Think Out Loud

Oregon cities are struggling to find revenue for services

By Elizabeth Castillo (OPB)
Jan. 12, 2024 5:32 p.m.

Broadcast: Friday, Jan. 12

Throughout Oregon, cities are dealing with budget deficits. And for some, the new year has meant cuts to services. Libraries are facing cuts in multiple cities, including Salem. And officials elsewhere are scrambling to cobble together funds to keep some services afloat. Melanie Kebler is the mayor of Bend, and Chris Hoy is the mayor of Salem. They join us with details on what their cities are facing and what the new year means for services.


This transcript was created by a computer and edited by a volunteer.

Dave Miller: From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. Cities throughout Oregon are dealing with budget deficits right now. For some, the new year has already meant cuts to services. Library hours and days are being slashed in multiple cities, including in Salem. Officials elsewhere are scrambling to cobble together funds to keep their services afloat. Melanie Kebler is the mayor of Bend. Chris Hoy is the mayor of Salem. They both join us now. Welcome to the show.

Chris Hoy: Thank you.

Melanie Kebler: Hi, Dave. Thanks for having us.

Miller: Thanks for joining us. Mayor Kebler, let’s start with you. What kind of a budget shortfall are you seeing in Bend right now?

Kebler: Our biggest issue is the way that we charge property taxes and what that does to our general fund. We, and I’m sure we’ll get into it in this segment, are under the restrictions of Measure 5 and Measure 50, which were passed in the nineties. And fundamentally what that does is freezes our property tax rates and doesn’t allow us to raise them at the same rate that we’re experiencing growth and property values going up. So what that means is, for example, in the ‘23-’25 biennium, we have a deficit in our general fund of about $15.8 million and to make up for that, we are drawing into reserves. We are selling off some of our city-owned land for development, but that’s not sustainable going forward. So I think that’s fundamental to the conversation. How do we find a sustainable way for our local governments to fund the services that our communities are demanding and that they need?

Miller: Well, let’s just talk about property taxes since you started with. This is not new, this has been the case for decades. We have heard so many public officials,

whether members of city councils, or mayors like the two of you are, or members of school boards, talking about the effects of what Oregon voters passed back in the nineties, in the early nineties and the later nineties. What do you think is different now?

Kebler: Well, we are seeing the same pressures that we just heard from ODOT in your previous segment that people are experiencing in their home budgets as costs rise, as inflation happens and as the cities grow, the demand for services grows. And in the past few years, cities have been on the front line of really crucial issues for our communities, and we are being to step up on homelessness. We are feeling the public safety repercussions of things like Measure 110 and other changes, that we want to make sure that we are providing those services, but our funding, our general funding is not there. 78% percent of Bend’s general fund goes towards public safety. And as we increase our public safety needs, then there’s less general fund to fund the other city services that we have.

So I think it’s something that we’ve seen for a long time coming. Governor Roberts, back when the first Measure 5 was passed, said this is going to slowly cripple Oregon. And I think we are getting to the point where we are seeing that we need a different system if we want to sustainably fund our cities and local governments.

Miller: Chris Hoy, how much blame do you lay at the feet of Measures 5 and 50 for what you’re seeing in Salem right now?

Hoy: Well, Dave, I think that those two measures deserve most of the blame if not all. They limited the ability of city government and all local governments to respond to growing needs and also just to keep up with the cost of inflation. We have cost escalations like health care, payroll, those sorts of things that the property taxes just don’t keep up with. Similar to Bend, our property tax receipts pay for 77% of our police and fire and nothing else. So they don’t cover the cost of parks, senior services, the library, and we haven’t really even talked yet about homelessness which is a kind of a newer demand on cities. The demand changed but our system didn’t change to accommodate that new demand from our residents.

