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The payroll tax is being considered to pay for improvements to our community safety system. In September 2018, the Eugene City Council endorsed a one-time, 18-month bridge strategy of $8.6 million to address immediate community safety needs through June 2020. Ongoing funding is needed to address Eugene’s community safety needs on a more permanent basis. The current proposal would fund a balanced and comprehensive plan to transform and stabilize the current community safety system for $22.8 million per year. This funding would be used for critical services including police, fire and emergency medical services, municipal court, homeless services, and prevention services.
Payroll taxes are taxes paid by employers and/or employees and are usually calculated as a percentage of gross payroll or wages. For an employer, the tax is usually a percentage of an employer’s total gross payroll. For employees, the tax is percentage of an employee’s total taxable wages.
In 2018, the City Council dedicated $8.6 million starting January 2019 for 18-months of funding to increase staff and resources. The goal is to stabilize prevention, homeless services, public safety and emergency response. The bridge strategy funding expires on June 30, 2020. If Eugene enacted a payroll tax it would provide on-going funding for critical services including police, fire and emergency medical services, municipal court, homeless services, and prevention services. While many creative programs have been applied to this problem to maximize resources and meet community needs, the growing demand continues to outpace capacity causing critical gaps in community safety and services.
The Community Safety System works to keep everyone safe. This system is made up of interdependent City departments and community partners. Each relies on the other in different situations. Right now, the Community Safety System is stressed:
The City uses a variety of funding sources to fund community safety services including our General Fund (which mostly comes from property taxes), grants, federal funds, local fees and taxes (like the marijuana tax), and other sources. About 60% of the City’s general fund goes toward public safety. You can see more information on the City’s Open Budget website.
A payroll tax is levied as a percent of gross payroll earned within the taxing jurisdiction. Entities can enact a payroll tax on employees and/or on employers. The revenue team recommended developing a “hybrid” approach of a tax on both employees and employers. It would apply to employers located within Eugene city limits and their employees.
The revenue team recognized that the payroll tax doesn’t impact every segment of the population. It would not capture revenue from visitors, city residents employed elsewhere, retirees and the unemployed. The revenue team, however, thought that this approach was the most clear and fair of the final options considered.
A rate of .0028 (0.28%) is being considered for both employers and employees. The table below shows an estimated monthly cost to full-time employees at various hourly wages at different tax rates:
* As of July 1, 2020, the minimum wage in Eugene will be $12 per hour.
For employers, the amount will vary based on the employer’s total gross payroll. A payroll tax of 0.28% would cost an employer with a gross payroll of $500,000 approximately $117 a month or $1,404 annually.
The City Council has the authority to implement a payroll tax by ordinance. All ordinances require a public hearing. Alternatively, the tax may be placed on a ballot by the Council, by citizen initiative, or through a successful referendum petition.
A Community Safety Revenue Team was formed to develop a funding recommendation for the City Manager. The Revenue Team included three City Councilors, current and former Budget Committee members, and the Chair of the Police Commission. The revenue team studied many different types of funding options, ranging from levies to a combination of other taxes or fees. You can see the list and analysis of all revenue alternatives considered in the Revenue Team’s Final Report.
The team took into consideration the amount of money needed, the administrative effort and potential costs, and the stability and reliability of the funds. They also considered the fairness of the different options, their feasibility within Eugene and how the option related to the community safety need. The team also reviewed the potential economic, environmental, and social equity impacts – also known as the triple bottom line. They focused on a payroll tax as they concluded their research.
In the long term, gross payroll appears to be a sustainable and growing revenue source that can weather economic cycles and keep pace with general and wage inflation impacts on recommended service funding levels.
Funding from the local marijuana tax does support community safety. The local marijuana tax collected almost $1 million in 2018; that money supports parks security, Community Court, human services, and a portion has been set aside to fund homeless shelter options. Funding for a local option levy was also considered by the Community Safety Revenue Team, but a new levy would yield less than $10 million annually and isn’t considered a permanent funding source as a levy would need to be renewed every five years. These other options do not meet the funding needed to provide services for our Community Safety System as approximately $22.8 million is needed each year.
The total needed for longer-term system stability is approximately $22.8 million per year, which includes the $8.6 million bridge.
Eugene’s community safety services are currently funded by the one-time bridge funding that Council approved for January 2019 through June 2020, with the intent for the Revenue Team to identify a long-term solution to provide funding from July 2020 moving forward.
Funds collected through the payroll tax will be “lock boxed” in a separate fund established to track the receipt and use of these funds, and specific performance measures will be established, tracked, and reported on annually. The City Manager will convene a Citizen Advisory Board which will prepare an annual report. An outside auditor, will review and document the City’s use of the tax funds to determine whether the tax funds proceeds were used in compliance with the terms of the ordinance and how the specific performance measures are being accomplished through use of the payroll tax funds. Additionally, after seven years the Citizen Advisory Board will compile a comprehensive seven-year review and report. City Council will hold a public hearing to gather citizen input regarding whether the payroll tax is accomplishing the objectives specified in the ordinance, and Council will either adopt a motion to continue the payroll tax or do nothing and discontinue the tax.
Additionally, two special transit districts collect payroll taxes from employers. The revenue partially funds mass transit in the Lane Transit District (LTD, Eugene/Springfield area) and the Tri-County Metropolitan Transit District (TriMet, Portland area). The 2019 rates were 0.74% and 0.7637%, respectively. Employers submit the funds to the DOR. Nonprofit 501(c)3 organizations are exempt from this tax.