TO: Mayor and City Council
THROUGH: Krishna Namburi, City Manager
FROM: Josh Eggleston, Chief Financial Officer
SUBJECT:
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Options for City Operations Fee Restructuring and Cost Analysis of Service Expansions
Ward(s): All Wards
Councilor(s): All Councilors
Neighborhood(s): All Neighborhoods
Result Area(s): Good Governance; Natural Environment Stewardship; Safe and Healthy Community; Safe, Reliable and Efficient Infrastructure; Strong and Diverse Economy; Welcoming and Livable Community.
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SUMMARY:
summary
This work session will focus on improving fairness in operations fee across account types and sizes, particularly non-residential accounts, and seek council guidance on the methodology for restructuring the Operations Fee. Staff will research options using the new utility billing system to better reflect each property’s impact on city services. Staff will also engage the community and return to Council in future meetings to refine and finalize the proposed structure.
The session also highlights cost analysis of potential service expansions, including expanded public safety, community health, and service enhancements as Salem continues to grow. Council will have further in-depth discussions and determine funding priorities at future meetings after staff provide updates on community feedback and implementation research.
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ISSUE:
Information only.
RECOMMENDATION:
recommendation
Information only.
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FACTS AND FINDINGS:
City Operations Fee Restructuring
The City Council is holding a work session to consider restructuring the City Operations Fee, which was enacted in 2019 and became effective in January 2020. This restructuring effort aims to address concerns about fairness in how the fee is applied, particularly for non-commercial accounts. This work session is a result of a motion of the Budget Committee at their October meeting and a further motion in December from the City Council.
The community, the City Council, and the Budget Committee have expressed concerns about the fairness of the current City Operations Fee structure. A key issue is that small businesses and larger businesses are charged the same rate, which does not account for differences in their use of city services. The City’s previous utility billing system lacked the capability to implement and program a more robust methodology for the fee calculation that incorporates use and site-specific information, as it was based solely on account classification.
In 2025, the city implemented a new utility billing system with enhanced functionality, allowing for greater flexibility in addressing these concerns. This new system provides an opportunity to restructure the City Operations Fee to better reflect the varying impacts of different properties on city services.
Limitations
Restructuring the City Operations Fee presents a few limitations:
• Property Tax Limitations: State law limits the rate and amount of property taxes that may be assessed on real property. Governmental charges that are based solely on property size or value can be viewed as impermissible property taxes and must be avoided.
• Limited Data Set: The City currently lacks a comprehensive and sustainable dataset on property usage within Salem. While the new utility billing system can accommodate updated programming, an accurate and regularly updated dataset is essential for allocating the fee fairly.
Proposed Methodology
City staff are exploring a methodology for calculating the City Operations Fee. This approach would use "place type," a dataset maintained by the city, as a proxy for use. By combining place type with the size of the use and average activity, the city could more accurately gauge the impact on city services.
While this system would improve fairness, the system would require ongoing administration, including a process for account holders to appeal or update their place type classification as property use changes.
Future Policy Questions
City staff have identified several key policy questions for City Council consideration at future council work session:
1. Revenue Neutrality: Should the restructuring of the City Operations Fee be revenue-neutral, focusing solely on improving fairness?
2. Maintain Minimum Rate: Should the current rate be maintained as a minimum charge for some accounts and increase it for others?
3. Revenue Generation Target: Should the rates be adjusted to meet unmet service needs?
Next Steps
To move forward with restructuring the City Operations Fee, the following steps are recommended should the City Council provide direction on a future fee methodology:
• Foundational Work for Fee Restructuring
o Data Development: Build a sustainable process for maintaining and updating the dataset used to allocate the fee.
o Administrative Framework: Develop a structure for administering the fee, including an appeals process for account holders to request changes to their place type classification.
o System Programming: Once the dataset is finalized, address the programming needs of the utility billing system to implement the new methodology.
• Community Engagement
• Report to Council and Finalize Methodology
• Discussion of Revenue Generation Target and Funding Priorities
Cost Analysis of Service Expansions
The motion adopted by City Council (see attached motion) directing staff to evaluate restructuring the City Operations Fee also included a request to identify the anticipated costs associated with several identified service expansions. These costs are based on the projected average FY 2027 cost for each service category.
• Expansion of Safe, Clean, Healthy Salem:
o $2,750,000 ongoing for permanent implementation of existing pilot (Downtown and NE)
o $2,750,000 ongoing for expansion to additional areas of Salem
• Fully staffing the two ladder trucks
o $2,068,400 ongoing
• Anticipated cost of future staffing of Fire Station 12 (Ward 3)
o $4,565,000 ongoing, $465,000 one-time
BACKGROUND:
The City operations fee was first enacted by the City Council in November 2019. The fee is intended to support the cost of providing City services. The fee applies to all improved properties within the City and is charged through the City utility billing system. The current City Operations Fee rate is based on the classification of the utility account as follows:
1. Residential: $16.28 per month,
2. Multifamily: $13.02 per unit, per month,
3. Commercial, industrial, institutional, and public: $78.47 per account, per month.
As Council has previously discussed, the Operations Fee rate structure established in 2019 has been restricted based on the City’s utility billing software. That software has now been replaced with a new system implemented last year. This change allows Council to consider modifications to the rate structure to provide a more robust rate model that more accurately accounts for an account holder’s use of city services. The information provided by staff provides options for Council to consider diversifying and change the current rate structure. These options may include more specific customer classifications and dynamic rate models based on impact or demand on City services.
The Operations Fee is an increasingly important part of the City’s General Fund revenue. In FY 2026, the City budgeted approximately $15M for the Operations Fee, nearly 10% of the $182 million in General Fund revenues budgeted for FY 2026.
Attachments:
1. City Operations Fee Motion - Dec 8, 2025
2. Rate History