The city of Salem is considering increasing fees on 70,000 residents and businesses and imposing a new payroll tax on workers to address what officials say is a budget deficit set to drain the general fund in less than two years.
Without more tax revenue, the city may “not be able to continue providing essential city services” including current police and fire staffing, according to a staff report.
The staff report describes the need for at least $25 million more per year. That would cover costs for some current city services but also expand them, such as adding community policing and funding staffing for a new fire station.
The move to hike city revenue comes five months after Salem voters approved a $300 million bond to be repaid by local property taxes.
Josh Eggleston, the city chief financial officer, detailed options for the Salem City Council in a nine-page memo that councilors discussed on Wednesday during a work session. They took no action, instead asking for more information on his proposals.
READ IT: City revenue increases
He said that without more revenue, “we will not have enough resources to fund services” starting with the city budget year that begins July 1, 2025. He said the proposal is intended to avoid cuts to “critical community services,” and create a sustainable funding source.
During the work session, councilors discussed potential amendments to the plan, in advance of its presentation to the budget committee who would consider adopting it in June.
The city operations fee increase could show up on utility bills starting July 23.
Eggleston proposed referring the payroll tax to voters during the November election, but some councilors said the city council could proceed without such a vote.
“What happens if we do all this, put all the money into it, refer it to the voters and it fails? What do we do?” Councilor Micki Varney said.
The city would look into cuts, Stahley said. Mayor Chris Hoy later added that the council would either cut services or more modest revenue proposals.
“I would say the second worst thing is getting your taxes raised, but the worst thing is paying them and then not feeling that you’re getting what you’re paying,” Councilor Jose Gonzalez said.
Councilor Linda Nishioka asked if the payroll tax would have to go to the voters, or the council could implement it. Councilor Trevor Phillips asked what consequences would be for such direct action by the council.
The new tax would not have to go to the voters initially, Stahley said. He noted that Eugene implemented a payroll tax by council action.
Eggleston’s memo outlined a 60 percent increase in the “operations fee” charged monthly on city utility bills. The city already increased that rate in January 2022 and again last January.
The monthly fee for about 40,000 homes would go from $8.93 to $14.43, adding $66 a year to the home’s bill.
The monthly fee for 3,000 commercial customers would go from $43.03 to $69.55, or an additional $318 a year.
That fee increase would give the city an additional $5 million to add two code enforcement officers, two park rangers and expand the Salem Outreach and Livability Services Team to seven-day-a-week operations from its current five.
Eggleston also outlined a new payroll tax that the city council can impose on its own or send to voters for approval.
He listed three rates, showing how much money would be raised, ranging from $20 million to $27.5 million. At each option, he listed what new services the city could afford.
He said a city measure could go to voters in November and if approved, the new tax would go into effect in January 2025.
Eggleston said the revenue steps are intended to stave off looming budget troubles for the city.
He said the two steps would allow the city to keep up services it has added in recent years and expand some of them. That includes covering the costs for facilities that will be built by the $300 million infrastructure bond.
The city’s general fund pays for most core city services, including police and fire, parks and recreation, the library, code enforcement, land use planning, social services and the municipal court. City councilors also dip into the general fund for projects, like the $2.4 million transfer for Salem Municipal Airport improvements they approved in January.
Eggleston reported that by June 2025, the general fund is predicted to have a $17 million deficit. At that point, there will be no money to cover payroll on existing essential services.
Beyond that gap, the city will need even more funds to continue funding shelter programs, maintain service levels and add programs to address increasing needs.
“If the city does not align expenses with anticipated revenues, we will not have enough money to pay for the services we provide today,” Eggelston’s report said.
A report by Moss Adams, a consulting firm hired by the city, found that several other Oregon cities are facing multi-million dollar deficits. They include Eugene, Gresham, Hillsboro, Bend, Springfield and Corvallis.
These cities are considering cutting services, putting levies to voters and revisiting tax rates, according to the firm.
Eggleston outlined how the city finds itself in a financial predicament.
In a section titled “How did we get here?” he pointed to ballot measures from the 1990s that capped property tax revenue at 3% growth, causing revenue to fall behind inflation.
In 2023, property tax revenue is budgeted to cover 81% of police and fire department services, with the rest of funding coming from fees and other sources.
The report explained that the city has taken on increased responsibilities to provide affordable housing and homeless services.
“Traditionally, this valuable work has been outside the city’s core service areas. This continuing commitment, in addition to ongoing services, outpaces our available funding,” the report said.
But Eggleston’s report showed that most of the new money would be spent on new services, not those already in place.
During the meeting, City Manager Keith Stahley said that new programs would address holes in current services.
“We are not going to be able to solve a 15-year budget problem in one year. This is going to take time, it’s going to take patience. But we have to start now, otherwise we are simply going to have to reduce our level of service down below what really is even sustainable or advisable,” Stahley said.
The increased utility fee would cover $1.6 million in existing services and $3.6 million to expand them. The city would triple what it spends on parking garage security and double spending on code enforcement and park ranger services.
The most modest of three payroll tax proposals would cover $13.7 million in current costs for police and fire and airport security. It also would add community policing at $2 million, provide $2.2 million for more firefighters and fund $1 million for the city’s new Navigation Center.
Collecting a higher payroll tax under a second option could bring in another $3 million that would allow the city to continue supporting the Navigation Center, and three micro shelter sites, which it paid for with now-depleted emergency federal funding.
At the lowest priced option, the future funding of the support services would fall to the city’s community partners, who would have to reduce or close operations of the sites if they can’t find other funding.
At the highest tax under the options, the city would fully fund the operation of the sites.
The proposals allocate $7 million to sustain current levels of operation at the police department, with an additional $2 million marked for “community policing.”
During the meeting, Police Chief Trevor Womack said that he would add 12 or 13 employees for a community policing program who would likely be focused downtown. Their main role would be collaborating with community groups, neighborhood associations and businesses to “try to solve problems in those areas.”
The infrastructure bond passed in November included money to build a new fire station, but the city has no funding to operate it.
The proposed payroll tax options would allocate $4.2 million for current fire staffing and provide an additional $2.3 million to hire 14 more people.
During the meeting, Councilor Vanessa Nordyke said that she supports the highest tier of taxes, and would like to see $300,000 allocated to county crisis response teams.
“There is no such thing as public safety without addressing our neighbors who live on the street. It’s a very dangerous place for them to live,” she said. “Especially when we have extreme heat, extreme cold, all the things, plus worse than normal exposure to crime.”
Nordyke also asked Eggleston to recalculate the payroll tax to exclude low-paid employees.
“I’m not comfortable with minimum wage employees paying a payroll tax. Even if it’s the lowest amount on that list, you are living paycheck to paycheck if you are on minimum wage. The same is arguably true for anyone getting paid $15 a month,” she said.
Under the lowest option tier of the payroll tax, minimum wage employees making $13.50 an would pay around $11.47 more per month in the new city tax. People making Salem’s median household income of $29.90 an hour would pay $23.39 per month.
Under the highest tier, minimum wage workers would pay $15.44 per month, and those making the average wage would pay $34.20.
Eggleston said exempting those making minimum wage would require even higher payroll tax on the rest to raise the money the city is projecting.
This story was updated to include additional quotes from the Wednesday work session.
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.