Salem City Council Considers Options to Raise Revenue

Posted on June 15, 2019

On June 17, 2019, the Salem City Council will hold a work session to consider options for new revenues to support City of Salem services. Without additional revenue, the City will have to reduce services available to our community.

Why is the city looking at revenue options now?

The City’s financial health is at risk. How much the city has left after the bills are paid for the year in the City’s General Fund, the working capital or rainy day fund, is one way to measure the City’s financial health. Salem will not be able to continue doing all it does. Spending more now accelerates the need to cut services or add revenue in the next year.

The city must move quickly to align our services with available funding within the next two years, by FY 2022. Without changes to the services the city provides the community or to our revenue sources, the City’s General Fund working capital will be gone by June 30, 2022 and we will not have enough resources to fund these services.

Being more efficient helps but, is not enough. Salem continues to fine-tune and improve services to the community and reduced costs, moving some resources to new needs along the way. To be good stewards of the resources entrusted to Salem, the city has been using technology in new ways and changing the ways it provide services, using more energy efficient products, charging for services that make sense, and engaging volunteers and foundations to support community services.

How much revenue does Salem need?

1. Fill the gap: $8.2 million by 2020. Additional revenue would provide missing funding for existing services and the City could continue to provide existing services. At this amount, there would be no noticeable change in services and the City would be less likely to eliminate or reduce services available to our community in next year’s (FY 21) budget.

2. Keep pace: $16.2 million by 2022. Fund more services to catch up and meet demand in our community. With added revenue, the City could add, over the next few years, fire fighters, police officers, Library hours and maintain more parks.

How can the revenue target be achieved?

Together, the options can help fund existing City services, be fairly shared among Salem residents and businesses, and provide the most flexibility in raising revenue. These options would provide more funding to meet more of our community needs for public safety, parks and the library, and planning and development services to our neighborhoods. Revenues generated by these options would be dedicated to support General Fund services.

What are the options?

1. Operating Fee.

A City operating fee is a separate fee to support City services. In Oregon, 50 cities use an operating fee to help pay for city services. The operating fee could be based on the type of building (a single family house could pay a different rate from an apartment building, for example) or be the same for everyone (a flat rate). The operating fee would not be based on the value of the property.

When: by January 2020, if enacted by Council. A flat rate for each customer type, the fee could be implemented within six months. With added complexity to the fee amount or application to customer class, the fee could be implemented within a year. It may be possible to sunset the fee in future years, if other revenue sources are available.

How: collected through City of Salem utility bill

New Revenue: $8.2 million in 2020 at $10/month on residential units and $30/month for public, commercial and institutional accounts

Who Else: In Oregon, 50 other cities use an operating fee to raise revenue for municipal services.

2. Employee-Paid Payroll Tax.

Based on a percent of total wages paid, an employee-paid payroll tax could be paid by all employees in Salem’s private and public sectors. All residents – day-time and full-time – benefit from the services provided by the City. Full-time residents share in some of the cost to provide services with property taxes. Day-time residents enjoy the same benefits. Salem is home to more than 60,100 daytime residents who commute to Salem for work. By including those in the public sector, the cost of providing service would be shared by those who commute to Salem for work. As our economy grows and more jobs are available in Salem, revenue from this source will grow to cover some of the cost of growth in services.

When: by July 2021, if enacted by Council or referred to voters in August (for November 2019 special election or May 2020 general election). If not referred to voters, the funding source could be available as early as spring 2021.

How: collected by Department of Revenue

New Revenue: $8 million in 2022 at 0.3% on income for all employed within the City limits

Who Else: In Oregon, Lane Transit District (LTD), the Tri-County Metropolitan Transportation District of Oregon (TRIMET), and the State of Oregon use payroll taxes to help cover costs of services. LTD and TRIMET use the employer paid payroll tax method, while the State of Oregon uses a payroll deduction from employee wages. The City of Eugene is looking at both an employee-paid and an employer-paid payroll tax.

How did we get here?

• Salem is spending more than it is taking in. This year (July 1, 2018 to June 30, 2019), expenses are estimated to be $5.4 million more than the revenues we take into the General Fund to support Police, Fire and emergency medical services, the Library, operating Salem’s parks, and supporting Salem’s neighborhoods.

• Salem has stepped in where our community has asked the City to fill gaps. In the 2017 Strategic Plan, residents looked to the City to do more to provide affordable housing and serve the homeless in our community. 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 City has restored services. Salem made big changes in 2009 to align services with the drop in revenues from the recession, and made further changes again in 2013. Salem closed two fire stations, reduced library hours, reduced recreation services and support to neighborhoods. Since that time, the city re-opened the two fire stations and have continued to make improvements to services the community expects and values.

• Costs of services are increasing. Expenses for our services, which rely on our people, have increased as Salem remains a competitive employer in a robust job market and as the cost of public sector retirement escalates.

• Making what Salem does better and more efficient. The city is always looking at operations across the organization for opportunities to do things more efficiently and continue to provide high quality services the community has come to expect. In the past five years, Salem improved services and reduced costs, shifting some resources to new needs by using technology in new ways, using more energy efficient products, changing the ways we provide services, and engaging volunteers and foundations to support community services. While important, these changes are not enough to bring costs in line with available revenues.

• Revenues are not keeping pace. Revenues from taxes are disconnected from the growth in our community. As more people move here, and as more property development occurs to support Salem’s growing population, the City continues to provide public safety, parks and library, transportation, planning and development services to our neighborhoods. The two primary drivers for more City services, population and development growth, do not generate enough revenue to support the growing needs. This situation the city is in has taken time to develop and is rooted in property tax ballot measures of the early 1990s.

• Other sources of funding are limited to specific services or projects. For example, a portion of State-collected gas taxes helps to pay for streets and bridges. Water fees paid by residents, businesses and other local customers help to pay for new drinking water treatment, equipment, and pipes to get the water to your home and business. And, funds from recent voter-approved bonds for a new police station and upgrades to the Salem Public Library are dedicated only to those projects.

Who recommended these revenue options?

A 14-member Sustainable Services Revenue Task Force was tasked with identifying revenue options to sustain services that provide for a safe, welcoming and livable community, with a strong and diverse economy, a commitment to natural environment stewardship, and safe, reliable and efficient infrastructure. After looking at details of 13 options, the Task Force recommended two options for General Fund revenues and one option for transportation projects. The General Fund revenue options were recommended as methods to fund about $6 to $8 million in City services, share cost of service among Salem residents and businesses, and provide the most flexibility in raising revenue. The group included representatives from:

• Salem City Council and Budget Committee
• Salem 350
• Straub Environmental Learning Center
• Salem Fire Foundation
• Salem Police Foundation
• Marion and Polk Counties Homebuilders Association
• Salem Parks and Recreation Advisory Board
• Oregon Marshallese Community Organization

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Buddy Puckett
Larrys Locksmith
Les Schwab
Capital Auto Group
Day Heating and Cooling
Jackman Wealth Management
Home Comfort