Performance Audit of the 2020 Parks Local Option Levy

[1] Additionally, before expenses are loaded into the model, PP&R has an annual process to review and narrow down eligible expense categories to ensure that ineligible expenses are filtered out. 

[2] Compression is a property tax effect that limits the amount of revenue that can be collected from levies.

Levy Funds Were Spent in Compliance with Measure 26-213

With over $239 million in Levy funds estimated to be collected over a five-year period, the City of Portland has the opportunity to fund many PP&R services and programs pledged in its measure. To ensure funds were spent for intended purposes, we reviewed how PP&R used funds and tested a sample of expenses for alignment with the measure. We found that use of the Levy funds complied with measure commitments and requirements, including spending funds on operating expenses and providing an allocation of funds to the Portland Children’s Levy. 

Levy Spending Started Slow, but Funds Appear Likely to be Spent in the Five-Year Collection Period

The measure estimated that an annual average of over $47 million in Levy funds would be collected in the five-year period from FYs 2021-22 through 2025-26, totaling over $239 million. In the first three years, the City received $145.1 million, which is over $6.4 million more than the estimated $138.7 million that had been expected in that period. The Levy collection period lasts five years, and no requirement exists on when funds must be spent by. Spending started off slow, which can be attributed to the “start-up” efforts and hiring challenges in preparation to use the newly available funds, including the process for creating new positions, and securing the proper workspaces and supplies to perform the work. While the City anticipated receiving and expending approximately an average of $48 million per year, it expended 43 percent of the Levy funds generated in the first year, 54 percent of the Levy funds generated in the second year, and 98 percent of the Levy funds generated in the third year, as illustrated in Exhibit 3. PP&R anticipates expenses to outweigh revenue in FYs 2024-25 and 2025-26; Levy funds collected but not spent in the first and second year will be used to deliver services in the latter years of the Levy. Exhibit 3 shows a comparison of Levy funds estimated to be received, actuals received, and actual funds used in the first three years of the Levy.

Exhibit 3. Comparison of Levy Revenues Estimated, Received, and Used, FYs 2022 through 2024^A

Use of Levy Complied with Measure Commitments and Requirements

Measure 26-213 was approved by Portland voters in November 2020. The measure language pledged that the Levy would prevent ongoing reductions to PP&R services and recreation programs, preserve and restore park and natural area health, and center equity and affordable access for all. To meet this objective, the ballot summary stated that Levy funds would be used on a variety of services and programs in service of five broad statements related to enhancement and preservation of parks, providing services and providing opportunities to diverse populations, preventing cuts to programs, and enhancing park maintenance. The measure also stated that a five-member oversight committee would be established to review Levy expenditures, provide annual reports, and that an independent audit would be required. 

In addition to the summary in the ballot measure, there were other guiding criteria such as the Impact Statement for Requested Council Action and Resolution 37498^[3] that detailed requirements tied to the Levy. While much of the language in the Impact Statement and Resolution is the same as the ballot itself, the Council resolution imposed an additional requirement on the Levy specifically to mitigate potentially adverse impacts that an approved Parks Levy could have on the Portland Children’s Levy—this is discussed further below. 

As shown in Exhibit 4, our review found that Levy funds were used to comply with each pledged statement in the voter-approved ballot summary.

Exhibit 4. PP&R Compliance with Levy Ballot Summary

Source: Measure 26-213 and Resolution 37498

[3]The City of Portland defines a Resolution as a formal document by which the Council declares City policy or directs officers or Bureaus to take specific action and requires formal vote to be adopted. An Impact Statement is a required document for all ordinances, resolutions, and reports submitted to Council that presents background information, financial, budgetary, and community impacts. 

