Revenue to Fund Essential City Services

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In the 1990s, Measures 5 and 50 took away local control of property tax revenue and artificially capped it. The result of these measures is that revenue has not kept pace with inflation and property taxes are not sufficient to support local government expenses. In August, the Salem City Council will 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.

How much revenue do we need?

To maintain essential city services and to meet the needs of the community in the next several years, the City needs to raise $16.2 million. With this funding, the City will invest in the community's needs for public safety, parks, library, and planning and development services to our neighborhoods. With the additional revenue, the City would be able to add fire fighters, police officers, Library hours, and maintain more parks. Specifically, by the 2022 fiscal year, we could have 22 additional police officers, a new fire station, full funding for the Homeless Rental Assistance Program, two additional planners to further Salem's response to growth and change in our community, and much-needed additional support to our services in the community.

How can the needed funds be raised?

Together, an operating fee and employee-paid payroll tax can help fund needed City services and provide the most flexibility in raising revenue. Revenues generated by this proposal would be dedicated to support General Fund services.

Operating fee proposal

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 use (a single family home could pay a different rate from an apartment building, for example) or be the same for everyone (a flat rate). The operating fee is not be based on the property value.

When: This revenue could be available as soon as January 2020, if enacted by Council. If referred to voters, for a May election, this revenue would be delayed by at least one year.

How: The fee would be collected through City of Salem utility bills.

New Revenue: $7.1 million in 2020 at $8/month on single family residences, $6.40/month for multi-family residential units, and $38.56/month for public, commercial and institutional accounts.

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

Employee-paid payroll tax proposal

Based on a percent of total wages paid, an employee-paid payroll tax would be paid by all employees in Salem's private and public sectors. All members of our community, including those who commute to Salem for work, enjoy the benefit of services provided by the City. Residents share in some of the cost to provide services with property taxes; the more than 60,000 commuters who work in Salem do not. By including commuters, the cost of providing service would be shared by everyone who works in Salem. As our economy grows and more jobs are available in Salem, revenue from this source will also grow.

When: This revenue could be available as early as July 2021, if enacted by Council. If referred to voters, for a May election, this revenue would be delayed by at least one year.

How: The employee-paid payroll tax would be collected by Oregon's Department of Revenue.

New Revenue: $9.1 million in 2022, using a tiered rate structure with most workers paying a rate of 0.39% on income earned within the City limits. At 0.39%, a person working in Salem earning $50,000 annually would pay $195 per year. Employees earning minimum wage would be exempt and those earning a wage up to $15 per hour would pay a lower rate of 0.266%.

Who Else: In Oregon, Lane Transit District (LTD), the Tri-County Metropolitan Transportation District of Oregon (TRIMET), Wilsonville, Canby, and Sandy use the funds for transit services. And the State of Oregon uses 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.

Why are we looking at revenue options now?

The City's financial health is at risk. The City has approved budgets to provide essential services for the past three years and has proposed a budget for next year where expenditures exceed revenues. As a result, the City is rapidly reducing the City's working capital or rainy day fund. This proposal will align revenues and expenditures while maintaining an appropriate level of working capital for City operations.

We must move to align our services with available funding within the next two years, by fiscal year 2022. Without reducing the services we provide our community or adding to our revenue sources, the City's General Fund working capital will be almost gone by June 30, 2022.  We will not have enough resources to fund services for the following year.

  • These are hard choices. If we are unable to raise $8 million within the next two years, we will not be able to continue doing all we do.

  • Without additional revenue, Fire Department response to priority emergency calls within the five and a half minute standard, even after re-opening two fire stations in the last two years, will fall below 70%. The goal is to meet that standard 85% of the time.

  • City Council, in conversation with our community, would provide direction on options for reducing City services. An $8 million reduction to services in the General Fund would be the equivalent of 65 police officers, or five fire stations, or all park maintenance and all the Library services.

Being more efficient helps but is not enough. We are always looking for ways to be more efficient and continue to provide high quality services the community expects. To be good stewards of the resources entrusted to us, we are using technology in new ways and changing the ways we provide services, using more energy efficient products, charging for services that make sense, and engaging volunteers and foundations to support community services.

Background 

Revenues are not keeping pace and community needs exceed available resources. This situation has taken time to develop and is rooted in property tax ballot measures from the early 1990s which capped property tax revenues. As a result, money the City receives from property taxes is not keeping pace with inflation, population and development growth, and the increasing costs of City services.  This year (July 1, 2018 to June 30, 2019), expenses are estimated to be about $5.2 million more than the revenues we take into the General Fund. The General Fund supports Police, Fire and emergency medical services, the Library, operating Salem's parks, and supporting Salem's neighborhoods.

  • As an example, one measure of public safety is officers per 1,000 people in a community. In Salem, officers per 1,000 people is 8% less than it was ten years ago. During this same time span crime rates have increased by almost 22%. The nature of criminal activity and the increasing complexity of investigations have added to the workload shared among fewer officers.

  • In our parks, Salem has grown park lands by 25% and miles of walkways and trails within our parks by 68%. As of 2018, Salem has 14.13 acres of park land per 1,000 residents. Staffing for needed parks maintenance has not kept pace, increasing by three positions (or 8%).

  • In our community, Code Enforcement Offices respond to neighbor complaints of dangerous and problematic properties which can lead to trash, junk, and debris and concerns about public health, safety, and welfare. Calls for help are increasing but, there are 27% fewer staff than 12 years ago.

We have 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 costs of ongoing services, outpaces available funding.

We've restored services. Changes in the economy forced us to make big changes in 2009 and 2013 to the services we were able to provide. We closed two fire stations, reduced library hours, recreation services, and support to neighborhoods. Since then, we've re-opened the two fire stations and have made improvements to services the community expects and values.

Costs of services are increasing. City services rely on people. Costs to provide service have increased as the cost of public sector retirement escalates and as Salem remains a competitive employer in a robust job market.

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

​A 14-member Sustainable Services Revenue Task Force was asked to identify revenue options to sustain services. After looking at details of 13 options, the Task Force recommended two options for General Fund revenues to the City Council. The General Fund revenue options were recommended as methods to fund City services, share cost of service among Salem residents, commuters 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
  • SEDCOR
  • Salem Parks and Recreation Advisory Board
  • Oregon Marshallese Community Organization
  • Latino Business Alliance

The City's General Fund supports public safety, planning, code enforcement, public library, social services, municipal court, parks and recreation, and other services that provide a citywide benefit. In recent years, expenditures to fund essential City services have exceeded revenues received. The City has funded the difference from its working capital account, which is like money in a savings or reserve account. The City's financial health is measured by its ability to align its expenditures with its anticipated revenues while maintaining a fiscally responsible level of reserves.

If the City does not align its spending with its anticipated revenues, the City's General Fund working capital will be gone by June 30, 2022. This alignment can occur by increasing revenues and decreasing expenditures.  Without additional revenue, we will not have enough money to pay for all the services we provide today.