TO: Mayor and City Council
THROUGH: Krishna Namburi, Interim City Manager
FROM: Josh Eggleston, Chief Financial Officer
SUBJECT:
title
Service Updates, Priorities and Options for Future Financial Sustainability.
Ward(s): All Wards
Councilor(s): All Councilors
Neighborhood(s): All Neighborhoods
Result Area(s): Good Governance
end
SUMMARY:
summary
Over the past year, several significant changes to services and finances have impacted the City organization. This report provides an update on key developments to the City Council, including:
- Passage of the Local Option Levy
- Implementation of paid on-street parking downtown
- Transition to City-provided ambulance services
- Discontinuation of tax increment collection for two Urban Renewal Areas
- Allocation of Opioid settlement funds
Additionally, since the FY 2026 budget was approved, Council and community discussions indicate service enhancements to improve safety and livability are a priority. In light of these changes, staff are seeking City Council's guidance on funding priorities and the exploration of potential new revenue sources to support these priorities where applicable.
end
ISSUE:
Information only.
RECOMMENDATION:
recommendation
Information only.
body
FACTS AND FINDINGS:
General Fund Shortfall (Deficit)
In the past year, the passage of the Local Option Levy, and efficiency and cost saving measures implemented by the Interim City Manager, have reduced the size of the deficit in the next five years. The preliminary forecast presented in October 2024 displayed a short fall of $17.7M for FY 2026 and by May 2025 the FY 2026 budget recommended by the Budget Committee included a $3.9M increase to fund balance for this same period.
Staff presented the General Fund Forecast table (Attachment 1) during the Budget Committee meeting that recommended the FY 2026 budget to the City Council which included the levy revenue. Table 1 (included on Attachment 1) displays the revised forecast for the General Fund after the services supported by the new Local Option Levy Fund (Parks Operations and Maintenance, Recreation, Library and Center 50+) were moved to the Local Option Levy Fund.
With the passage of the levy, the revised forecast continues to show a deficit in the General Fund, which will cause the General Fund to begin spending down fund balance in FY 2027. While this picture is much improved compared to a year ago, it is important to keep in mind during future discussions about expanding services in the General Fund. Services added without proportional revenue to pay for those services will exacerbate this trend and cause higher use of fund balance.
Other Funds (Service Updates)
In addition to the passage of the Local Option Levy and its impact on the General Fund, the City is also experiencing service changes in other funds.
On Street Paid Parking (Downtown Parking Fund)
On July 10 2025, the City of Salem launched paid on-street parking in the Downtown Parking District as part of a broader effort to improve parking availability, support local businesses, and fund essential downtown services like cleaning, beautification, and security. Free customer parking remains available in city-owned garages, and discounted permits were expanded to support downtown employees.
On-street paid parking is expected to cover the costs of services provided in the Downtown Parking District through the parking district tax and will also reduce the General Fund subsidy to the Parking Fund, thereby lowering the General Fund liability for this service. The cost of these services for FY26 is approximately $2.0 million and covers the current downtown parkade security, clean team, basic maintenance, indirect costs, and refuse disposal.
As the City began conversations about the possibility of paid on-street parking with downtown area businesses in 2024, businesses asked for more security and more cleaning services. The Parking District, as it was structured, could not cover the expenses of these added services, resulting in the need for the General Fund to pay for them. As the City gains more experience with paid on-street parking, the intent is to discontinue the Parking District. More information is anticipated in January 2026.
To-date, with two months of receipts, paid on-street parking is returning:
July
- Revenue: $156,202
- Transaction count: 59,138
- Average Park Time: 1.76 hours
August
- Revenue: $209,234
- Transaction count: 81,738
- Average Park Time: 2.33 hours
The initial results of the service change have been positive. Table 2 below depicts a potential revenue and expense summary with an estimated $175,000 revenue per month in the Downtown Parking Fund from paid on street parking. This summary assumes that the Downtown Parking Tax and the associated bad debt expense would be eliminated for FY 2027. It also shows additional needed services being funded – such as:
- Parkade security expenses (existing service, currently funded in the General Fund),
- Additional power washing,
- Alley sweeping,
- Streetscape maintenance.
Depending on the performance of paid parking, this revenue could also serve as a partial funding source for downtown safety and livability initiatives.