Levy Funds were Used for a Variety of Operating Expenses, in Compliance with the Levy

Resolution 37498 expanded on how Levy funds should be used in support of the commitments listed in Exhibit 4. Under ‘Purposes of Revenue’, it describes the types of parks and recreation purposes the funds can be spent on. Some specific examples are listed including summer camps, cleaning and opening restrooms, safety checks on play equipment, litter removal, as well as administration costs related to marketing, outreach, personnel, equipment, vehicles, contracts, and other bureau overhead costs. The Resolution language provides the City flexibility to use funds on any expense other than direct capital construction, such as constructing new facilities. PP&R has an approach it uses to vet and filter the allowability of Levy expenses.

Levy annual reports show that most Levy funds were used on personnel costs, with 75% of Levy funds spent on personnel in FY 2021-22, and 88% in FY 2022-23. ^[4] To understand what types of non-personnel expenses PP&R charged to Levy funds, we reviewed 60 non-personnel expenses totaling $2.5 million over our review period. Expenses included swimming pool materials, utility bills, pavement maintenance, sign language services, junk removal, radio services, vehicle purchases, vehicle depreciation, property tax, and more. We found that all expenses were eligible and compliant Levy expenses. ^[5]

We found no evidence that the Levy funds were used for any purpose other than those authorized by the measure. All the reviewed expenses may be categorized as operating expenses in that they support operations of some program or service, directly or indirectly, such as by funding certain tangible services to the public—such as swimming lessons, clean park restrooms, or planting new trees. The administrative expenses that support those tangible services are reasonable. Thus, the use of Levy funds on such operating costs translates into the tangible outputs of services and programs described by PP&R in its annual reports. 

In this way, PP&R’s use of the Levy funds complied with the measure.

Annual Compression Allocations of Levy were Sent to the Children’s Levy 

In Oregon, compression is a property tax effect that limits the amount of revenue that can be collected from property tax measures, on a property by property basis. With the passage of a new local option levy, other existing local option levies may see reduced revenue due to compression. The City forecasted that the Children’s Levy would be most impacted if the Parks Levy passed because local option levies are the first line items in the tax bill to be subject to compression. As such, in Resolution 37498, the Portland City Council approved the decision for an allocation of the Parks Levy to be transferred to the Children’s Levy to offset compression. 

PP&R worked with the Children’s Levy staff to agree on a methodology for calculating the appropriate amount that should be transferred to the Children’s Levy. In fact, PP&R engaged a third party, Portland State University, to calculate the annual appropriation. PP&R transferred $380 thousand and $350 thousand to the Portland Children’s Levy in FYs 2021-22 and 2022-23, respectively, in compliance with the Resolution. 

PP&R Established An Effective Framework to Track Levy Funds

In addition to ensuring that the Levy is used for intended purposes, it is critical that funds can be tracked from receipt to expenditure. Our review found that Levy dollars are clearly and accurately tracked, with reported revenue and expenditures agreeing with underlying financial records. Further, PP&R had a framework in place to administer the Levy and demonstrated its commitment to continually seek improvement and strengthen its practices.

Levy Dollars were Clearly and Accurately Tracked

As a voter-approved funding source with restricted allowable uses, it is important that Levy funds are maintained separately from other monies and all activity is clearly tracked. Our review found that there is clear financial tracking in place to ensure that Levy funds received and spent are accurately documented and accounted for. 

While PP&R administers the programmatic management of Levy fund use, it is not the only department involved in the handling of Levy dollars. As a property tax, Levy dollars are first collected by Multnomah County and distributed to the City. The City’s Bureau of Revenue and Financial Services organizes these dollars and posts them to SAP, the City’s enterprise accounting software and system of record. ^[6] As a special revenue source, Levy funds are kept in its own separate fund. PP&R examines the receipt of Levy funds and utilizes the figures in its internal funding model to determine how it will use those funds. No funds are actually spent until the end of the fiscal year, when PP&R submits a transfer request to the City’s central accounting team to transfer Levy funds to reimburse eligible and allowable expenditures made out of the General Fund. ^[7] 

With multiple departments involved in processing the Levy funds and all activity recorded in the financial system, an audit trail exists to follow funds from start to finish. Exhibit 5 summarizes this process.  

