The Taxman Cometh?

City Council pursues payroll tax despite flaws noted in 2014 and again in February

More than half of the public testimony given to the Eugene City Council May 28 opposed the proposed payroll tax for public safety. Some speakers received claps and cheers, leading Mayor Lucy Vinis to request silence from the audience.

If the City Council passes City Manager Jon Ruiz’s recommendation of a 0.4 percent on employees and 0.2 percent on minimum-wage workers and employers, Eugene would be the first municipal government in Oregon to impose a payroll tax. Most of the revenue — 65 percent — would increase funding for Eugene Police Department. 

Part of what informed the city’s discussion on tax mechanisms came from a 2014 revenue report. Although the team of citizens who compiled the report didn’t recommend the tax at that time, the City Council still approved the idea as a potential revenue maker despite other associated costs pointed out by city staff during a Feb. 23 City Council work session. 

Marty Wilde, now a state representative, worked on the 2014 revenue team that explored two dozen other tax mechanisms to raise money for the general fund. At the time, the city was looking at ways to raise money to fund the city’s operations. The Great Recession’s impacts had hit Eugene, and the budget committee wanted to see what taxes might increase revenue to avoid further cuts. 

The 2014 revenue team also said certain employers would be exempt. That’s because of intergovernmental immunity, a law that prohibits governments from intruding on other governments’ sovereignty — in this case, taxing government employers. That leaves out some of the largest employers in Eugene: the University of Oregon, Lane County government and Eugene School District 4J. While government employers would escape the 0.2 percent tax, government employees would still be taxed. 

Other tax mechanisms discussed by the team included red-light cameras, personal income taxes and an admissions tax. One tax recommended by the revenue team recommended a 5 percent restaurant tax, which the group estimated could bring in about $15.5 million before administrative costs.  

The City Council heard more about the costs associated with the payroll tax during its work session. 

Implementing such a tax wouldn’t be free. Having the state Department of Revenue (DOR) collect the tax would cost $1 million up front. 

Then the city would pay DOR $600,000 annually, a base level that could increase if there are complexities to the tax; the amount is likely to increase since minimum wage workers would be taxed at a lower rate. After the May 28 City Council public forum, it seems that the council is considering some adjustments, like exempting Springfield residents who work in Eugene. 

The city could administer the tax itself, but that would cost twice what DOR charges.

DOR would need to set up the tax, and it would take years to collect close to the full amount, according to the city. The city says public services — such as EPD — need an annual increase of $23 million to operate sufficiently. The payroll tax wouldn’t provide that amount until 2025. City projections show the initial collection rate of revenue would be 75 percent in 2021 and increase by 5 percent until reaching 97 percent in 2025. 

Laura Hammond, a spokesperson for the city, says it will roll out the enhanced services and programs based on anticipated funding. It could take years until the city fully implements the programs.

During the Feb. 23 work session, councilors and the mayor weren’t interested in having citizens vote on the payroll tax because of the urgency of replacing an 18-month one-time bridge funding of $8.6 million, which would end if the tax went on the ballot in November.

“If it’s approved, it wouldn’t meet our July 2020 deadline,” Vinis said during the February work session. “We wouldn’t be able to implement it that fast. You would be facing another funding gap decision.” 

Eugene citizens could refer the ordinance for a public vote if the City Council passes it. It would take 5,394 signatures to refer the ordinance.  

The City Council will discuss the payroll tax again during a work session 5:30 pm Monday, June 10, at Harris Hall, 125 E. 8th Avenue.