Salem City Club discusses employee-paid payroll tax

Nobody likes paying taxes. (Well, almost nobody.) But everybody likes the services taxes provide. (Well, almost everybody.) That's the perpetual dilemma facing government at all levels, federal, state, local.

Robert (Bob) Barron

Today's Salem City Club program on the City of Salem's financial situation featured Bob Barron, who became the city's Chief Financial Officer last June -- a new position created by a reorganization at City Hall that did away with the assistant City Manager, leaving the CFO in charge of financial goings-on.

Barron has an impressive background, as evidenced by his bio above. He came across as a straight-shooter who will tell it like it is, budget-wise, which is exactly what the City of Salem needs from its Chief Financial Officer, because in some other regards city officials have been prone to shade the truth on policy matters.

And Barron gets bonus points for looking the part of a CFO. Plus he and his family have a Goldendoodle, which has to be one of the coolest breed names I've ever seen. (My wife and I have a Husky mix... boring name, by comparison.)

Don't subtract points for Barron living in Keizer. After his talk he told me that was necessary because they haven't sold their home in Connecticut yet, and they couldn't find a suitable place to live in Salem that accepted dogs.

Barron had an interesting observation about his ten years-plus working for FedEx. He said that at FedEx 10% of time was spent getting data, and 90% was spent analyzing the data. But his experience in the public sector was the reverse: 90% of time goes to obtaining information, leaving just 10% to make sense of it.

(He did add that the situation with the public sector is improving somewhat.)

Early on in his talk Barron noted a big difference between Connecticut and Oregon. Oregon limits annual property tax increases, while Connecticut doesn't. So in his previous jobs with Connecticut city governments, a gap between projected revenues and expenses could be met simply: raise the property tax rate.

Here in Salem, though, property taxes can only go up 3% a year, which often isn't enough to meet the demand for services. Which led to the slide below that shows the financial problems facing the City of Salem.

You can see in the top box, if you're able to read small print, that the City of Salem faces a $10.9 million operating deficit in FY 2020.  That's the difference between general fund revenues and expenses. It's reasonable to ask how the city got into this mess, but that's another subject, and it wasn't raised at today's City Club meeting.

The middle box contains a bit of good news. A couple of accounting items -- Unspent Contingency and Personnel Vacancies -- are estimated to bring the $10.9 million deficit down to a "mere" $5.8 million. 

Then, in the right of the bottom box, some magic happens, and the decrease in what amounts to reserve funds drops to just $2.3 million. From my scribbled notes, I'm pretty sure this is the result of the Operations Fee passed by the City Council last year. (See above.)

The fee won't be in effect for the full fiscal year, and a Statesman Journal story said that it would raise roughly $7.1 million in the first year. Since half of $7.1 million is about $3.5 million, and $5.8 million minus $3.5 million is $2.3 million, this shows that, almost certainly, the Operations Fee is the reason the FY 2020 deficit drops to $2.3 million.

An employee-paid payroll tax is the other way city officials hope to deal with the general fund deficit.

The City Council decided to refer this to voters in the May 2020 election. I suspect it will be a close call as to whether the payroll tax is approved. When the election grows closer I'll write more about the pros and cons of the payroll tax.

One fact that is either a pro or a con, depending on a person's perspective, is that an estimated 60,000 people who work in Salem and live somewhere else would pay the tax. But they won't be able to vote on the tax. So we can expect to hear a lot of talk about "no taxation without representation" from aggrieved commuters to Salem.

Bob Barron said that the tax is fair, because those 60,000 people use city services. However, the payroll tax, which is expected to raise about $9.1 million a year, would be dedicated to public safety: police, fire, compliance (not sure what that means), and traffic safety.

The flip side of that supposed fairness, of course, is that thousands of other people live in Salem, but work elsewhere. So even though they use city services, they wouldn't be subject to the payroll tax.

Councilor Tom Andersen spoke briefly after Barron's presentation. He defended the employee-paid payroll tax, though he said that he would have preferred that the City Council had approved it directly, rather than referring it to voters. 

Andersen said that from what he's heard so far, the argument against the payroll tax will be along the lines of... Government always wants more money and they do a bad job of spending what we give them; the new police facility has had massive construction cost overruns, so why should we throw more money at the City of Salem; and so on. (Can't remember a few other reasons Andersen gave).

I got to ask a question during the Q&A period. It went like this:

"The payroll tax is dedicated to public safety. Police and fire make up most of the general fund budget. Crime rates are going down. There are fewer fires now. So are you two confident that inefficiencies have been wrung out of the police and fire budgets, since likely there will be a spotlight on this issue in the run-up to the May vote on the payroll tax?"

Not surprisingly, the responses from Barron and Andersen were general and non-specific. I recall that Councilor Andersen related that the police chief had talked about burn-out among his officers, saying that it was difficult to find someone willing to put in overtime when this was needed.

There's going to be a City Club debate on the payroll tax in April, the month before the election, so I'm confident this and other issues related to the public safety budget will be discussed at that time. 

Comments

[Jim Scheppke]

Great question Brian. Glad you asked. I love the idea of a "commuter tax" (as it is being branded), but not if all it does is continue to build the empires of Police Chief Moore and Fire Chief Niblock. Having retired from state and local government after 32 years I know "empire building" when I see it. The City of Salem has lots of shortcomings and chronic understaffing in nearly all City departments except for SPD and SFD. And then there is the homelessness crisis. Wouldn't be great if we could spend millions more a year on that instead of on more cops and firefighters* that we don't need. I wish the City Council would revisit their decision to spend it all on unneeded cops and firefighters. It may not be too late.

*This is what they are called but they "fight" VERY few fires anymore as our former Secretary of State has pointed out in this great article: https://www.governing.com/columns/smart-mgmt/col-fire-departments-rethink-delivery-emergency-medical-services.html (the City Club should invite Phil Keisling to speak to them about this sometime).