Miller: Well, it’s pretty clear, I think, what opponents to changing this would [argue]. And I should stress that since we’re talking about constitutional changes, voters would have to amend the amendment, they would have to vote “yes” to change this. They would argue that at a time when it’s hard for many Oregonians to buy groceries, to deal with the same inflationary pressures that you’re talking about at a municipal level - it’s hard for people to afford housing to begin with - don’t say yes to these leaders who want you to pay higher property taxes. How would you respond?

Hoy: I totally understand that. And nobody wants to pay more taxes, but if you look at our current system, it created such an inequitable tax system. If you look at the permanent tax rates that were imposed, basically, it’s whatever tax rate you happen to be at at the time these things were passed. That’s not your permanent rate. And so you have these disparate rates all over the state and it creates a huge inequity…

Miller: I just want to make sure that folks understand. It’s not like people are paying the same amount they did in 1995. Correct me if I’m wrong, but the current rates are pegged to what they were in 1995 and they can only go up 3% from there. And so that’s where the inequities come from. There were neighborhoods, say, that were redlined and had much lower property values back then and have since skyrocketed. If two properties are worth the same amount today in terms of real market value, those could have very, very different effective tax rates because of the year they were pegged to. Did I get that right?

Hoy: Well, you were close. I would say the difference is that the tax rate stays the same. So our permanent tax rate here in Salem is $5.83 per 1,000. So that has stayed the same since that measure was passed. What changes is the value of the properties they continue to go up and that’s what’s limited to the 3%. So it’s not the rate that changes, it’s the values and those have been artificially limited. If you look at the real market value compared to the assessed value, there’s a huge, huge difference between those two numbers.


Miller: So, Melanie Kebler, this is one issue, and I don’t want this entire conversation to turn into a debate over Measures 5 and 50. Although at some point that could happen in the future. I want to turn back to right now because you mentioned that one of the ways you were able to ease the current challenges are by dealing with some one-time fixes: dipping into the rainy-day fund and selling some city owned property. But what might actually have to be cut in this current two-year budget cycle because of the holes you haven’t been able to plug?

Kebler: What ends up happening in cities as this happens is we start to hold positions vacant. We start to present budgets to our council that don’t have positions in them that we might have wanted to have or planned but aren’t even part of the budget because we can’t afford them. And so I think in Bend, we try to be very proactive and one of the things cities have to do to respond to these things is we have to dig around in a broken toolbox of very blunt tools - things like system development charges, things like franchise fees. We are working right now on a transportation fee, which many cities already have. We are sort of cobbling together these different streams that aren’t necessarily nuanced or as progressive as we’d like, but that’s the only way to fill the holes, right? We have, in the next biennium, a $10 million hole in our transportation budget and we cannot go to the general fund to get that because our general fund is paying for police and fire which there are increased demands for. So we then have to go and look at a policy that again asks our constituents to pay into the pot to help with this.

Meanwhile, we’re generating economic development and jobs that are developing income tax that goes to the state. And then we’re kicking that back to people when cities are struggling to even provide these basic services. So I think that’s part of the inequity that Mayor Hoy is talking about. I absolutely understand, every time we go to our constituents and say, here’s another little funding stream we’re trying to put together, they want to understand why we can’t just meet the needs of the community within our structure. And we have to explain these things and it’s pretty tough.

Miller: Is that particularly acute in Bend? I don’t think there is a region that has had more explosive growth than Deschutes County, and Bend sort of as the population center of it, in Oregon in the last 50 years. It was about 13,000 people in 1970 and over 100,000 people now. Does that lead people to say we are a boom town? Why can’t you just pay for the things that we’re giving you money to pay for?

Kebler: Absolutely. People see the property values going up and there was a report last year to the legislature - since 1996 property values have gone up 433%. But the assessed value that we actually collect tax on has only gone up 243%. So half. And that is not a sustainable way to fund that growth. And that is a question we have to answer a lot.

We also get a lot of questions about tourism because we have a tourism economy here and we are restricted there. We have to tell people, if we were to raise our room taxes and try to generate more money from tourism per state law, 70% of that would need to be spent on advertising and tourism facilities, and we could not put that in our general fund to fund our needs. So it is a constant conversation here about how growth is paying for itself and what the restrictions are on that.

