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Public Works -- Intro

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City of Portland Fiscal Year 2026-27 Proposed Budget Public Works Overview The Public Works Service Area includes four of the City’s largest and most operationally complex bureaus: the Bureau of Environmental Services, the Portland Water Bureau, Portland Parks & Recreation, and the Portland Bureau of Transportation. Together, these bureaus represent over half of the City’s total budget, nearly half of its workforce, and more than 95% of its built assets. Collectively, the Public Works bureaus deliver the infrastructure systems that Portlanders rely on every day: water, wastewater and stormwater management, transportation networks, and parks and natural areas. These systems function as a coordinated and interdependent network that supports public health, economic vitality, environmental quality, and overall livability. Inadequate maintenance or investment in these systems can result in service disruptions, increased long-term costs, regulatory risk, reduced system reliability, and potential impacts to public health and safety. Mission and Bureau Roles The Service Area is organized around a shared mission: to steward the infrastructure and natural systems that Portland depends on, delivering safe, reliable, and equitable services today while protecting the city's long-term resilience. Each bureau fulfills a distinct role within this system: The Bureau of Environmental Services manages wastewater and stormwater infrastructure to protect public health and environmental quality, while leading restoration efforts across Portland’s watersheds. The Portland Water Bureau provides high-quality drinking water to nearly one million people, protects and maintains two drinking water sources including the Bull Run Watershed, and manages associated hydroelectric operations. The Portland Bureau of Transportation plans, builds, operates, and maintains a multimodal system that enables safe and efficient movement of people and goods. Portland Parks & Recreation stewards parks, natural areas, facilities and programs to support healthy community and environment. While these roles are distinct, the bureaus operate as an integrated system requiring coordinated planning, investment, and maintenance to achieve Service Area outcomes. Forecasted Budget Gap The Public Works Service Area does not face a single consolidated financial gap; rather, each bureau faces distinct but related structural imbalances between ongoing revenues and expenditures. Across the Service Area, these imbalances are driven by a combination of declining or constrained revenues and increasing costs. The scale of these gaps varies by bureau: The Portland Bureau of Transportation faces an ongoing structural shortfall of approximately $25 million in General Transportation Revenue. 731

City of Portland Fiscal Year 2026-27 Proposed Budget Portland Parks & Recreation faces both a structural funding gap within the Parks Levy of $7 million and a General Fund reduction target of $8.1 million. The Bureau of Environmental Services and the Water Bureau face pressures to balance operating and capital needs within constrained rate trajectories. The total Operating Budget reductions are about $6.6 million for the two utilities. Drivers of the Forecasted Budget Gap The financial challenges across the Service Area are driven by a consistent set of underlying factors: revenue constraints, cost escalation, and regulatory and policy constraints. Revenue Constraints Declines in State Highway Fund revenues and parking-related revenues impacting transportation funding. Restricted funding sources that cannot be used across systems. Lower System Development Charge revenues. Cost Escalation Increases in central service charges. Rising employee health and labor costs. Inflationary pressures affecting materials, contracts, and operations. Regulatory project cost increases, including Bull Run Treatment Projects Increasing costs to operate and maintain aging infrastructure systems Regulatory and Policy Constraints Legal and regulatory requirements that limit flexibility in reducing services. Required capital investments to meet regulatory and environmental standards. Aging Infrastructure and Deferred Maintenance Many infrastructure systems are at or beyond their expected service life, requiring ongoing maintenance and replacement. Deferred maintenance increases operating and repair costs over time and contributes to long-term cost pressures. Current system condition and maintenance backlog reflect historical funding and investment decisions. Budget Approach To address these financial pressures, the Public Works Service Area applied a consistent decision-making framework across bureaus:

  1. Prioritize Legal and Regulatory Compliance Reductions to legally required services and permit obligations were avoided.
  2. Preserve Core Service Delivery Essential services critical to public health, safety, and system functionality were prioritized.
  3. Pursue Revenue and Efficiency Options First, Where Feasible Bureaus evaluated opportunities for new or increased revenues, operational efficiencies, and cost containment prior to implementing service reductions. 732

