Legislation could mean $6 million payment from state of Oregon to Salem

Proposed legislation would provide Salem up to $6 million a year from the state of Oregon to offset tax revenue lost from the large amount of state-owned land in the city.

Rep. Tom Andersen, D-Salem, is sponsoring House Bill 4072 to make state agencies pay a fee to compensate Salem for fire, police and emergency medical services provided based on the agencies' use of state-owned land in the city.

The fees would come to about $5 million to $6 million annually, a sum reached by calculating the acres of state-owned land in the city and total land acreage within city limits.

If passed, Salem could begin getting that money this year under a three-year pilot. It would help — but not solve — the city's budget woes.

A newly formed Revenue Task Force is exploring several options for Salem, such as an increased city operations fee, a local tax levy implemented through a ballot measure, or another stab at a voter-approved payroll tax.

“We are turning over every rock, listening to every idea, and meeting with our legislative delegation, in the search of a solution to the broken revenue system that we are living under," Salem Mayor Chris Hoy said Thursday. "Payment in lieu of taxes is a part of that solution, and I’m grateful for the attention that the issue is getting.”

Salem is not the only city in Oregon facing a budget shortfall, and it isn't the only one that could benefit from the push to get the state to pay for state-owned land.

Andersen said state-owned properties exist in every municipality across Oregon and strain local resources that provide public safety without paying for the benefit of these services.

He said the problem became clear to him during his eight years serving on Salem City Council.

Salem is uniquely impacted by these shortfalls, he added, due to the resources needed to manage public demonstrations, tourism, recreation and general state government functions.

Proposed pilot program has bipartisan support

The bill would create a Payment In-Lieu of Taxes pilot program for three years. The city and agencies implementing the program would report each year benefits and how it could expand statewide.

Cities with state-owned land could opt into receiving the reports, which Andersen said could pave the way for a statewide program after the pilot.

His proposal launched with bipartisan support. Andersen, Sen. Deb Patterson, D-Salem, and Rep. Kevin Mannix, R-Salem/Keizer, are the chief sponsors. It also has backers outside of Salem.

Rep. Paul Evans, D-Monmouth, and Rep. Mark Gamba, D-Milwaukie, signed on as regular sponsors. Andersen said he's also received support from Rep. Ed Diehl, R-Salem.

Gov. Tina Kotek has signaled her support for a bill providing financial support for essential services in Salem.

Andersen said the bicameral, bipartisan support makes him hopeful the city could soon be receiving money to support critical services.

"This is how you pass legislation," he said. "You work with all the parties."

Property tax problems in Oregon

Property taxes are the primary source of funding for Oregon cities for general services, including police, fire and parks.

In Salem, property tax revenues for the fiscal year that ends June 31, 2024, are budgeted for $84 million.

The property tax collections are deposited into the city’s General Fund and, according to city records, cover 45% of general fund expenses and 77% of the cost of providing police and fire services.

But not every property in Salem is required to pay property taxes.

Schools, churches, nonprofits and government facilities are among those exempt. The biggest non-city-exempt property presence in Salem is the state of Oregon, with about $1.65 billion in real market value.

In a September report, city staff said this essentially meant that Salem taxpayers subsidized public services to those tax-exempt locations.

Staff estimated state-owned property accounted for 8% of land within Salem's city limits. If taxed, those properties would generate $7.25 million a year.

In some capital cities, including Olympia, Washington, state government provides payment in lieu of taxes to help cover some of the services that would have been paid with property taxes. Anderson said he looked to other cities like Olympia for inspiration but ultimately developed a unique formula for Oregon.

Salem leaders asked consulting firm Moss Adams to conduct a review of other Oregon cities' financial conditions to provide additional context to the city's budget discussions. The review of Eugene, Gresham, Hillsboro, Bend, Springfield and Corvallis found budget challenges in all six cities.

Staff pointed these critical financial conditions indicated the state had a structural problem in property tax funding.

Andersen said he's long known of the broken municipal funding system. He was elected to city council in 2014 and served until 2022, when he ran for the Oregon State Legislature.

"I ran for the legislature because there were a number of things I could see as a city councilor that I would have liked to have done, but I couldn't because you needed something to come from the state level, not the city level," he said. "My goal is to help the City of Salem any way I can."

For questions, comments and news tips, email reporter Whitney Woodworth at wmwoodworth@statesmanjournal.com, call 503-910-6616 or follow on Twitter at @wmwoodworth

This article originally appeared on Salem Statesman Journal: Legislation could mean $6 million payment from Oregon to Salem