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City staff will begin developing details for the payroll tax and bring them back to council for review early next year. The earliest the payroll tax would go into effect is Jan. 1, 2027.
The Springfield City Council voted unanimously Monday, Dec. 8, to direct staff to develop a payroll tax ordinance.
The council’s resolution does not implement a payroll tax, Springfield Finance Director Nathan Bell said during a public hearing councilors held before the vote. It also does not set the rate for the tax or other details.
Bell said city staff will begin preparing materials for the payroll tax and bring them back for a City Council work session in January or February.
The resolution also directs staff to develop an implementation plan for the payroll tax that includes collection and enforcement mechanisms; public outreach and education strategies; a timeline outlining next steps; and a reporting structure that provides updates to the council on revenue performance and impacts to the city’s fiscal condition.
“Best-case scenario is to have something that could potentially be in place and active beginning Jan. 1, 2027,” Bell said.
The vote came after multiple City Council work sessions to discuss a possible payroll tax, which was recommended by a Fiscal Stability Task Force. Mayor Sean VanGordon convened the task force to come up with ways to balance Springfield’s general fund, which is the city’s main operating fund and is facing a budget deficit.
In October, councilors reviewed a preliminary payroll tax structure, which includes a rate of 0.1% applied to both employees and employers. The proposal calls for the tax to be based on gross wages with only legally required exclusions. The tax would apply to employers within Springfield city limits.
The payroll tax is expected to have a net revenue of $2.9 million the first full fiscal year. Finance leaders forecast the general fund will have a shortfall of $3.5 million in fiscal year 2027 and $4.8 million in fiscal year 2028 before taking into account the task force recommendations, according to a general fund five-year forecast.
Library funding
Another recommendation from the Fiscal Stability Task Force is to reduce the library budget by $500,000. Sixteen community members who testified at Monday’s public hearing asked the council to set a payroll tax rate that fully funds the library.
“I don’t want to live in a town that doesn’t have a well-funded library,” Jessica Winans, a Springfield resident, told the council. “I don’t want that to be where my kid grows up. And I think that we have a way in front of us where we can move forward with the payroll tax at a well-funded rate, so that that doesn’t have to be the possibility for my kid and the other kiddos in this room.”
Vonnie Mikkelsen, president and CEO of the Springfield Area Chamber of Commerce, told councilors the chamber is open to the proposed payroll tax rate, “but we are not necessarily supportive of unnecessary expansion of the tax rate beyond what is proposed now.”
“Springfield has to bear short-term stabilization with long-term growth,” Mikkelsen said. “A payroll tax may help close an immediate gap, but it cannot replace the structural solution of growing Springfield’s tax base through business retention, expansion and development.”
VanGordon thanked community members for coming to the hearing and sharing. He said the revenue generated by the payroll tax could be used by the library, as well as the fire and police departments.
“The library isn’t the only need that’s out there,” VanGordon said. “And I think my concern remains that if we start opening up the overall rate, then we’re going to try to address all our potential needs out there and make this unsustainable.”
The mayor has said any cuts to the library’s budget will be determined during next spring’s budget process, which will begin in May and will include a budget committee hearing.
The library director last week provided the City Council with a proposed example of how a $500,000 general fund budget reduction could be implemented while maintaining essential services at the library. The scenario includes cutting three staff positions, one day of operation and $89,000 from the book budget, as well as trimming programming.