Fiscal Challenges for Oregon’s Cities

ECONorthwest investigates the roots of the funding crises facing Oregon’s municipal governments.

Oregon’s cities are home to 70 percent of the state’s population and 80 percent of its jobs. Municipal governments provide core services—including public safety and infrastructure—that citizens and businesses value and that support economic growth.

The past two decades presented unprecedented challenges to cities’ abilities to pay for these services. Property tax limitations adopted during the 1990s abruptly reduced cities’ main source of revenue for core services such as public safety. Then, as cities were still adjusting to those limitations, Oregon entered a prolonged economic downturn in the late 1990s—punctuated by two recessions.

Today, as Oregon’s economy slowly recovers, cities find themselves on the doorstep of yet another decade of challenges. While the recent recession added additional stress to city budgets, the underlying problems are systemic and long-term. Pension and healthcare costs for municipal workers are expected to continue to outpace the growth of property taxes and the economy as a whole. Cities have struggled to keep up with the demand for capital expenditures, and construction costs are increasing at an above-average rate. Oregon cities do not have sufficient funds to replace aging facilities and invest in new infrastructure to accommodate growth. With Oregon’s property taxes locked into fixed annual rates of growth, these funding gaps will be especially difficult to manage.

The fiscal challenges faced by Oregon’s cities are significant but not insurmountable. In this report, ECONorthwest investigates the roots of the current situation as a first step toward identifying collaborative statewide solutions. We use data from the United States Census of Governments and from four Oregon case study cities to determine the causes and magnitude of municipal fiscal challenges and to investigate how cities cope with budget shortfalls. Cities keep finding ways to make ends meet (making cuts to services, improving efficiencies, deferring capital projects, raising charges and fees), but these ad hoc solutions can only go so far. Statewide, systemic policy changes are necessary to ensure long-term fiscal health of Oregon’s cities.

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