TO: Jon P. Jennings - City Manager

FROM: Brendan T. O’Connell - Finance Director
DATE: October 14, 2020
RE: Fiscal Impact Analysis - November 2020 Ballot Questions

This memo contains a high level fiscal impact analysis of each of the six questions
appearing on the November 2020 ballot in the City of Portland. The analysis assumes
passage of each ballot initiative and estimates the additional revenues and/or expenses
which would need to be added to the City’s operating budget to comply. A summary table
of my estimated impacts to the City operating budget is below.

Question Estimated Impact to Tax Levy

Question A - An Act To MODERATE - Estimated increases in labor costs of $3.1M

Increase the Minimum annually at the $15/hour level, excluding any impact from
Wage in Portland “emergency proclamation” 1.5x minimum wage requirement.

Question B - An Act To DE MINIMIS - No significant new costs of compliance -

Ban Facial Surveillance potential for limited new enforcement costs.
by Public Officials in
Portland

Question C - An Act To HIGH - Estimated increases in costs could be in excess of

Implement a Green $8.8M annually due to the non-climate related contracting
New Deal for Portland provisions inserted into the referendum question which
eliminate 90% of local vendors from the City bidding
process. These provisions have previously been reviewed
and rejected by the City Housing/Economic Development
and Finance Committees in the last few years.

Question D - An Act To NEUTRAL - Cost increases are offset by higher fees charged
Protect Tenants to landlords per rental registration.

Question E - An Act To NEUTRAL / LOW - Additional enforcement costs due to

Restrict Short Term heightened restrictions and potential for decrease in fees
Rentals in Portland collected. No estimated increase in annual tax levy required
however Housing Trust Fund contributions would likely be
reduced by an estimated $25,000 annually.

Question F - No NEUTRAL - Cost increases would be offset by new revenue

Cannabis Cap Campaign from additional licenses issued.
Question A - An Act To Increase the Minimum Wage in Portland
If enacted this ballot question would create a new and separate set of minimum wage rules
in Portland when compared to the rules in place for the State of Maine. Beginning on
January 1, 2022 the minimum wage would be $13/hour. Beginning on January 1, 2023 the
minimum wage would be $14/hour. Beginning on January 1, 2024 the minimum wage
would be $15/hour, with the minimum wage change pegged to the change in the Consumer
Price Index for Greater Boston Metro Area every January 1st thereafter. The tipped wage
would be pegged to ½ of the then current minimum wage. The last significant cost of the
act would be the requirement that any work performed during an emergency proclamation
would be paid at 1.5x the then current minimum wage with limited exceptions.

Enforcement Costs:​ In worker’s rights cases, such as wage and hour or workplace safety
complaints, the jurisdiction almost always falls to the authority that offers the most
protection for the worker; in the case of wages, it falls to the jurisdiction with the highest
minimum wage that can be enforced. If this ordinance were to pass, beginning on 1/1/22,
the City of Portland would have a higher minimum wage than the State of Maine, and we
would incur costs related to enforcement. These costs are estimated to be less than
$10,000 annually based on our experience with wage and hour complaints from 2018 and
2019 when the City of Portland minimum wage was higher than the State of Maine’s
minimum wage. For purposes of this analysis the estimated enforcement costs will be
considered de minimis.

IMPACT OF A REQUIRED $15 MINIMUM WAGE ON CITY OF PORTLAND LABOR

BUDGET (INCLUDING EXTERNAL LABOR, ROUNDED)
Additional City costs related to employees making under $15 - $0.3M
Additional City costs related to employees making between $15 - $22.50 - $2.3M
Additional labor costs associated with contractors located in Portland - $0.5M (estimated)
Additional City costs related to “emergency” 1.5x minimum wage provision - $1.9M

In addition to the direct impact on the tax levy, the costs of many key City programs would
rise due to the increased cost of labor. With the rise in costs many City Recreation and
Facilities, Public Health, and Social Services programs would be at higher risk for
elimination during the budget setting process.

