Cash-Rich Clean Energy Fund Needs Guidance From Council, Better Measurement, Auditor Says

The petitioners who wrote the ballot measure tied its goals to the city’s Climate Action Plan, which included 20 objectives and 247 action items. But it expired in 2020.

The Portland Clean Energy Community Benefits Fund, a climate and equity program funded by a tax on large retailers, is awash in money but has not adopted methods to track, measure and report its performance, as required by the 2018 ballot measure that created it.

That’s the opinion of City Auditor Mary Hull Caballero, who released a report on PCEF today. The fund has begun developing accountability systems, but they are incomplete, the report said.

PCEF also needs guidance on its climate goals from the Portland City Council and from the volunteer oversight committee that makes grants from the fund. “Not addressing these elements could jeopardize the city’s ability to meet the legislative intent of the voter-approved program,” Hull Caballero wrote in the 13-page report.

PCEF is funded by a surcharge on retailers with annual sales of $1 billion or more in the U.S. and $500,000 or more within Portland. Grant awards are made by a nine-member committee and must be approved by the City Council. (The fund is administered by the Bureau of Planning and Sustainability, which provides staff to the grant-making committee.)

In addition to curbing carbon emissions, PCEF’s mission is to create green jobs and drive climate investments into low-income areas and into communities of color.

Like many public programs in Oregon, PCEF is flush with cash, thanks to unexpectedly strong tax receipts during the pandemic, as the economy surged when most forecasters expected it to crater. City officials expected PCEF to have annual revenue of $44 million to $61 million. Actual revenue hit $63 million in the year ended June 30, 2020, and soared to $116 million the next fiscal year.

The city auditor is an elected official and has wide leeway on which programs to examine and often chooses those that present the highest risk to the city in terms of reputation and money.

“This is a lot of money,” Hull Caballero said. “PCEF has some novel governance issues, and the oversight is not well defined and needs to be cleaned up.”

Absent from the report was any mention of Diversifying Energy, a Portland firm that won an $11.5 million grant from PCEF. The City Council revoked the grant after The Oregonian reported that Diversifying Energy founder Linda Woodley had a history of defrauding energy companies and had failed to pay taxes in three states, raising questions about how thorough PCEF staff was in vetting grantees. Woodley said she had disclosed the tax matters.

Hull Caballero said her office didn’t examine individual grant awards and that her audit was underway before the allegations against Woodley came to light.

Instead, the audit focused on structural issues that could damage public trust in the fund.

Some of PCEF’s problems stem from vagaries in the legislation that created it, Hull Caballero said. Because the law is incomplete, PCEF has discretion in how it categorizes costs for administration. Its leaders chose to classify capacity-building activities, training, and quality assurance services as programmatic, not administrative, exempting those expenses from a cap on administrative costs, which was set by the legislation at 5% of tax revenues.

PCEF staff said they planned to seek an opinion from auditors about whether the allocation of those costs as programmatic was appropriate.

The report didn’t offer guidance on that question, except to say that staff should be clear with the public about their methods.

“Without a transparent categorization of costs, the program’s reputation is at risk should Council or the public question its accounting for and compliance with the administrative cost cap,” the report said.

PCEF is likely to have trouble figuring out how much to spend on administration if revenue from the surcharge remains volatile and unpredictable, Hull Caballero said.

“One year, you could have $3.1 million to spend on administration, and the next year you might have almost double that,” Hull Caballero said in an interview. “One year you might want to do some hiring, but then you end up overshooting the budget for the next year.”

Another flaw in PCEF’s creation is that the petitioners who wrote the ballot measure tied its goals to the city’s Climate Action Plan, which included 20 objectives and 247 action items. But it expired in 2020, leaving PCEF without those benchmarks for progress.

“PCEF needs to go to the City Council and say, ‘Hey, our reference point is gone, so let’s get our heads together and figure out how the Portland Clean Energy Fund can contribute to the city’s goals,’” Hull Caballero said. “You have this very large pot of money, but the plan that the petitioners thought they were going to fit into is gone.”

In a letter sent in response to the audit, Commissioner Carmen Rubio, who oversees PCEF, and Andrea Durbin, director of the Bureau of Planning and Sustainability, vowed to tackle PCEF’s shortcomings.

They said they will define performance measures by July and establish performance goals by July 2023. Then they will deliver recommendations for a clearer climate strategy to the City Council by the end of this year, they added.

“We are committed to honoring the PCEF code directives in a transparent, responsible way,” they said. “We appreciate the opportunity to learn and grow so we can continue to meet those expectations.” PCEF program manager Sam Baraso also signed the letter.

The PCEF committee recommended its first group of 45 grants, worth $8.6 million, to the City Council in April 2021. The council approved them unanimously. PCEF staff expects the projects that include physical improvements to offset 11,500 metric tons of greenhouse gas emissions.

Correction: Due to an editor’s error, an earlier caption on this story showed salad greens on sale at Fred Meyer. Groceries are in fact exempt from the clean energy surcharge.