Exhibit 5. Process from Levy Receipt to End Use

PP&R is responsible for determining how Levy funds should specifically be used. As described in the Introduction of this report, PP&R uses an internal funding model to make this determination. The model generates a list of expenses that the Levy funds will be used for as its output. The list of expenses has identifiers tying the line items to accounting records in SAP. When PP&R submits its transfer request to central accounting at the end of the fiscal year, it provides this list of expenses. City-wide central accounting uses that list to transfer Levy funds to pay for those expenses. These detailed documents are maintained by PP&R as a record of the process employed. 

In this way, PP&R can trace how Levy funds were used down to the line-item level. In fact, it is by this methodology that auditors were able to trace and test line-item expenses tested from the total Levy amounts spent to assess compliance with the Levy. The combination of detailed line-item record keeping as part of the model, and the overall recording of Levy funds from receipt to final expenditure transfer in the financial records provide assurance that Levy funds are clearly and accurately tracked. 

[6] SAP or Systems, Applications, and Products in Data Processing, is an enterprise application software.

[7] Levy funds are only used on a reimbursement basis at the end of the fiscal year. Levy funds are transferred to the PP&R General Fund to reimburse the amount of eligible expenses. 

Reported Levy Revenue and Expenditure Data Tie to Underlying Financial Records

With the Levy functioning as a supplementary funding source to PP&R’s budgeted General Fund allocation, we reviewed the accuracy and consistency of reported Levy revenue data against financial records and audited financial reports and found that publicly reported Levy revenues and expenditures in PP&R’s annual reports agree with what is reported in audited financial statements (the City’s Annual Comprehensive Financial Report), and underlying financial records. This is illustrated in the exhibit below. 

Exhibit 6. Levy Dollars Received and Used

Fiscal Year	Amount Type	PP&R Annual Report	City Annual Comprehensive Financial Report	PP&R Internal Funding Model 1	Financial Records
FY 2021-22	Revenues	$44.69 million	$44,687,419	NA	$44,687,419
	Expenditures	$19.11 million	$19,105,009	$18,725,046 + $379,962 sent to the Children’s Levy = $19,105,009	$19,105,009
FY 2022-23	Revenues	$47.99 million	$47,987,647	NA	$47,987,648
	Expenditures	$25.82 million	$25,820,644	$25,470,402 + $350,242 sent to the Children’s Levy = $25,820,644	$25,820,644

Source: FYs 2021-22 and 2022-23 Parks Levy Annual Reports, City’s Annual Comprehensive Financial Reports for Year Ended June 30, 2022, and Year Ended June 30, 2023, PP&R’s funding models, SAP
Note 1: The model is used to determine the calculation of Levy funds to apply to eligible expenses. Because it focuses on the expense side, the amount of actual Levy funds received and available are not applicable in the model. Similarly, the Children’s Levy amount is calculated outside of the model by Portland State University. The amounts transferred to the Children’s Levy reflected in the exhibit are from SAP.

Framework Exists to Administer the Levy

In addition to financial tracking mechanisms, PP&R has developed a framework to administer the Levy. Specifically, PP&R has dedicated staff overseeing day-to-day management of the Levy, established policies and procedures to guide their work, and demonstrated efforts to apply lessons learned in pursuit of continuous improvement. Though this does not guarantee elimination of all risk of errors or misuse of Levy funds, the existing framework and PP&R’s commitment to continuously improve provide assurance that Levy funds will continue to be tracked and managed with integrity.