City of Portland Fiscal Year 2026-27 Proposed Budget 4. Minimize System Risk Where reductions were necessary, bureaus prioritized actions that minimized near-term service disruption and long-term system risk, recognizing that tradeoffs were unavoidable. 5. Align Decisions with Policy and Community Priorities Programs aligned with Mayor, Council, and community priorities were preserved where possible. 6. Prioritize Affordability Affordability was a key priority in decision making, balancing system needs with financial impacts to Portlanders. This approach ensures that proposed actions are both implementable and transparent, while clearly illustrating the tradeoffs between service levels, financial sustainability, and long-term system performance. How the Gap Was Closed by Bureau Portland Bureau of Transportation (PBOT) PBOT faces an ongoing structural funding gap of approximately $25 million in General Transportation Revenue. The proposed strategy to close the gap includes the implementation of new revenue sources, specifically a Transportation Utility Fee. As Proposed, this fee will generate approximately $23.35M in FY 2026-27 and $46.7M in FY 2027-28 and beyond. Portland Parks & Recreation (PP&R) PP&R faces two concurrent financial pressures: a structural funding gap within the Parks Levy and a General Fund reduction requirement. To develop FY 2026-27 reduction options, PPR’s strategy: Considered alignment with the Healthy Parks, Healthy Portland strategic framework, Parks Levy commitments, Mayor and Council direction, and community priorities. Sought to minimize immediate or significant community impact. Preserves daily care and cleaning in parks, protects programming, keeps all buildings and parks open. Prioritized operational efficiencies over service impacts where possible. These actions are designed to maintain a positive fund balance within the Parks Levy while meeting General Fund constraints. Portland Public Utilities Both utilities face constrained resources driven by cost increases and regulatory requirements. To maintain previously forecasted rate increases, both bureaus identified approximately $3.3 million in reductions each. The bureaus prioritized permit compliance and core operations while implementing reductions in operations and maintenance, planning functions, customer service, and emergency repairs. Impacts to Services, Infrastructure, and Financial Sustainability Across the Public Works Service Area, the proposed budget results in a consistent set of tradeoffs between service levels, infrastructure investment, and financial sustainability. Reductions include lower maintenance levels, longer response times, and reduced capacity in operations, planning, and customer service. In utilities, impacts include reduced preventative maintenance and capacity to respond to system issues, while in parks and 733

City of Portland Fiscal Year 2026-27 Proposed Budget transportation, impacts include reduced programming, facility operations, and maintenance of public spaces. Regulatory requirements remain unchanged, limiting flexibility in where reductions occur. The budget also includes the deferral of some maintenance activities, which affects system condition, may increase long-term repair costs, and places upward pressure on future rates and costs. These impacts are particularly significant for infrastructure systems, where deferred investment compounds over time and increases financial, operational, and compliance risk Conclusion The cost of operating and maintaining large, aging Public Works infrastructure systems is growing faster than the revenues that support them, resulting in a structural gap between expected service levels and available resources. The proposed budget reflects actions taken to address this gap through a combination of revenue adjustments and service level changes, within the constraints of regulatory requirements and system needs. As a result, the proposed budget includes reduced service levels, lower operational capacity, and the deferral of some maintenance activities, which affect system condition, may increase long-term repair costs, and place upward pressure on future rates and costs. Budget Program Expenses 2024-25 Actuals 2023-24 Actuals 2025-26 Revised Budget 2026-27 Proposed Bureau of Environmental $491,698,732 $491,229,203 $500,292,378 $463,451,740 Services Office of Public Works $576,376 $0 $2,703,024 $26,638,506 Portland Bureau of $338,426,795 $310,682,178 $522,291,783 $456,819,546 Transportation Portland Parks & $265,463,382 $248,874,371 $338,876,050 $338,254,801 Recreation Water Bureau $515,501,380 $272,543,800 $858,056,657 $748,052,425 Grand Total $1,611,666,665 $1,323,329,552 $2,222,219,892 $2,033,217,018 734

Parent: Public Works