PORTLAND — A potential budget pinch has put the clamps on city discretionary spending, at least until a court dispute over social assistance spending for undocumented immigrants is resolved.

Acting City Manager Sheila Hill-Christian last week ordered freezes on hiring and travel, weekly reviews of staff overtime, and no purchases of more than $1,000 without approval from acting Finance Director Suzanne Knight.

The hirings will be reviewed on a case-by-case basis. On Monday, City Councilors approved the hiring of Dawn Stiles as director of the city Health and Human Services Department.

The freeze extends to any city transportation fleet purchases not included in bonded capital improvement spending, and for now spikes a plan to consolidate Public Services, Fire Department and Traffic Division operations at 212 Canco Road.

Last spring, councilors approved an agreement to occupy and buy the 69,000-square-foot building that previously housed appliance and heating distributor Nelson and Small.

The spending controls come as city officials grapple with the loss of at least $3 million in Maine Department of Health and Human Services reimbursements for general assistance vouchers.

In a worst-case scenario, the city could lose $8.7 million in reimbursements if DHHS cuts off all reimbursements because the city continues to give assistance to undocumented immigrants.

That threat was made by Gov. Paul LePage in June, days after DHHS Commissioner Mary Mayhew announced the reimbursement policy excluding aid provided to undocumented immigrants. In creating the policy, Mayhew cited a 1996 federal law prohibiting assistance for undocumented immigrants.

In a memo to the City Council Finance Committee, Hill-Christian said the city granted $2.55 million in general assistance vouchers from July through September, including $843,000 in aid the DHHS will no longer reimburse.

As it stands now, the city would have surpassed its $2.26 million threshold to receive 90 percent reimbursements from the state in mid-September, Hill-Christian said.

By eliminating $843,000 in aid given to undocumented immigrants in the equation, the city is still at the 50 percent reimbursement level, although it will reach the threshold no later than this month, she said.

City officials joined counterparts in Westbrook and the Maine Municipal Association in a lawsuit last summer to halt the proposed DHHS policy unless it is enacted through the normal department rule-making procedure, including public hearings. The suit also seeks to prevent LePage from withholding all general assistance reimbursements to municipalities giving aid to undocumented immigrants.

On Monday, DHHS spokesman John Martins declined comment on whether municipalities face a complete loss of reimbursements because of the court case.

“The department will continue to act to ensure general assistance reimbursements are distributed in a consistent manner and in accordance with federal law,” Martins said.

The suit is in legal limbo at the moment. Originally filed in Cumberland County Superior Court, the state moved to have it heard in U.S. District Court. No decision has been made on which court will take the case.

“We feel that it’s a state Superior Court case, as we are challenging the way in which the directive was handed down last spring – with no state rule-making process, no public hearings in Augusta, etc,” MMA spokesman Eric Conrad said Monday.

City officials have balked at the DHHS requirement to check immigration paperwork before giving general assistance, saying it could lead to a civil rights lawsuit and exclusion of aid to people who are eligible, but lack documentation for a variety of reasons.

Hill-Christian said aid from July through September has on average gone to 735 people, including 110 families.

General assistance, provided in the form of vouchers for housing, food and personal items, is reimbursed by the DHHS at rates of 50 to 90 percent, depending on how much a municipality provides.

Undocumented immigrants are those who may have overstayed their visas or are in the process of applying for political asylum. Unlike immigrants granted refugee status, undocumented immigrants are already barred from receiving government assistance, including Temporary Assistance for Needy Families.

City councilors have also discussed dipping into available surpluses to make up for lost reimbursements.

In September, city financial adviser Joe Cuetara said the move could have long-term implications, including a reduction in the city’s bond rating.

“It would be a very long road back to get that AA1 rating,” Cuetara warned, although he expects the reaction from bond-rating agencies would first be a warning of a negative outlook.

A favorable court decision or change in city policy that would not threaten future DHHS reimbursements would also alleviate the agency worries, Cuetara said.

David Harry can be reached at 781-3661 ext. 110 or [email protected]. Follow him on Twitter: @DavidHarry8.

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