Some of those positive efforts include:

• Hiring a full-time Levy Coordinator whose position has formal responsibilities to ensure timely and accurate management and reporting of the Levy.
• Developing policies, procedures, and protocols including but not limited to a methodology for vetting eligible Levy expenses and pursuing alignment with the measure, instructions on preparing and executing the funding model, and a checklist of cyclical activities needed to be completed each year.
• Maintaining detailed documentation of lessons learned and subsequent action steps taken.
• Engaging an external consultant in January 2024 to review PP&R’s financial processes and internal controls over the Levy. ^[8]

Still, some inherent risks exist that the Levy could be used on unallowable expenses. For instance, in determining eligibility, PP&R staff rely on expense data coded by other City staff. As such, there is a risk that potentially miscoded expenditures could relate to an unallowable expense, such as a capital project, but we find this risk to be relatively low and beyond the scope of this review. The proper coding of expenditures falls within the scope of internal control testing conducted during the City’s annual citywide external financial audits. 

Another risk is human error. In the eligibility determination process, there is some degree of professional judgement that PP&R staff must use in making decisions on what expenses are allowable and meet the intent behind the measure. Errors may occur here as personal judgements are applied. Further, because PP&R uses an Excel-based model, there remains the potential for human error as data is imported, manipulated, and analyzed. But for both scenarios, PP&R has endeavored to regularly revisit practices and update protocols as lessons are learned on what can be improved, and has developed a procedure for correcting errors as they are identified in response to lessons learned when they first implemented the process.

Overall, PP&R has an established an effective framework for administering the Levy, and has demonstrated its commitment to continually seek improvement and strengthen its practices. 

[8]The review found that PP&R had a good system of internal controls over financial processes, though a few recommendations were made to bolster existing efforts such as improving policies and procedures, establishing an escalation path for errors, and safeguarding documentation.

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Appendix A. Management's Response

December 4, 2024

To: Sjoberg Evashenk Consulting, Inc.

From: Adena Long, Director, Portland Parks & Recreation

Subject: Management Response to Performance Audit of the 2020 Parks Local Option Levy

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Portland Parks and Recreation (PP&R) hired Sjoberg Evashenk Consulting, Inc. (SEC) to conduct a Performance Audit of the 2020 Parks Local Option Levy (Parks Levy) as promised in the ballot measure language. On behalf of PP&R, I want to thank your firm for the work you have completed and for the opportunity to respond to the audit.

We are pleased to see that SEC recognized the strong framework and mechanisms PP&R developed to ensure transparent management of Parks Levy funds. We were encouraged that SEC found the Leveraged Funding Model to be auditable, with Parks Levy dollars clearly tracked and supporting the Parks Levy commitments approved by voters. As an operating levy intended to be supplemental to PP&R’s General Fund allocation, we have been intentional about spending Parks Levy funding last. We appreciate SEC’s confirmation of this structure and implementation.

The Parks Levy is a crucial source of operating funding for the bureau to deliver critical services for the Portland community. Responsible stewardship of this valuable revenue stream is essential to connecting Portlanders with accessible programs and clean and safe park spaces. 

Beyond compliance with the ballot language and commitments, PP&R celebrates the impact of Parks Levy funds on programs, services, and activities that Portlanders love. With the Parks Levy, PP&R has reduced cost as a barrier, providing $4.17 million in financial assistance, over 600% more than before to the Parks Levy, to nearly 18,000 people in Year 3. The Parks Levy has also increased the daily care and maintenance of parks and PP&R facilities. The added critical capacity and support to remove litter 
and waste, clean restrooms, maintain assets and landscaping, and improve the health of natural areas. New initiatives like Schools to Pools, Community Partnership Program grants, and the Park Tree Maintenance Plan would not be possible without the Parks Levy. 

Finally, successful delivery of Parks Levy commitments would not be possible without dedicated PP&R staff. We are grateful to staff across the city who run beloved programs, keep parks clean and safe, repair and maintain operating facilities, and engage Portlanders in a vibrant parks and recreation system. 

We thank you for your thorough evaluation of the Parks Levy’s adherence to ballot language and financial systems and statements.

Sincerely,

Adena Long

Director, Portland Parks & Recreation