A million-square-foot warehouse and a much smaller Salem business can wind up paying the same City Operations Fee.
Today, commercial, industrial, institutional and public utility accounts inside Salem are charged a flat $78.47 per month. That rate is already scheduled to rise to $80.75 on Jan. 1, 2027. The size of the building or the amount of activity taking place there does not change the charge.
That one-size-fits-all structure is what the Salem City Council began trying to untangle Wednesday night.
During a nearly two-hour work session, councilors worked through two possible ways of restructuring the fee and ultimately gave city staff general direction to continue developing a tiered model that would charge nonresidential accounts differently based on the type of activity at the property and its size.
Nothing was adopted, and no final rates were approved.
Chief Financial Officer Josh Eggleston described the council's direction near the end of the meeting as a “general consensus to move forward” with the second option, although he said the categories and other details could still change.
City Manager Krishna Namburi later summarized the discussion similarly, saying council appeared to be leaning toward “option two in some format.”
The concept would divide nonresidential accounts into tiers using nationally developed estimates for how much traffic different types of properties generate. Building size would then help determine the monthly charge within those classifications.
That could produce dramatically different bills for some of Salem's largest properties.
In one example presented Wednesday, a light-industrial warehouse larger than 1 million square feet would have paid about $2,545 per month under the illustrative tiered formula, rather than the flat nonresidential charge. Staff repeatedly warned councilors that the figure was an example, not a proposed final rate.
The numbers were designed to show how a different system might work. Both models presented Wednesday were calibrated to generate about $1.4 million more annually than the current structure, but Eggleston told councilors that amount could move up or down depending on the rates eventually chosen. The models also require more data validation before they could become an actual proposal.
The harder question Wednesday was not simply how much to charge. It was how to decide who should pay more.
Councilors repeatedly tested the formula with examples ranging from warehouses and medical offices to restaurants, movie theaters, churches and assisted-living facilities. Several questioned whether national traffic averages could accurately capture the differences between two businesses in Salem that might occupy similar buildings but draw very different numbers of customers.
Councilor Paul Tigan favored the tiered approach in part because it would be simpler to administer than calculating a separate activity-based rate for every individual property.
“I personally prefer, if as we move forward with this, to keep it as simple as possible,” Tigan said. “I think option two does that better than option one.”
The fee is more than an accounting exercise for Salem.
The City Operations Fee supports the General Fund, which pays for services including police, fire, municipal court, planning, code enforcement and internal city operations. The city expects the fee to generate about $15.6 million in the fiscal year 2027 budget.
At the same time, city officials are trying to plan around a longer-term structural imbalance. The five-year forecast shown Wednesday projected an annual General Fund deficit of just under $5 million in fiscal year 2028, growing to $12.4 million by fiscal year 2031 without changes. Eggleston cautioned that the forecast was based on an earlier April model and could improve through cost savings or worsen with factors such as inflation and rising pension costs.
Staff is not moving directly from Wednesday's discussion to a new bill.
The next steps are to validate the rates and revenue estimates, refine how accounts would be classified, calculate the effects on different customers and develop the administrative process. Staff then plans to take the concept to businesses and other stakeholders before returning to council for another discussion about the methodology and how much revenue the city ultimately wants the fee to generate.
For Salem businesses, that means the $2,545 warehouse example is not a bill waiting in the mail. But after Wednesday's discussion, the flat-fee system that has long put vastly different nonresidential accounts on the same footing is increasingly unlikely to be the final word.