The cost of keeping Salem’s firefighters at the ready, roads in good repair and water flowing to city taps is outpacing city revenue at an unsustainable pace, city officials said Wednesday.
City officials will spend the next six months attempting to balance a budget for 2024 while facing a loss of federal Covid funding that has helped bridge gaps.
During Wednesday’s budget committee meeting, chief financial officer Josh Eggleston presented the city’s five-year financial forecast that spelled trouble for the general and transportation funds. Both will run out of reserves by 2028 as spending continues to outpace revenue.
The city’s general fund pays for most core city services, including police and fire. The transportation fund pays for streets, traffic signals, bridges and sidewalks. The two account for 25% of the city’s overall 2023 budget.
City Manager Keith Stahley said that the city’s top priority before it adopts the budget this summer is to plan for fiscal sustainability.
“Over the past 10 years, council and staff have done a remarkable job in stitching things together, making do and finding workarounds. I think we’re beyond that point presently,” City Manager Keith Stahley said. “We can’t work smarter, or do more with less any longer. That well has gone dry. We literally have wrung this system and organization dry.”
During the meeting, the city focused on three of its 25 total funds: transportation services, utility and general. Of the three, utility was the only financially stable one, while the other two were defined as most at risk.
“We can increase our revenues, or decrease our expenses. But we have to do one or the other,” Stahley said.
The forecast, presented by chief financial officer Josh Eggleston, outlined the city’s need to adjust to a growing community while meeting expectations and future needs.
Moss Adams, a consulting and wealth management firm hired by the city, presented its findings at the meeting. Their analysis compared Salem to eight peer cities of comparable size and services, including Eugene.
The firm found Salem’s internal service functions, like human resources and IT, are understaffed, underfunded and at a lower capacity than the other cities. While many cities are facing comparable budget issues, the firm said Salem is unique in the urgency of its five-year timeline.
Emergency and public safety services make up about 59% of the general fund’s expenses. The fund gets over half of its revenue from property taxes.
By law, Oregon cities and counties can raise property taxes at most 3% per year. City officials have repeatedly said that’s not enough to keep up with rising labor and material costs, particularly with inflation high over the past year.
With a baseline that assumes no new staffing or services, the forecast for fiscal year 2024 shows the general fund’s net expenditures at $170.1 million, with revenue at $160.6 million.
The general fund is forecasted to start the 2024 fiscal year with a beginning fund balance of $37.1 million, essentially used like a checking account that will be eaten away at until it goes negative by 2028 if no changes are made.
Eggleston noted that the 2019 city operations fee, which charged single-family homes $8 per month, narrowed the gap between expenditures and revenues. Funds were boosted by one-time federal pandemic relief funding, which is expected to run out in 2024.
Wednesday’s meeting did not discuss potential revenue options in detail, but Mayor Chris Hoy told Salem Reporter on Thursday that several options are on the table.
The city considered asking voters to approve a payroll tax in 2020, but pulled their plans when the pandemic hit.
“The pandemic had just started, and we weren’t sure what was going to happen, and it turns out that was probably a really good move,” Hoy said. “That’s been an active conversation.”
The city is also seeking legislation this session which would give Salem annual state payments to compensate the city for the extra costs associated with being the capital.
Hoy said Salem firefighters and medics respond to over 3,000 calls annually to state facilities, primarily prisons and the Oregon State Hospital. The city also loses out on property tax revenue because a high percentage of land is state-owned and thus tax exempt.
Salem’s transportation fund, also at risk, is forecasted to have expenditures of $19.1 million that outpace its revenues of $17.9 million. The fund’s balance of $6.37 million is projected to run out around 2028, when the fund will go negative.
During the meeting, the committee briefly discussed a potential fuel tax, which would be brought to voters if pursued.
That was one suggestion made by a 2018 city task force which explored options for increasing revenue and balancing the budget. The task force’s projections found a 6 cent per gallon tax would provide around $4.8 million annually.
“Which, for the transportation fund, is a significant amount of money,” Eggleston said.
Salemites can now try their hand at balancing the city’s budget themselves with a newly launched online tool, called the Transparent Reporting and Analytics for Residents Portal.
The site, which staff introduced at the meeting, allows users to evaluate the city’s annual scorecard, budget and performance and try hypothetical changes to the data including revenue options.
The next step for budget planning is a council policy agenda work session on Jan. 17. The budget committee’s next meeting will be April 19, with several meetings before the budget adoption deadline in June.
“Our tax system is broken in Oregon. And the way we fund municipal governments is broken and revenue doesn’t keep up with the growth,” Hoy said to Salem Reporter. “And so we have to do these creative things to try to find more revenue to deliver the services that the community needs.”
Contact reporter Abbey McDonald: [email protected] or 503-704-0355.
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Abbey McDonald joined the Salem Reporter in 2022. She previously worked as the business reporter at The Astorian, where she covered labor issues, health care and social services. A University of Oregon grad, she has also reported for the Malheur Enterprise, The News-Review and Willamette Week.