Eugene’s projected budget gap swells to $5.1 million

The city of Eugene’s projected budget gap for the two-year cycle starting in 2027 has significantly widened, city finance leaders said Monday, June 8.

The city would need to reduce spending in its general fund by $5.1 million per year beginning in 2027 to keep reserves on target, Principal Financial Analyst Maurizio Bottalico told the Eugene City Council. The shortfall is about $3 million more than the $2.2 million annual gap that city finance leaders projected in December — an increase of roughly 131%.

Without taking action, the city’s reserves are projected to be depleted within the next six years, Bottalico said.

The city is instituting mandatory underspending and a “hiring pause” starting this month,  mid-budget cycle, to “be proactive as we look to the future,” Chief Financial Officer Twylla Miller said.

The revised projections come as the council prepares to develop Eugene’s 2027-2029 budget, which begins with a financial planning workshop in late June. 

Eugene aims to underspend by $3 million in its general fund in the current two-year budget cycle, which will reduce the city’s projected annual budget gap to $4.4 million, Miller said. 

Given that general fund services are already “constrained,” this underspending “will be felt” when it comes to city services, she said. The city narrowed its $11.5 million general fund shortfall in the current two-year budget adopted last June by increasing Eugene’s stormwater fee.

“While city staff are good stewards of taxpayer resources, we are asking everyone to reduce expenditures as much as possible, focusing on priorities and deferring other purchases when they can,” Miller said. 

Miller said the hiring pause allows the city to fill critical positions while other jobs will remain vacant, adding that all positions must undergo “recruitment review to align with strategic and department goals and operational needs” to be approved before posting.

Public safety positions, like sworn officers, firefighters, paramedics, and 911 call takers and dispatchers, as well as temporary summer staff, are not subject to the pause, she said.

“While this isn’t sustainable over the long term, pausing hiring now creates short-term savings, provides flexibility for future service delivery and changes as part of budget strategies and potential landing spots if filled positions are reduced in the next biennial budget development,” Miller said.

The revised forecast reflects large projected reductions in two types of revenue over a six-year forecast. 

One is a $6.6 million projected drop in Eugene Water & Electric Board “CILT revenue” — short for contributions in lieu of taxes, or revenue primarily derived from electric retail sales, depending on the price and consumption of electricity. 

EWEB provides the city with forecast updates, and it projected a reduction in part because EWEB sold its McKenzie Valley electric service territory to Lane Electric Cooperative May 1, and because EWEB’s current forecast assumed a lower rate trajectory, Bottalico said.

“If winter weather turns out to be warmer than anticipated, as we have experienced this past winter, that also has the potential to further reduce CILT revenue from forecast developments,” he said.

The second is a $6.5 million reduction in state shared revenues from the sale of alcohol, marijuana and cigarettes. 

The League of Oregon Cities provides Eugene this forecast, and it projects a decline in alcohol revenue disbursements in part due to the construction of the Oregon Liquor and Cannabis Commission Warehouse in Canby, which was funded by alcohol revenues, he said.

“Another consideration for state shared revenues is that alcohol consumption appears to be at least leveling off or trending downward as consumer preferences evolve,” Bottalico said. 

The city also assumed $2 million in one-time land sale revenue in the current two-year budget cycle, but has removed it from projections as it now assumes the sale won’t materialize in this biennium, Bottalico said.

On the expense side of the budget, inflation continues to put “upward pressure” on wages and the cost of materials and services, despite a projected $8.2 million reduction in Oregon Public Employees Retirement System (PERS) expenses over the six-year forecast period, he said. 

Nongeneral funds and limited duration funding

The city’s nongeneral funds are also experiencing fiscal distress, the officials said. 

Eugene plans to address current biennial deficits in those funds through “targeted underspending” or holding positions vacant, instead of supporting the struggling funds with money from its general fund as it has in the past, Miller said.

“Fund managers are reviewing funds and related services over the next few months to identify areas to reduce expenses and explore revenue options where applicable as we prepare for budget development,” she said. 

The fund with the largest projected deficit is the road fund. It faces an annual gap of $2 million in the next two-year budget cycle. Staff “temporarily managed” its structural deficit with short-term strategies like internal underspending targets, Miller said, but the state gas tax on the ballot in May, expected to provide enough long-term revenue to eliminate the fund’s structural deficit, failed to pass.

“This cannot be managed solely through underspending,” she said. “Staff are undertaking a comprehensive review of the fund and related services over the next few months to identify areas to reduce expenditures and explore revenue options.”

The city’s ambulance transport fund faces a $1.2 million one-time gap in the two-year budget cycle beginning in 2027 in part due to a delay in receiving grant revenue from the state and gaps in Medicaid and Medicare reimbursements, Miller said. 

The cultural services subfund, which receives Eugene’s transient lodging tax revenue and earns revenues from venues like the Hult Center and Cuthbert, projects a $750,000 annual gap starting in the next cycle. Transient lodging tax revenue is down due to three hotels moving from the Eugene tax base to the Springfield and Glenwood tax base, Miller said. 

The public safety communications fund, which supports emergency call taking services, is only funded by the flat-rate state 911 tax and has mitigated its ongoing deficit stemming from rising service costs through vacancies. The fund projects an annual gap of $440,000 if fully staffed, she said.

The city’s parking services fund, which manages on- and off-street parking in Eugene, is experiencing lagging revenue collection due to meter vandalism, increasing unpaid citations and staff vacancies, leading to a $350,000 projected annual gap next cycle. 

The telecom licensing fund, funded by fees from wireless and wireline providers, also projects an $800,000 annual gap in the 2027-29 biennium.

Eugene’s time-limited funding sources further cloud its financial outlook.

The Community Safety Payroll Tax, which brings the city about $25 million in revenue per year, will expire in December 2028 unless extended. The city’s parks levy and its current road bond will expire at the end of fiscal year 2028 and 2029, respectively, and the newly approved library levy will expire in 2031.