Sustainable Solutions for the Budget Gap

To address the long-term challenges of the rising costs and limited resources, the City Council is focusing on equitable, sustainable revenue solutions that can strategically support community services for years to come. 

Starting last year, the Council evaluated a field of more than two dozen options and narrowed down to two solutions that could work for Corvallis. You can follow the Council's decision-making process on the City website. Here are tools the Council is considering:

• Payroll tax: a 1% payroll tax on employers and employees in Corvallis would generate roughly $10 million annually. 
• Income tax: A 0.68% income tax applied community-wide would generate roughly $10 million annually. 

If applied together, both of these revenue measures could generate sufficient revenue to close the operating budget gap and provide funding for critical facility investments. 

Council is evaluating and refining how these revenue measures can be a sustainable solution and can be applied most equitably across the Corvallis community to reduce the impact to lower-income households and individuals. 

Let’s take a closer look at how an income tax and a payroll tax could be applied in Corvallis to address the $20 million budget gap that is projected to arrive as early as 2027.

This is an estimate and outline of the options to help the community understand the general scale of impact for what is on the table. Council has not yet made a final decision on how to implement solutions or cuts to address the budget gap and City needs. As a result of refined analysis and current community engagement this fall, Council will determine a path for moving forward. Using the amounts of roughly $10 million for each tax gives a sense of how these solutions could contribute to solving the budget gap.

Payroll Tax: How Does It Work?

• A 1% payroll tax would be split equally between employers and employees who work in Corvallis. 
   
• One possibility for implementing this tax would be to exempt workers making less than $32,000 per year - those employees would pay no tax at all.
   
• For a worker making $75,000 annually, a 1% payroll tax would cost about $27 per month.
   
• At a 1% rate, the payroll tax applied community-wide would generate roughly $10 million annually to help close the budget gap.

Income Tax: How Does It Work?

• A 0.68% income tax would apply to people in Corvallis.
   
• The tax rate could be scaled toward higher income tax filers, helping to shift the impact away from lower income community members. 
   
• For someone making $75,000 annually filing as a single person, a 0.68% income tax would cost about $504 per year. 
   
• At a 0.68% rate, an income tax applied community-wide would generate about $10 million annually toward the budget gap.

For Further Reading

The City Council got into the specifics of using payroll tax and an income tax at their May 7, 2026 work session. Check out the materials from that meeting on the City website.

Why These Two Tax Measures?

The City Council is looking for a sustainable, progressive solution for the budget gap.

Both a payroll tax and an income tax, applied at a moderate rate to generate a diversified base of revenue, can help us get there. In addition, they both have different opportunities for adjusting and fine-tuning the way the taxes are applied across our community.

Council developed a set of Guiding Principles to evaluate funding options that led to the selection of these options:

1. Adequacy examines both the amount of potential revenue generation and its stability over time. This includes evaluating whether the funding source can grow to meet future demands and how susceptible it might be to economic fluctuations.
2. Equity considers both horizontal equity (treating similar taxpayers consistently) and vertical equity (ensuring those with greater resources contribute proportionally more). It also examines the connection between who pays for a service and who benefits from it.
3. Operational Feasibility evaluates the practical aspects of implementation, including required systems, staff resources, collection methods, and enforcement mechanisms. This includes consideration of both initial setup costs and ongoing operational needs.
4. Political Feasibility assesses potential public support, considers unintended behavioral changes, and evaluates strategies for building community consensus around the revenue tool.
5. Strategic Alignment evaluates how well the revenue source supports City goals and priorities. This includes examining the nexus between the funding source and the services it supports, as well as how it advances the objectives outlined in the City's Strategic Plan.
6. Transparency reflects the City's commitment to maintaining clear communication throughout both the selection and implementation processes. While transparency may not be quantifiable in the same way as other principles, Staff will work with the consultant to determine whether it can be evaluated as a ranked criterion or should remain a core process value.

Go back: The Budget Gap: 2025 and Beyond