The City has approximately 738 part-time, full-time, or seasonal employees who earned
wages of under $15 per hour in the last year. An increase of the minimum wage up to
$15.00 per hour would increase City salaries and wages by just under $300,000 per year
(this does not include the Portland Public Schools). This change would have a significant
impact on the operations of Departments such as the Barron Center, Recreation and
Facilities Management and Social Services, as they rely the most on the types of
employees who fill service level jobs which are typically paid less than $15.00 per hour.
Many of the programs within these Departments would operate at a loss if forced to pay
artificially inflated wages and would be at risk for elimination during the annual budget
process.

In addition to the direct impact noted above, there are secondary concerns about how the
increase in minimum wage would impact the overall fairness and equity of the City’s pay
plan and compensation levels for these positions. If this proposal were to move forward,
we would be forced to pay artificially inflated wage rates for positions with the low or no
minimum skills required, while paying the same – or very close to the same in some
cases – wage rates to someone who is in higher class positions such as a C.N.A. which
requires the completion of a formal course of study and the acquisition of a state
certification. From a Human Resources perspective the change in minimum wage would
lead to unintended consequences with those employees making above minimum wage.
Those unintended consequences would include but are not limited to decreased
employee morale and demands for additional compensation from employees making
above minimum wage.

391 City staff are currently earning between $15 and $22.50 per hour, for a total current
payroll cost of $22.7MM. These staff receive a higher wage due a variety of factors
including completion of a college degree, professional certification and/or other advanced
training. An excellent example is at the Barron Center, the City owned skilled nursing
and rehabilitation facility. The Barron Center currently employs 87 CNA’s (Certified
Nursing Assistants) within the $15 - $22.5 hourly pay range. If all City staff, even those
with no education, professional certification, or training, received up to a 50% increase in
their wage, why would those staff with extra qualifications not seek additional
compensation for their extra skills. If the population of employees making between $15
and $20 per hour were to seek an additional 10% in compensation for their extra skills it
would result in an additional $2.27M in payroll costs to the City annually. Many programs
and departments would be devastated by the impact and would likely not be able to
operate. These departments would include the Barron Center, Public Health, Social
Services, the Portland Public Library and many popular Recreation and Facilities
Programs including public pools, therapeutic recreation and the Riverside Golf Course.

Finally, an increase in the minimum wage to $15 per hour would result in an increase in
City spending by Public Works, Parks, Recreation and Facilities, Health & Human
Services, and any department who uses external contractors for construction, repair and
maintenance contracts. Any increase in contractor wages would be passed directly back
to the City. The City spends approximately $25M per year on external contractors and
based on a survey of recent contracts approximately 20% of this total is spent on labor
($5M). If labor costs rose 25% as a result of the minimum wage increase these labor
costs would rise from $5M to $6.25M. However, it is estimated that only 40% of our
contractors remain located in Portland and would be required to raise their wages,
resulting in an increased labor cost to Portland of approximately $0.5M.

In recent years, the City has seldom had official “emergency proclamations” but 2020 has
been unprecedented in so many ways. Nearly all of 2020 has been during the COVID19
emergency so the 1.5x pay provision would have been applicable during this period. The
City’s standard payroll reports do not show who was working from home and who was
working in the field, but for purposes of my analysis I have assumed that all non-union
labor during the period was “work from home” and thus would be exempt, and all union
labor is “in the field” and thus the 1.5x provision would be applicable. Assuming a
minimum wage of $22.50 had been in place during 2020, the City of Portland would have
had to pay in excess of $1.9M in additional wages to over 1400 full time, part time,
seasonal and temp workers who have worked during the emergency proclamation.

