Portland is facing a number of challenges as the city develops a budget for the coming year, including rising inflation, the loss of one-time state and federal funds, and costs associated with opening a new homeless services center.

“The number one challenge on everyone’s minds – on businesses’ and residents’ minds – is inflation,” Finance Director Brendan O’Connell told the City Council during a workshop Monday.

As the city heads into budget season, officials will also consider losses of one-time American Rescue Plan Act funding and $7.4 million in state funding allocated to the city last year to offset General Assistance costs. ARPA funding is expected to decrease by $4.75 million from the $7.5 million in the current budget.

The city budget this year totals $269 million, not including school spending or self-funding accounts for sewer and stormwater operations and the Portland International Jetport. The mill rate is $13.61 per $1,000 of assessed value after a 4.8% combined city and school tax rate increase approved last year.

The city’s current budget for the Oxford Street Shelter is about $5.2 million, but costs are expected to increase by at least $4 million when the city opens a new homeless services center in Riverton this spring. That includes an annual lease increase from $168,000 to $2.5 million – though the city will eventually be able to buy the building for $1 – and a new $1 million contract for meals.

Other challenges include increases in debt service and state property valuation, which could affect how much state funding the city receives through municipal revenue sharing and school funding; a loss of parking revenue from the Portland Landing project on the eastern waterfront; and new costs associated with the clean elections program and tenant protections approved by voters last November.

The Charter Commission estimated it would cost $290,000 to fund clean elections, a mechanism for publicly financing eligible candidates in municipal races, and city staff are requesting four new positions at a cost of $310,000 to help implement the tenant protections passed in the Question C referendum.

O’Connell told the council that the estimated impact of revenue losses and new expenses would be $23 million, though nothing is finalized and there are still many unknowns. “Hopefully this number will be significantly lower,” he said.

Monday’s workshop wasn’t all bad news. O’Connell said the city could also see higher interest rates on investments this year and that hotel costs for the homeless and asylum seekers are decreasing.

In addition, O’Connell said, the city is optimistic about legislative proposals this year, including some focused on General Assistance reform, that could benefit Portland. Opportunities for savings could total at least $2 million, he said.

The budget year starts July 1, and the City Council and city manager over the next few months will review department submissions and come up with final budget figures. The city manager is expected to present her proposed budget to the council in April with final council approval in May.

City councilors and Mayor Kate Snyder said Monday night that they want to stabilize the city budget as federal COVID-19 funds decrease, while trying to address ongoing staffing issues. The city has about 270 vacancies out of a staff of 1,400.

“I look at this coming budget and probably budgets for several years now as rebuilding budgets – rebuilding staff capacity and morale so we’re getting done the things we want to get done,” Snyder said. “I feel like we’re caught between wanting to be aspirational and the need to be prudent and realistic. It’s kind of a hard place but it’s a balance we’ll be working to achieve together in the coming months.”