Two months of history is not enough to accurately predict potential fluctuations and the actual result may be more or less than the assumed $175,000.
Table 2
Ambulance Transport Billing (Emergency Services Fund)
On July 1, 2025 the City implemented City provided ambulance transport service. In July, the service completed 1,727 transports, and in August, 1,763 transports, averaging 56.32 transports per day (above the projected 54 per day). The service operates with 1,080 Advanced Life Support unit hours per week, ensuring consistent coverage.
Performance metrics have also met requirements, with response times meeting the goal of arrival within 8 minutes in 91.6% of cases in Marion County and 93.3% in Polk County, exceeding the 90% target.
Financially, the service has generated $9.3 million in gross revenue, with a total estimated cost of $8.38 million. Personnel costs accounted for $975,842, while materials and services, including bad debt expenses, are estimated at $7.4 million. The service is operating within budget while meeting critical community needs. It will be several months before the City has a clear financial picture of the new ambulance transport service. There is a significant lag that occurs in billing and revenue reporting for this service. Staff plan to return with additional detail at the October 20 City Council work session.
Urban Renewal Agency - Ending Tax Increment Collections
There are two Urban Renewal Areas that will soon be reaching the maximum amount of property taxes allowed to be levied to pay for planned projects (maximum indebtedness). North Gateway will be reaching maximum indebtedness in FY 2026 and stop collecting tax increment in FY 2027. Mill Creek will be reaching that maximum indebtedness in FY 2027 and stop collecting tax increment in FY 2028.
When a URA stops collecting property tax increment, the collections that would have gone to the URA to pay for projects are distributed back to all taxing jurisdictions within the area. The result is the City, County, extension districts, etc. will see an increase in their general property tax collections. Estimates of potential revenues back to the City’s General Fund in the first year would be $1.4M from the Mill Creek area and $1.9M from the North Gateway area. The McGilchrist URA reached maximum indebtedness and is no longer collecting tax increment for FY 2026.
Opioid Settlements – Trust and Agency Funds
The City, along with other governments throughout the nation, have reached joint settlements with various Opioid manufacturers. The monies from these settlements are received into a trust fund and can only be spent on specified activities and programs. The City has directed funding toward opioid prevention, first responder wellness, and supplies that combat opioid addiction (such as Narcan).
The City currently funds two police officers for the Homeless Services Team, a youth outreach coordinator who works with young people on substance use prevention and education, support to first responder wellness, and a one-time grant to Salem Housing Authority for qualified mental health professionals and supplies.
Projections show current opioid funding to be fully spent by FY 2033. This does not include any future unknown manufacturer settlements or funding of additional services.
Potential Priorities for Funding – Unmet Needs
In addition to the updates provided above, staff is seeking guidance from City Council on service and financial priorities.
Table 3 (included on Attachment 1) displays the General Fund Forecast that was presented to the Budget Committee on May 28, 2025 with the impact of the two URAs ending collections in FY 2027 and FY 2028. Including the adjustments for the ending of collections in the two URAs, there remains a General Fund shortfall of approximately $2 million by the end of the forecast period FY2030. This assumes current conditions with the same escalation factors for property tax increases, collective bargaining agreements, PERS rates, and other employee benefits like Medical, Dental, and Vision insurance. It also does not include any expansion of services. If additional services are added or if any of the items like Collective Bargaining Agreements or PERS result in a higher than anticipated rate without offsetting revenue, then the deficit will increase at a faster rate.
- Safety and Livability – General Fund
There has been interest in greater investment and expansion of services for Safety and Livability in the community. Staff have provided cost estimates for these additional services including:
- Homeless Service Team Expansion (two police officers & materials / services - $418,700 annually)
- Community Policing Officers (eight police officers & materials / services- $1,663,650 annually)
- Salem Outreach and Livability Services Team Expansion (two parks maintenance operators & materials / services - $400,000 for 9 months)
- Co-Response Model Pilot Program (Fire Department costs of $196,302 for six months for an EMT-Basic and a Paramedic)
- Community Services – Local Option Levy Fund / General Fund
While the majority of Community Services have now moved into the Local Option Levy Fund, their main funding mechanism of property taxes is still limited in by the same laws as property taxes collected by the General Fund. This includes limits in assessed value growth of properties that the taxes are levied against and compression. So, as expenses for these services increase at a higher rate than the amount collected or if services are expanded, there is concern of a shortfall in the Local Option Levy Fund similar to that in the General Fund.
