The City of Salem’s FY 2026 – FY 2030 financial forecast predicts a $13.8 million budget shortfall expected for the upcoming Fiscal Year 2026 budget.  The Fiscal Year 2026 is set to begin July 1, 2025 and end June 30, 2026.  In each of the next four years, the forecast shows the gap growing, largely due to inflationary pressures and cost increases across our economy, including employee salaries, retirement, benefits, and other ongoing expenses.

Salem’s Budget Committee will consider this updated five-year financial forecast at their January 15, 2025 meeting.  The gap in the City’s General Fund has narrowed from the October 30, 2024 preliminary estimate of $17.7 million to $13.8 million with input from a Forecast Review Team, and further modifications to reflect better, available information.

“The forecast continues to show a difficult financial path ahead for Salem’s General Fund. While we still have a lot of work to do, I’m grateful for the community interest, time, input, and care as we consider our options to bring spending in-line with available revenue,” says Keith Stahley, Salem City Manager, “While we work to set the priorities of the budget, all city employees continue to be ’at your service‘ to the residents of Salem.”

Next Steps:

• By April 2025, the City Manager will propose a budget with the Budget Committee’s principles and priorities in mind that aligns available revenues and expenditures to balance the budget. The FY 2026 Budget will be presented to the Committee for their review and input at meetings in April and May.
• The Budget Committee will continue to refine the budget and recommend a budget to the Council for their consideration and adoption in late June.
• City Council may choose to place a levy on the ballot to ask our community to help support service delivery.

What is the five-year financial forecast? 

 The forecast is a planning tool to help the City Council and Budget Committee understand future financial trends to inform decision-making about service delivery to the community.  The forecast models expected revenues and expenditures for a five-year period for current City services provided by employees to improve our residents’ quality of life. 

Why do we forecast? 

 A forecast is an educated, good faith estimate of what our financial conditions may be in the future.  It captures a point in time and is a useful tool for revenue and expenditure planning. 

Looking ahead five years and estimating our revenues and expenses is an important financial best practice for our credit rating.  The City’s credit rating helps keep borrowing costs low when voters approve bonds for larger expenses like the 2022 Community Safety and Livability Bond. 

Why a Forecast Review Team? 

 The City Manager convened a Forecast Review Team to provide a collaborative platform for community members and Budget Committee members to review the reasonability and reliability of the City of Salem's Preliminary General Fund Five-Year Forecast. The team evaluated underlying assumptions, methodologies, and data sources, recommending adjustments that reflect a reasonable and defensible financial outlook.

The group met five times from November to January and recommended the City Manager adjust two assumptions, in favor of more aggressive assumptions regarding (1) returns from property taxes and (2) savings from salaries, and materials and services to align with recent experience. These recommended changes do not affect community services, assuming property tax returns and savings meet adjusted expectations. 

Specifically, the group recommended the following adjustments to the forecast:

• Increase current-year property tax growth from 4.1% annually to 4.35% annually
• Decrease the Cost-of-Living Adjustment (or COLA) assumption for all employees in FY 2029 and FY 2030 to 2.5% and 2.0%.
• Anticipate savings rate for personal services (positions) and materials and services will be 5% in FY 26; 5% in FY 27; 4% in FY 28 instead of 4%, 4% and 3%.

  The group also recommended the City:

• Continue to pursue efficiencies and cost saving activities such as the use of technology, contracted services, and proactive engagement with the State and counties to reduce the burden of responding to the impacts of homelessness on City services among other things.
• Continue to pursue a Payment in Lieu of Taxes (or Capital District) from the State.
• Consider closing (or cease tax increment collections) for the Mill Creek and North Gateway Urban Renewal Areas.
• Develop ideas for potential cost savings and efficiencies in the Fire Department General Fund budget, as the City begins staffing ambulance service.

How can I follow the City’s Budget and Budget Committee?

The Budget Committee begins its work in April 2025.  The Budget Committee is, made up of the Mayor, City Councilors, and nine community members. All City of Salem Budget Committee Meetings are public and take place at the City’s Council Chambers, 555 Liberty Street SE, Salem, OR 97301. See our website for scheduled meeting dates.   You can also watch on YouTube at https://www.youtube.com/@CCMediaSalem

• Budget Committee Meeting - April 16, 2025
• Budget Committee Meeting - April 23, 2025
• Budget Committee Meeting - April 30, 2025
• Budget Committee Meeting - May 7, 2025

About the General Fund:

The General Fund is the principal operating fund of the City. Approximately 80% of the General Fund's expenses are for employees who provide services to the community.

Services in the City’s General Fund include:

• Police (emergency police response, criminal investigations, graffiti removal, traffic safety and enforcement)
• Fire (fire protection and medical response)
• Community Services (library, Center 50+, parks and recreation, neighborhood association support, health and safety in public spaces)
• Community Planning and Development (City code and parking enforcement, land use and planning review, downtown and economic support)
• Finance (accounting, billing, budgeting and financial reporting, and Municipal Court)
• City Manager’s Office (develop and execute City goals, communications, City Council support)
• Legal (general counsel, litigation, prosecution)
• Enterprise Services (information technology support, talent acquisition, people management, payroll, building maintenance and services)

How did we get here?

Since Oregon instituted Measures 5 and 50 to set a permanent tax rate and limit the annual growth of property taxes, revenue in the City’s General Fund has increased at a slower pace than expenses.  The City has not been able to increase revenue sufficiently to support the current level of services provided to the residents of Salem.

What is the City doing?

During FY 2024, the City Council reduced 6.35 positions and operating hours at the Library as well as 4 positions in the Police Department.

Last year, the Salem City Council approved service reductions in the FY 2025 General Fund budget totaling more than $3.8 million and included:

• $278,000 Parks Operations
• $400,000 Grants for Social Services
• $625,000 Grant to Salem Housing Authority (SHA)
• $257,000 Center 50+ and Recreation Services
• $850,000 Deferred equipment replacement
• $430,000 Reduction in Materials and Services
• $112,790 Department Directors - No Cost of Living Adjustment (COLA)
• $410,000 Unsheltered Support Funding (alternative funding source)
• $224,000 Youth Development Program (transitioned to Substance Use Prevention program with alternative funding)

The City of Salem is continuing to be proactive in finding a solution to this issue by:

• Engaging in auditing and oversight to ensure cost savings and accountability.
• Looking for further budget cuts to programs, operations, or positions when possible.
• Examining potential increases in user fees for select programs to fund operations.
• Listening to the community for their insight and feedback.

Over the next several months, Salem will continue to share information on the budget process and provide full transparency about the preferences and priorities established by the City Council and Budget Committee on behalf of the City.

The community is invited to learn more about this issue by visiting The City of Salem’s Website (www.cityofsalem.net/servingsalem) and taking an online survey to help us better understand how to share information with our residents about our shared budget priorities.