Miller: Mayor Hoy, to go back to the specific Salem issues, I’m sure that Salemites might know this well, and many of our listeners may remember that there was a city-led effort to come up with a new way to bring money in: A city payroll tax that failed spectacularly recently at the polls. Where does that leave you? My understanding is the city leaders have been looking a lot into city budget questions. What’s the 30,000 ft view right now of where things stand?

Hoy: Thank you for raising the payroll tax issue. It was an attempt to sort of just kind of change the system to allow us to provide the services that our residents are demanding. We knew that it was a long shot. And I don’t look at it as a failure. I look at it as we have raised the awareness and we’ve elevated the conversation so now we can have these conversations about the real problems with our tax system in Oregon. We’ve gotten everybody’s attention to say, “look, if you want these services, we have to pay for them.” We had to reduce our library hours recently. In this current budget, we’re going to be eliminating about 40 positions coming up here in the next month or so. There are real costs and so going forward, we’re continuing to look at ways to pay for those services.

We have just put together a revenue task force similar to what’s been happening in other cities where we’re going to hopefully have a community conversation. We have a number of members of that group. We’re going to do town halls, we’re going to do focus groups, all sorts of things, to just try to come up with a consensus on how we want to pay for services going forward, whether that’s through maybe a levy, through a special district or maybe that’s not at all. I don’t know and we’ll have to just live with the level of services that we have.

But getting back to what Mayor Kebler was saying, we’ve added 26,000 residents to Salem. That’s the equivalent to the size of the city of Woodburn. We’ve added that to Salem in the last several years and we still have the same number of firefighters. So what that means is, it’s well over five minutes when you call the fire department until you’re going to see a firefighter at your door. When you’re in cardiac arrest, that means your brain is dying and that’s just not acceptable. And I don’t think residents want that, but we’re going to give them the opportunity to figure out how to pay for more service if in fact, that’s what they want to do.

Miller: One of the issues that we’ve heard about Salem in particular, separate from statewide questions like Measures 5 and 50, is that because you’re the state capital and because there’s a lot of state property which doesn’t pay into property taxes, you’re missing out on revenue in ways that’s not the same in other cities. Governor Kotek addressed this recently. She said, “I think the state should have some role to help support essential services in Salem. And I’ve said that to Mayor Hoy directly. I think the question is, how do you actually calculate it?”

Where does this effort stand? And is there a mechanism that you are currently pushing for that you’d like lawmakers to enact?

Hoy: Thank you for that question, Dave. Yeah, we are uniquely positioned as the state capital. We do have sort of an outsized impact from state properties because we don’t just have the properties and the lack of revenue from those properties. We also have the burden of the service. So when the Capitol was breached a few years ago and police officers were injured, those were Salem police officers that were pepper sprayed by people coming into the Capitol. It’s our fire department that’s responding to the prisons and to the Capitol and to all of the facilities. So there is an outsized burden for us.

It’s a really common mechanism throughout the country that state governments help their state capital cities with a sort of a payment in lieu of taxes or some extra funding mechanism. So we have been pursuing that. When I was a member of the legislature for a year, during the last short session, I introduced a bill to create a system of payment in lieu of taxes. And we are working on that again. I have had direct conversations with the governor. We’ve had really, really robust conversations about this and I’m really pleased that she has been publicly stating her support. I really need her help to get this over the finish line. We do have some efforts coming up in the next session that would create a payment in lieu of taxes for the city of Salem.

Miller: Chris Hoy and Melanie Kebler, thanks very much.

Kebler: Thanks, Dave.

Hoy: Thank you.

Miller: Chris Hoy is the mayor of Salem. Melanie Kebler is the mayor of Bend. They joined us to talk about the budget challenges that they are seeing in their respective cities that are emblematic of issues that leaders of cities all across the state are dealing with right now.

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