save money often can’t afford to. (Abby Gordon)
In market-rate apartment buildings, landlords pass along utility costs to tenants and so have little motivation to weatherize. But nonprofits that own subsidized housing have a big incentive to save money often can’t afford to. (Abby Gordon)

Creating cost savings via energy efficiency looks easier than it is.

Energy efficiency, always economically challenging in Oregon's mild climate, has grown more difficult to achieve as energy remains cheap—and therefore less worth conserving.

The experience of another once-celebrated Portland nonprofit focused on energy efficiency shows how the industry has changed.

Serious energy efficiency efforts emerged after OPEC shocked the world in the 1970s, driving fuel prices to historic heights.

In 1979, a new nonprofit called Portland Energy Conservation Inc. spun off from the city of Portland's energy office. The nonprofit performed energy audits and weatherization retrofits, building up a national customer base.

By 2010, PECI employed 300 and even put its name in neon on the exterior of a downtown Portland high-rise, a bold move for an Oregon nonprofit. But PECI's revenue declined precipitously from 2011 to 2014, and that year the nonprofit sold its business to CLEAResult, a for-profit Texas company.

PECI executive director Phil Welker chose to bank the $7 million in proceeds from that sale rather than stay in the energy efficiency business.

Welker has retired to Utah, replaced by Tim Miller, the former Clean Energy Works leader, whose task now is to give PECI's money away.

"The world has changed," Welker says. "Energy efficiency as a siloed, stand-alone activity is a solution for a problem that's kind of in the past."

How $60 million a year will be distributed.

THE NEW TAX: Big retailers, with revenues of more than $500,000 in Portland and $1 billion nationally, pay a 1 percent surcharge on their Portland sales. The city estimates the tax will raise $44 million to $61 million annually. The city keeps 5 percent for administration.

WHO GIVES IT AWAY? City commissioners each selected one member to serve on the grant committee; those five members then picked four more. The committee chooses which grants to award, and their recommendations must be ratified by the Portland City Council. Committee members may not direct money to their own organizations. (See list of committee members below.)

WHO GETS THE MONEY? Nonprofits, working alone or with partners. One-fifth of the money must go to groups with a history of working with "economically disadvantaged" Portlanders. All workers must be paid no less than 1.8 times minimum wage.

HOW WILL THE MONEY BE SPENT?

Renewable energy and energy efficiency: 40 to 60 percent

Job training and contractor support: 20 to 25 percent

Renewable agriculture and green infrastructure: 10 to 15 percent

Future innovation: 5 percent

Source: Portland Clean Energy Fund

MEMBERS OF THE GRANT COMMITTEE: Shanice Brittany Clarke, Portland Public Schools; Faith Graham, Network for Energy, Water, and Health in Affordable Buildings; Andrea Hamberg, Multnomah County; Michael David Edden Hill, journeyman electrician; Megan Horst, Portland State University; Jeffrey Moreland Jr., general contractor; Maria Gabrielle Sipin, transportation planner; Ranfis Villatoro, BlueGreen Alliance; Robin Wang, Ascent Funding