New Funds are Needed for Valued City Services

April 6, 2020 

Our community is growing, but our funding isn't growing enough to keep up. To keep pace, we need a more balanced way to pay for services.

To maintain current City services and keep pace with our growing community's needs, the City must raise $16.2 million more per year. This money will pay for public safety needs, and much-needed additional support for parks, our library, and other community services. 

Without more funding, the City will struggle to provide services our community has come to expect. In the 1990s, Oregon tax limitation measures capped property tax revenue. As a result, the City's budget has not kept pace with inflation and property taxes are no longer enough to support existing services. After considering options and community input, the Salem City Council proposed to raise this much-needed money in two ways.

Together, these funding sources will help support valued City services. An operations fee will help as soon as February 2020. An employee-paid payroll tax offers a longer-term solution; however, will not be on the ballot in May 2020. By sharing the cost, we will be able to do things like add firefighters, police officers, library hours, and parks maintenance.

Operations fee

The operations fee will be used to continue current services and staffing levels in the near term.

A City operations fee is a separate fee to continue existing emergency, library, park maintenance, social, and other essential services. In Oregon, 50 cities use an operations fee to help pay for city services. This flat fee will be collected through City utility bills based on the type of account (a single family home pays a different rate than an apartment building, for example), not based on property value. Those who qualify for the Utility Rate Relief Program will not pay this fee.

When: As soon as February 2020.

New funds: $7.1 million in 2020 at $8/month for single family home accounts, $6.40/month per unit for multifamily home accounts, and $38.56/month for public, commercial, industrial, and institutional accounts. 

Employee-paid payroll tax - Removed from May Ballot – March 23, 2020

The employee-paid payroll tax will be used to increase public safety staffing to help us prevent crime and prepare for emergencies, respond faster and be there when you need us.

The City Council referred the proposed employee-paid payroll tax to the voters in the May 2020 election. If passed, the employee-paid payroll tax will be dedicated to keeping pace with our community's growing public safety needs.

Based on a percent of total hourly wages, this tax will be paid by all employees in Salem's private and public sectors, with the exception of minimum wage earners. By including the more than 60,000 workers who commute to Salem, the cost of public safety services will be shared by people who live and work in Salem alike. As our economy and jobs grow, funds from this source will grow. Retirement and disability income will not be taxed.

When: The employee-paid payroll tax will not be referred to voters in the May 2020 election.

New funds for public safety: $9.1 million, 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 and including $15 per hour would pay a lower rate of 0.266%.

Estimate your employee-paid payroll tax using this calculator

Why ask for more money now?

The City has restored services cut during the recession. 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, and reduced library hours, recreation services, and support to neighborhoods. Since then, we've re-opened the two fire stations and made improvements to services the community expects and values.

We have stepped in where our community has asked the City to fill gaps. For example, launched in 2017 with $1.4 million from the City, the Homeless Rental Assistance Program has served more than 240 chronically unsheltered people in our community. Traditionally, this valuable work has been outside the City's core service areas. Continuing this commitment, in addition to costs of ongoing services, outpaces available funding.

We must align our services with available funding within the next two years. Without reducing services we provide our community or investing in new funding sources, the City will not have enough money to fund services in the year beginning July 1, 2022.

  • These are hard choices. If we are unable to raise money within the next two years, we will not be able to continue doing all we do. The City Council, in conversation with our community, would provide direction for reducing City services. An $8 million reduction would be the equivalent of decreasing services by 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 while providing high-quality services. To be good stewards of the resources entrusted to us, we are using technology in new ways and changing how we provide services, using more energy-efficient products, charging for services that make sense, and engaging support of volunteers and foundations.

Revenue isn't keeping pace with community need. As we continue to grow, the need for essential services grows. In the past 10 years, Salem population has grown by more than 9%. City services rely on people. Our staffing today is lower than it was in 2008.

  • 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 10 years ago. During this same time, crime rates have increased almost 22%.
  • Salem has grown park lands by 25% and has 68% more miles of walkways and trails within our parks. 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%) and some of the park land is not yet ready for community use.
  • Code enforcement officers respond to neighbor complaints of dangerous properties, trash, and debris, and concerns about public health, safety, and welfare. Calls for help are increasing, but there are 7% fewer staff than 12 years ago.

Revised 12/5/19

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.

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.

Revenue timeline

 Time period Activity
1990sOregon voters approve permanent property tax rates and limits to annual growth in property tax revenue. Costs of providing City services are separated from revenue for those services.  In Salem, these services include police, fire, library, recreation and parks maintenance, neighborhood support.
2009-2013

Salem cuts more than 80 positions from its General Fund budget in response to economic downturn's effect on revenues.

