City Considers Revenue Options to Close Budget Gap

On September 30th, the Eugene City Council discussed a potential fire service fee as a way to close the city's budget gap. The General Fund, which covers essential services like Fire, Police, and Parks, faces a significant shortfall due to limited property tax revenue, largely constrained by Oregon's tax laws (Measures 5 and 50).

Eugene has implemented $60 million in budget reductions over the past 14 years, but ongoing financial challenges persist. As part of the 2023-2025 budget, City Council directed staff to explore new revenue sources, including a fire service fee, to avoid further cuts to services. The proposed fee, based on building square footage, would charge $10 per month for a median single-family home and $38 per month for a median commercial property, generating $8 million for current fire services and $2 million for expanded services.

The City Council will review a revised fire fee proposal at their October 23, 2024, work session.

A Structural Funding Gap

The City's General Fund, which pays for most of the City's services like Fire, Police, Library, Municipal Court, Parks, Recreation, and other core business functions, does not generate enough revenue to pay for all of those services. As part of the 2023-2025 biennial budget process in 2023, City Council directed staff to explore revenue alternatives to avoid an additional $8 to 10 million in service reductions. A proposed fire service fee is one of the potential solutions to address this critical funding gap by July 2025.

Oregon Property Tax System

In Eugene, property taxes make up 71% of General Fund revenues which can be used to pay for any city service. However, property tax revenue growth is limited due to Oregon's property tax system. Oregon Measures 5 and 50, both passed by voters in the 1990s, imposed limitations on property taxes, that have constrained revenue growth for municipalities across the state.

The property tax system, which includes a 3% cap on assessed value, is governed by the Oregon Constitution and state statutes. Although other states use assessment limits, Oregon is the only state in which assessed property values don't reset to current real market values when existing properties are sold.

City Service Reductions and Revenue Options

The City has been trying to address this revenue challenge for over a decade, through reductions, service efficiencies, and generating additional revenues such as levies. As these strategies have been implemented, and positions eliminated, there are now fewer General Fund employees providing service to a growing community.

Additionally, like other cities in Oregon, the City of Eugene has also been experiencing post-pandemic challenges including high inflation, workforce hiring and retention, a housing and unhoused crisis, and the need to replenish reserve levels drawn down during the pandemic. The City also has a number of services funded through one-time state and federal resources that do not have an ongoing funding source identified to continue services after the limited funds expire.

Since property tax changes in the 1990's, the City of Eugene has been reducing costs and realigning services to meet emerging community needs. Over the past 14 years the City has implemented $60 million in General Fund budget strategies to live within existing revenue streams.

To address near-term funding issues, every corner of the organization that is funded through the General Fund experienced some reductions in the 2023-2025 budget cycle. While the 2023-2025 Adopted Budget made progress through implementation of almost $25 million in General Fund budget strategies over the two-year period, a gap still remained in the second year of the biennium, and unless additional revenue sources are implemented, additional City service reductions will be needed.

In response to City Council's direction to identify new revenue options to avoid additional reductions, City Manager Sarah Medary convened a group of community members, Budget Committee members, and City Councilors as revenue advisors to provide feedback on potential revenue options the City could pursue to provide funding for important community services.

In June 2024, City Council adopted a Supplemental Budget implementing a range of one-time and on-going budget strategies totaling almost $8 million in adjustments in the General Fund. In June, Council also adopted an ordinance expanding the definition of stormwater services to add the operations and maintenance of city-owned parks and open spaces. Expanding Stormwater Service Fee eligibility to all Parks services allows for a stormwater fee increase to be implemented to generate approximately $1million in stormwater fee revenue to fund parks and open spaces expenses.

As part of a two-year solution set, a potential fire service fee could provide dedicated funding to stabilize and enhance fire and emergency medical services. Council directed staff to bring back additional information on this concept for Council discussion in the fall.

Many other communities in Oregon have service fees in place for a range of services that include public safety, parks, transportation and libraries. Service fees are generally billed to the occupants of developed property and are structured like other common utility fees. The fees can be adjusted over time as costs rise to keep pace with the cost of service and are used broadly across the state to recover all or a portion of services provided. Salem, Corvallis, Gresham, Jacksonville, Medford, Albany, Veneta, and Oregon City all have fees that pay for fire services.

A Growing Community with Growing Needs

As the Eugene community has developed and grown in population over the past few decades, Eugene fire and emergency medical services staffing has not grown with the city.  A fire service fee could be used to stabilize existing fire and emergency medical services and enable the City to increase and grow these services over time to meet community service needs.

At their September 30th meeting, Council reviewed proposals for a tiered fire service fee based upon building square footage with a proposed rate of $10 per month for the median single-family home and $38 per month for the median commercial customer.

The proposed fire service fee could pay for $8 million in fire and emergency medical services currently funded through the General Fund and provide $2 million in funding for expanded fire services including creating new fast and nimble 2-person crews or "squads" that could improve the City's response time for medical emergencies, small fires, and wildfires and respond to the increasing demand within the downtown core and during critical fire weather.

Staff continue to refine the fire service fee proposal, and the City Council will consider a revised draft fire fee ordinance at their October 23, 2024 work session.

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