Corvallis needs more money — $18.4 million, to be precise. And the city could be turning to its residents and workers to help fill the gap.
Since September, the Corvallis City Council has discussed ways to address a looming budget gap and the high cost of new buildings. The city needs an estimated $14.3 million for the Police and Civic Campus facilities and roughly $4 million for ongoing operational needs.
According to an overview provided by Corvallis’ Finance Director James Inglis, these costs continue to rise as construction and operational costs increase, and the city approaches additional labor negotiations.
A fiscal strategy was presented at a council work session in early February. The council directed staff to review options for a payroll tax, personal income tax and general obligation bond issuance.
Information on the payroll and income taxes was presented to the council Thursday evening.
“It really comes down to the community and how we use the resources we have,” said City Manager Mark Shepard.
“If we use them efficiently, and we build a community that's attractive, where people want to live, or people want to work, I think we can be wildly successful,” he said. “But if we're not effective with the funds we have, then all bets are off, right?”
Councilors expressed their goal of not cutting services. They’re seeing governing bodies — from city councils to school boards — making major cuts all across the region. But in order to address the deficit, the city has to either make cuts or find new sources of revenue.
A payroll or personal income tax would do that, but they function differently.
A payroll tax is levied on wages and salaries earned within the taxing district, as Inglis explained to the council.
The tax can be applied to self-employed people, as well as those employed by others. It could take the form of a flat fee per employee or a tax rate applied to gross earnings paid by an employer, based on the employee’s wages.
The council can implement a payroll tax by ordinance, or councilors could place it on a ballot for voter approval. Implementation would likely take two or more years.
This option would be influenced by work and wage trends, meaning the amount of money it brings in could go up or down depending on economic conditions.
The other option would be a personal income tax.
This would be levied on taxable income for Corvallis residents. This includes wages and salaries, interest, dividends, capital gains, pensions and social security benefits. The tax could be a flat fee or a rate based on each resident's total taxable income.
The same is true for this tax on how it could be implemented — either by city ordinance or passed by voters on a ballot — and it would take two or more years.
All Corvallis residents would be liable for this tax. Depending on how the tax gets structured, low-income taxpayers could be exempt.
Unlike a payroll tax, the state may be willing to collect a personal income tax on behalf of the city, Inglis explained to the council, which could reduce the administrative burden of this option.
Economic consulting firm ECOnorthwest presented specifics on these options to the council.
For the payroll tax, both options have a 1% rate, split between employers and employees. One option would allow full exemption for employees earning below 60% of the area median income.
For the personal income tax, the firm presented two options. The first has a 0.68% rate applied to all taxable income. The second is a 1% to 2% tax applied based on filing status and total taxable income.
Corvallis isn’t the first city to flirt with these choices.
Eugene is the only city that collects payroll tax in-house, officials said. The State of Oregon collects a transit tax on gross payroll within the Lane District in the Eugene-Springfield area and within the Tri-County Metropolitan Transit District for Portland, providing partial funding for those districts.
The two local examples that collect personal income tax are the Metro Supportive Housing Services Tax and the Multnomah County Preschool for All Tax, both in the Portland area.
Corvallis Mayor Charles Maughan and Councilor Jim Moorefield agreed that educating the community about why this is happening — that it’s aimed at long-term financial health — and about the strategic moves the city is taking to fix the budget shortfall will be key. Others agreed it’s a heavy burden to show the value of a new tax.
“We're trying to maintain services,” Moorefield summarized, “and we're trying to rebalance how we pay for them.”
The council plans to resume this conversation at its first work session in June, when members will begin narrowing down options and implementation plans.