  • Elimination of the Community Services Department
  • Closed two fire stations
  • Reduced library hours
  • Discontinued City operation of two pools
2017-18Reopen Fire station 8, respond to Strategic Plan priorities with Homeless Rental Assistance Program, discontinue General Fund support for Transportation Services Fund.
2018-19Reopen Fire station 11
Fall 2018Revenue Task Force meets to examine 13 revenue options, recommends two options for the General Fund and one for increased transportation funding.
April 15, 2019City Council and Revenue Task Force hold joint work session
June 17, 2019City Council holds work session on operating fee and employee-paid payroll tax
July 8, 2019City Council directs staff to prepare ordinance for operating fee and for employee-paid payroll tax
August 12, 26First reading, public hearing, and second reading of the operating fee and employee-paid payroll tax
2020City maintains current staffing levels with operating fee ($7.1 million)
2022Employee-paid payroll tax ($9.1 million) allows City to maintain current services to keep pace with increased needs and city growth.  Possible examples include increased Police and Fire service, increased library hours and services, and homeless assistance programs
2035Estimated 60,000 more people live in Salem

 

​Since November 2018, when the City's most recent five-year forecast was released, there have been many conversations in our community about the City's financial shortfall.  Now, with an adopted budget which includes all the programs and services the City will provide to the community in the coming year, the financial shortfall is more clear.

In the adopted budget for Fiscal Year 2020 (beginning July 1, 2019 through June 30, 2020), the difference between anticipated revenue ($128.8 million) and expenditures ($139.8 million) or the budgeted shortfall is $10.9 million.  We assume there will be some natural savings over the course of the fiscal year and Council may approve some use of contingency funds for unanticipated expenses.  Savings and unused contingency may be as much as $5.15 million or 3.7% of the total General Fund portion of the budget.  This would leave the City of Salem short $5.8 million for FY 2020.

Fiscal Year 2020 is the fourth year the City has used savings for ongoing expenses.   Without reducing the services we provide our community or increasing the revenue available, the City's funding for police, fire, library and parks will be insufficient to continue current services levels, and many programs will be reduced or eliminated.  

You may have also heard us describe the financial shortfall in several other ways.

  • To meet the City Council's reserve policy, which sets a target of 15% of budgeted revenues in reserves, we would need to end the year with at least $19.3 million.  Without changes to expenses or revenues, we would be below Council Policy by $3.9 million on July 1, 2020, when the new fiscal year begins.

  • To maintain current staffing levels, we would need an additional $7-8 million in annual revenue.

  • To enhance services to meet Strategic Plan outcomes and community need, we would need to raise another $8-9 million, for a total of $16 million in new revenue.

How do PERS (public employee retirement system) and wage-related costs affect the City of Salem?

  • City services rely on employees. 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. 

  • PERS increases are impacting all local governments.  On July 1, 2019 a PERS employer rate increase went into effect, as determined by the State of Oregon, that range from 21.0% to 37.1% depending on the employee plan (referred to as Tier One, Tier Two, OPSRP).  Additional rate increases are expected in the next rate cycle that begins July 1, 2021. There are multiple efforts underway to reduce the PERS obligation on local governments.  In Salem, the City has taken steps to reduce the financial impact of the PERS obligation by issuing a pension obligation bond.  Use of the bond lowered the City's PERS expenses.   At the State level, efforts to reduce the PERS liability are ongoing. The latest reform attempt is Senate Bill 1049. There is litigation pending against this bill and it isn't clear the amount of relief this reform effort will provide or when it may be enacted.

  • Public budgeting is complex.  For the best comparisons, compare the FY 2019 adopted budget to the FY 2020 adopted budget to see the real budgeted increase from year to year.  (The variance between the last year's actual estimate (Fiscal Year (FY) 2019 actual estimate) and this year's budget (proposed FY 2020 budget) seem particularly large.  This is because the FY 2019 estimate does not account for spending that did not occur due to position vacancies. 

  • The two major drivers of the year-over-year increase in employee costs are an increase of $3,062,390, or 17.1%, for Public Employees Retirement System and an increase of $1,355,980, or 2.5%, for base wages.  The PERS increase alone represents 58.1% of the total $5,268,140 year-over-year increase in employee costs.  The difference in the PERS employer rates from the FY 2019 adopted budget to the FY 2020 adopted budget is $2,853,770 or 26.0%. This is due to a PERS employer rate increase, as determined by the State of Oregon, that range from 21.0% to 37.1% depending on the employee plan (referred to as Tier One, Tier Two, OSP).

​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.