The Finance Department has not done a complete analysis of the potential impacts on
other businesses in Portland but other employers within City limits would be facing
significant issues due to an artificially inflated minimum wage. Businesses with
operations in multiple municipalities would be forced to have one pay plan for employees
within Portland and another for those working in other locations. Contractors based in
Portland who are bidding on City projects (or any project) would be at a disadvantage
when trying to obtain work. Costs of goods, services and food from local businesses
would also rise. Some may not have the funding to continue their business locally and
may attempt to relocate outside of City limits or cease operations entirely.

Question B - An Act To Ban Facial Surveillance by Public Officials in Portland

An Act to Ban Facial Surveillance by Public Officials in Portland will ban the city of Portland
and its departments and officials from using or authorizing the use of any facial surveillance
software on any groups or members of the public, and provides a right to members of the
public to sue if facial surveillance data is illegally gathered and/or used.

At the current time, no facial surveillance is being used by Public Officials in Portland.
There are no expected costs currently expected resulting from this ordinance to the City’s
operating budget. It is worth noting that although not currently in place, facial recognition
technology is being rapidly deployed at airports around the nation and may be used in the
future at Portland International Jetport to manage secure entry or access to restricted
buildings, rooms, or other secure spaces. This use is permitted by this ballot initiative.

In his July 2020 memo on facial recognition technology, Portland International Jetport
Director Paul Bradbury noted that one area of concern is regarding the Jetport’s planned
future development of a Federal Inspection Services (FIS) facility for the processing of
international travelers. This facility would have facial recognition software that is used by
airlines and U.S. Customs and Border Protection staff, but it would be in part obtained
through construction contracts issued by the Jetport. The proposed amendment to the City
Code does not allow the City of Portland or any City of Portland official to “Issue any permit
or enter into a contract or other agreement that authorizes any third party to obtain, retain,
store, process, access, use or collect: 1. any face surveillance system; or 2. any data or
information derived from a face surveillance system or other use of face surveillance”. I
believe this broad restriction would limit the Portland International Jetport from entering into
a construction contract in the future for an FIS Facility. The FIS facility is needed for most
non-stop international flights to service the Jetport (there are 16 U.S. preclearance airports
worldwide not requiring local clearance). The development of an FIS facility is necessary to
meet the future air service needs of Portland and Maine; without it we are arbitrarily limiting
economic opportunities for the region.

Question C - An Act To Implement a Green New Deal for Portland

Although the title of this act generally indicates climate action related items, this referendum
question includes both climate action related items but also many unrelated changes to the
City procurement requirements. The latter have all previously been studied and rejected
multiple times by prior iterations of current City Council Committees (Housing and
Economic Development, Finance) and City staff due to costly requirements and the
elimination of the majority of local vendors from qualification to bid on City projects. Some
of the highest cost requirements of this ballot initiative include the following:

1) Removal of the ability of local contractors to determine their own wages and benefits
packages - all bidders would be required to perform more complex wage calculations
based on the type of work being performed (which may change over the course of a
workday) and amounts dictated by various prevailing wage laws. Although there is much
debate as to how significant this cost increase would be, there is absolutely no question
that the administrative burden on contractors is higher and in many cases the wage rates
paid will end up being higher. The only unknown is just how much higher costs will be to
the City. In early October 2020 the City paid a nearly $300,000 change order on a project
due to Maine DOT highway funding getting added to a project (requiring Davis-Bacon
wages instead of local wage requirements) after the initial bid price was developed. This
change order was on a project with only approximately $500,000 in MDOT funding included
(so nearly 60% of the value of the State funding was eroded by the labor cost increase).
Assuming a conservative 5% cost increase resulted across the City’s average $25M of
annual construction projects, this would add an additional 1.25M in labor costs across all
City construction projects.

2) Required use of apprentices on City projects over $50,000 - As written, this requirement
would immediately eliminate in excess of 90% of local contractors from contention for
bidding on local projects. As a result, out of State contractors would be put at an
advantage and could bid premium prices on City jobs and still be awarded a bid. In recent
history City staff could only identify one City project where we had bids from a vendor who
would have qualified for the apprenticeship requirement, and in that case the price the City
would have paid to a Massachusetts based vendor on the project would have been 29.7%
higher. Applying this same cost increase to the total population of annual City projects
could result in a cost increase of up to $7.5M annually due to the lack of local vendors to
bid on projects.

