Historic gems in downtown Salem, Oregon
Clues to local history can be found on buildings and in sidewalks.
A property tax levy, personal income tax, business license fees and tax reform are among the recommendations the Revenue Task Force will present to the Salem City Council on Monday.
The recommendations are just that — ideas that will take council action and possible public vote before they become a reality.
The Revenue Task Force is composed of 25 council-appointed community members.
The group was convened in January to consider ways to increase revenue and address the multi-million dollar budget shortfall. The group met seven times, considered feedback from eight focus groups, three town halls and a statistically valid poll, and deliberated on revenue recommendations to the City Council.
The meetings happened in parallel to the Citizen Budget Committee, which deliberated various cuts and service reductions to contend with the disparities between revenue and expected services. Several key items such as library jobs and hours, park events, splash fountains and drinking fountains were on the chopping block until being saved by reallocating one-time funds.
The committee recommended a $724.6 million budget, and the City Council approved the budget last month.
City leaders warned, however, that next year could bring layoffs and major cuts.
City Manager Keith Stahley said the coming years will bring even more challenging budgets if the city does not find an additional source of revenue.
City leaders said the deficit is years in the making and compounded by the large amount of state-owned land in the city and Oregon’s restrictive property tax system. Salem is not the only city in Oregon facing a budget deficit.
Cities like Bend, Corvallis, Eugene, Gresham, Hillsboro, Medford and Springfield are facing shortfalls and considering cutting jobs, passing levies and eliminating homelessness services.
Salem’s staffing level never fully recovered from the Great Recession. Public pools closed, two fire stations shuttered and the Community Services Department was eliminated. In 2022, general fund employee positions returned to 2008 levels, but by that time, the population had grown by 20%.
“The services and costs of local government services predominantly involve people,” staff said in a report on the shortfall. “If residents and policymakers desire a higher level of service, the City will need more staff. If residents and policymakers accept a lower level of service, the City will need fewer staff.”
The task force’s 77-page recommendation packet detailed the results of the community outreach along with the city’s near-, medium- and long-term options for increasing revenue. The recommendation packet emphasized the importance of finding a sustainable solution for the issue to prevent needing another task force to convene five years down the road.
Recommended options to increase revenue, address multi-million dollar shortfall in Salem
Short-term options include business license fees, franchise fee increases and freezing the base of urban renewal.
Business licenses would be a government-issued permit authorizing a person or company to conduct business in the city. The city already has a structure in place for issuing licenses to businesses such as food trucks and marijuana dispensaries. Depending on the fee levels, the licensing program could add $8,000 for a $50 fee to $4 million with a $1,000 fee. It would take an estimated one to two years to get the program going and start receiving revenue.
Franchise fee increases would apply to utility services or products in the city’s right-of-way. The increase could bring in $6,685 to $6.6 million, and it would take the city six months to a year to receive the funds.
It would also take about the same amount of time to get $1 million to $3 million by having the city’s Urban Renewal Agency permanently increase the frozen base, which would result in less money for the agency and more money for the General Fund. A similar approach is being planned in Eugene.
The recommendation packet also detailed the drawbacks of each option. A business license fee could lead businesses to move out of city limits or negatively impact the perceived business climate in Salem. A franchise fee increase could lead to utility operators passing costs to utility users. A frozen base could impact redevelopment and urban renewal revenue.
Medium-term options: Property tax levy, personal income tax
A local option levy, if approved by the council, could be put on the ballot in the coming months. The temporary property tax paid by all owners of taxable land within city limits could bring in anywhere from $1 million to $55 million depending on the tax level chosen.
The task force strongly recommended structuring the levy to pay for specific services important to the community, like a livability levy funding parks, libraries and the Center 50+ or a public safety levy, paying for fire and police services.
A 0.010% tax would add $17 to the annual median property tax paid by the owner and bring in just over $1 million for the city. A 0.6% tax would add $1,019 and bring in $55 million for the city.
New or additional property taxes must be approved by the majority of voters in a May or November election.
A personal income tax could either be adopted by the council or put on the ballot by the council. The tax could raise up to $92 million but take two years or longer for the city to receive funds.
Moss Adams consultants and the city developed models showing different taxes for different levels. No tax for those earning under $70,000, a 0.25% tax for those earning $70,000 to $100,000, a 0.5% tax for $100,000 to $150,000, a 0.75% for $150,000 to $200,000, 1% for $200,000 to $500,000 and 2% for more than $500,000 would raise $25.9 million.
A different model going up to 5% for the highest earners would bring in an estimated $73.7 million.
The task force also strongly urged the council to craft the tax with equity in mind and not create additional taxes for lower-income residents. They also recommended pairing the tax with overarching tax reform as a long-term solution to the budget challenges. Reform could be restructuring or eliminating taxes or fees like the Operations Fee to create an equitable tax structure.
The report noted that a higher local income tax could discourage in-migration and encourage workers to relocate.
Collaboration needed for long-term solutions
The long-term solutions recommended could take years and require collaboration with the state, counties and the federal government.
Tax reform and restructuring could improve the tax system’s effectiveness, equity and revenue generation but would most likely involve intergovernmental agreements, multiple ordinances and public votes.
Another option, a payment-in-lieu-of-taxes, also requires collaboration.
Despite getting bipartisan support, a bill proposed by former Salem City Councilor and current Rep. Tom Andersen to have the state give Salem a $5 to $6 million payment-in-lieu-of-taxes died in the 2024 legislative session.
Andersen said he expects to revisit the effort next year. The county or federal government could also offer payment for the land they occupy in the city, but doing so requires further legislation.
The use of intergovernmental agreements — formal arrangements between governments to collaborate on certain issues like homelessness — could free up funds for the General Fund.
What’s next?
The council is set to hear these recommendations Monday. The meeting can be viewed in council chambers at city hall or on Capital Community Media’s YouTube page.
For questions, comments and news tips, email reporter Whitney Woodworth at wmwoodworth@statesmanjournal.com, call 503-910-6616 or follow on X at @wmwoodworth
