City of Salem Projects $18 Million Budget Shortfall for 2026, Plans for Financial Strategy

The City of Salem recently released its preliminary five-year financial forecast, projecting an $18 million shortfall in the General Fund for Fiscal Year 2026, with the gap expected to widen over the next few years. This forecast, presented to the City’s Budget Committee, will guide decisions on service prioritization and financial planning.

The financial forecast highlights rising costs as a major factor contributing to the projected budget deficit. “The forecast shows a difficult financial path ahead for Salem’s General Fund,” said City Manager Keith Stahley. “We have a lot of work to do to build understanding and regain the trust of our community. While we work to set the priorities of the budget, all city employees must continue to be ‘at your service’ to the residents of Salem.”

The forecast models the City’s revenue and expenses over the next five years, helping Salem officials better understand the fiscal landscape and challenges. Inflation, particularly in employee-related expenses such as salaries, retirement, and benefits, is driving the projected financial strain.

The City’s Finance Department will engage an outside firm to validate the forecast’s assumptions by January 2025. Results will be reviewed by the Budget Committee on January 15, forming the foundation for budget decisions. In November, the Budget Committee, which includes the Mayor, City Councilors, and nine community members, will begin discussions on budget priorities for the coming years.

Salem’s City Manager will then develop a budget based on the Budget Committee’s recommendations, with further review set for April and May 2025. The finalized budget will be forwarded to the City Council for consideration and adoption in June 2025.

Community support may also be sought in the form of a levy, with potential for voter approval to help fund essential city services.

Forecasting, city officials emphasize, is a critical tool for both short-term and long-term financial planning. “Looking ahead five years and estimating our revenues and expenses is an important financial best practice for our credit rating,” the City’s report explains. Credit ratings, which can impact borrowing costs, are particularly vital as Salem prepares for upcoming expenses, like those associated with the 2022 Community Safety and Livability Bond.

The General Fund, which is the primary operating fund for Salem’s essential services, supports a range of city functions, from police and fire services to community planning, parks, and financial services. Approximately 80% of General Fund spending goes toward staff salaries for these vital services.

To address budget constraints in recent years, Salem has already reduced 6.35 positions at the library, trimmed police department staffing, and decreased certain service hours. For the current fiscal year, the City Council enacted $3.8 million in budget cuts, including:

• $278,000 in Parks Operations
• $400,000 for social services grants
• $625,000 to the Salem Housing Authority
• $257,000 from Center 50+ and Recreation Services
• $850,000 by deferring equipment replacement

Additionally, the city transitioned the Youth Development Program to a Substance Use Prevention program with alternative funding.

In response to the ongoing financial strain, Salem officials are actively pursuing cost-saving measures, including reviewing potential further budget cuts, exploring user fee increases for specific programs, and engaging the community to gather insights and feedback.

The City emphasizes its commitment to transparency and proactive engagement in the budget process. Public meetings will be held throughout the year at the City Council Chambers, and sessions will also be available on YouTube to keep residents informed.

As officials continue to develop financial strategies to close the budget gap, residents can expect to see information shared widely, enabling community members to participate in the decision-making process and express their priorities for Salem’s future.