Revenue to Fund Essential City Services

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. Without additional revenue, the City will have to reduce services to the community, including police and fire services.  After considering many options and input, the Salem City Council has proposed two options for new revenues to support essential City of Salem services.

How much revenue is needed?

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, or maintain parks. Specifically, by 2022, we could have additional police officers and firefighters and much-needed additional support to our services in the community.

How can the needed funds be raised?

Together, an operations fee and employee-paid payroll tax will help fund needed City services and provide the most flexibility in raising revenue. Revenues generated by the operations fee proposal would  support ongoing library, park maintenance, police, fire, emergency and social services, and other essential services. Revenues generated by the employee-paid payroll tax proposal would be dedicated to keep pace with our community's public safety.

Operations fee proposal

A City operations fee is a separate fee to support continued parks, library, and planning and development services to our neighborhoods. In Oregon, 50 cities use an operations 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). The operations fee is not based on the property value. Those who qualify for the Utility Rate Relief Program would not pay this fee.

When: As soon as February 2020.

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 per unit for multi-family residential accounts, and $38.56/month for public, commercial and institutional accounts.

Employee-paid payroll tax for public safety proposal

The City Council referred the employee-paid payroll tax option to fund public safety to the voters for the May 2020 ballot.

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 public safety 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: The employee-paid payroll tax will be referred to voters for the May 2020 election. If approved by voters, the revenue would be dedicated to public safety and could be available as early as July 2022.

How: The employee-paid payroll tax would be collected by Oregon's Department of Revenue on wages earned in Salem (not retirement income).

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

Estimate your employee-paid payroll tax using this calculator.

Why are we looking at revenue options now?

Meeting the needs of the community has put the City's financial health is at risk. Recurring expenditures exceed recurring revenues. As a result, the City is rapidly reducing our working capital or savings account. This proposal will align revenues and expenditures while maintaining an appropriate level of working capital for City operations.

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, 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.

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. For example, launched in 2017 with $1.4 million from the City’s General Fund, the Homeless Rental Assistance Program has led to permanent housing for more than 200 chronically unsheltered 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 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 money within the next two years, we will not be able to continue doing all we do.

  • 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 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 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.

Revenues are not keeping pace with community need.

As our community continues to grow, the needs for essential City services grows.  In the last ten years, our population has grown by more than 9%.  City services rely on people.  Our staffing today is lower than it was in 2008.  We expect 60,000 more people by 2035.

  • 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%) and some of the park land is not yet ready for community use.
  • In our community, code enforcement officers respond to neighbor complaints of dangerous properties and 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.

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.

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.