3) Additional staff required to enforce and monitor the requirements of the above -
Non-Union C52 - $75,000

4) Additional certification costs required for parts of the ordinance which require formal third
party certification from a qualified professional - estimated $50,000 annually - this figure
may be higher or lower depending on actual costs related to LEED Silver Certification and
Better Roof Requirement certifications.

Question D - An Act To Protect Tenants

An Act to Protect Tenants tasks City staff with new enforcement of rent control in the City.
The act caps most annual rent increases to the rate of inflation, incentivizes landlords to
provide 90-day notice to tenants they are asking to vacate, create a tenant/landlord board
required to be staffed by the City, and raises rental registration fees from $35 per unit to
$50 to offset the additional staffing costs.

The total increase in rental registration revenue is up to $270,000 if 100% of the units paid
the extra fee. However, some properties may not continue to register and others may have
discounts per the ordinance. ​Permitting and Inspections staff have recommended a
conservative estimate closer to $250,000.

The total increase in expenditures can be broken down as follows:

2 additional enforcement staff (CEBA 13) - $110k inclusive of fringe benefits
1 additional Zoning Administrator (Protech 9) - $80k inclusive of fringe benefits
Temp help during the 2-3 busiest registration months - $3,000/week, $30k annually
Overtime for 1-2 board meetings per month - $250/month - $3k annually
Equipment, supplies & mileage for 3 new staff - $17k annually

Summary:
Potential Revenue increase: $250,000
Potential Expenditure increase: $240,000

The above does not include any estimated costs for internal corporation counsel or external
counsel related to potential further enforcement action. Assuming $10k of potential
expense related to additional legal enforcement, this ballot question would have no net
impact to the City’s operating budget.

Question E - An Act to Restrict Short Term Rentals (STRs)

An Act to Restrict Short Term Rentals (STRs) in Portland will restrict all mainland STRs to
only those that are owner-occupied. It significantly increases the annual fee for all STR’s to
$1,000 for each mainland STR and $400 for each island STR. The fee increases combined
with other limitations in the ordinance may significantly decrease the number of STR
registrations. The initiative also increases penalties for violations, requires the Department
of Permitting and Inspections to maintain a log of complaints against STRs, and allows the
city to revoke STR licenses for any violations. Current net revenue from STR’s is
approximately $118k with another $123k of revenue flowing directly into the City’s Housing
Trust Fund. STR income goes first to cover Department expenditures in the operating
budget and any excess is invested into the City’s Housing Trust Fund. It is anticipated that
the decrease in STR registrations will decrease overall collections, thereby decreasing the
annual contribution into the Housing Trust Fund by an estimated $25,000 annually. It is
worth noting that the actual decrease in STR’s will be highly variable, and the contribution
may vary by a higher or lower amount. However it is unlikely the STR registration decrease
would be large enough to impact the operating budget.

Question F - Citizen Initiative to Chapter 35 the Portland City Code re: No Cannabis
Cap Campaign
This initiative proposes to modify Chapter 35 of the Portland City Code, Governing the
Regulation of Marijuana Businesses, in two ways: (1) a reduction from 250’ to 100’ in the
required distance between marijuana retail facilities and dispensaries; and (2) removing the
cap on the number of marijuana retail stores and dispensaries in the City.

This ballot question is not expected to have a significant impact on the City’s operating
budget. As of September 2020, the existing cap on marijuana retail stores and
dispensaries had not yet been reached by approved applicants. However, assuming this
ordinance passes any new applicants above the cap would represent new revenue that is
not currently reflected in the City budget at an amount of $500 - $10,000 per license based
on type. These revenues would also be offset by additional expenses related to licensing
and enforcement resulting in an estimated neutral impact to the City operating budget.