The levy is also only approved for five years. By FY 2031, within the five-year forecast period, services funded by the levy will need to become the assumed responsibility of the General Fund again with a limited scope without voter approval to renew the levy or another identified funding source for these services.
- Safety and Livability Bond Operating Costs – Local Option Levy Fund / General Fund
The passage of the Safety and Livability Bond in 2022 authorized funding for the expansion of several facilities including sites for branch libraries and future fire stations. When developing the bond, staff emphasized that Oregon law mandates that proceeds from the bond may only be used for capital expenses and not operation of these facilities. Additional funding in both the General Fund (Fire Stations) and the Local Option Levy Fund (branch libraries) would be needed to pay for the operation of these new facilities.
- Local Transportation Funding – Transportation Services Fund
Similar to the General Fund, the Transportation Services Fund has experienced financial instability due to the imbalance of incoming revenues, expenses, and community needs. The majority of revenue for the fund comes from the City portion of the state highway revenue (commonly referred to as the State Gas Tax). Currently, there are legislative actions happening at the State level which would impact the City’s gas tax revenue. The outcomes of those actions are unknown at the time of this report.
- Commercial Air Service – Airport Fund
During the City Council meeting of September 8, 2025, an information report regarding the Airport was received with an update on the potential for a Minimum Revenue Guarantee (MRG) for a new commercial air service provider in Salem. Current estimates range from approximately $500,000 per year for three years (Ultra Low Cost Carrier) to $5M or more over two years (Legacy Carriers). The Airport Fund is not in a financial position to support either of these options and Federal Aviation Administration grant restrictions prohibit the use of airport operational funds to be used for an MRG. If the City chooses to contribute to the MRG, the funding would likely need to come from the General Fund.
Potential New Revenues for Services
In 2023, the Budget Committee recommended and the City Council approved a Revenue Task Force. The Task Force was a group of members from various stakeholder groups and sections of the community. The Task Force met in early 2024 and recommended to City Council a list of revenue options to explore.
Details on three recommendations from the Revenue Task Force are outlined below.
The City Council could choose to increase the Franchise Fees on either the Utility or the Solid Waste franchises. The Solid Waste Committee has previously discussed raising the franchise fees for solid waste to fund the unmet need of the Salem Outreach and Livability Services (SOS) Team. The Council could choose to increase the fee as a percentage or a fixed dollar amount. A 1% increase would generate approximately $450,000 annually and a $1 / month flat rate would generate $536,000 annually.
The impacts of the 1% increase would equate to a $0.50 / month on most residential (35 gallon cart) accounts and a $3.00 / month on commercial (4 yard container) accounts.
The Solid Waste Committee is currently in the midst of the next rate setting process so if Council wanted to explore this as an option, a decision would need to occur soon to incorporate the costs into the new recommended rates.
- City Operations Fee Restructure:
The City’s Public Works Department has finished the transition to the new Utility billing system and now has the capability to restructure the City Operations Fee. If the City Council would like to explore this option, there would be timing considerations. After a structure was decided, several months would be needed for programming and communications.
Taking this timing into consideration, the earliest a restructured fee could take place would be on bills beginning January 2027.
- Payment in Lieu of Taxes (Capital District):
The City has been advocating at the State level for some form of a Payment in Lieu of Taxes. Due to the consolidation of various State agencies in the Salem and the impact on public safety services like Police and Fire as a result, the City has requested some offsetting resources to support those resources. While the City can advocate for this revenue source, it is ultimately a decision of the state legislature.
In addition to these revenue options, the Revenue Task Force also recommended urban renewal area frozen base increases, business license fees, and income taxes. The full report from the Revenue Task Force can be found here: https://www.cityofsalem.net/home/showpublisheddocument/23389/638581884179000000
BACKGROUND:
The City had several service and financial changes in the last year and continues to have competing priorities for services in the community. Due to these changes and competing priorities, staff requests guidance for what services listed above should be prioritized as well as what new revenue options should be explored as recommended by the Revenue Task Force to fund those priorities.
Attachments:
1. General Fund Forecast Tables