Orange County

Chapel Hill looking at tax hike for debt, transit and services. How much will it be?

The Chapel Hill Town Council - Donna Bell (clockwise from top left), Karen Stegman, Rachel Schaevitz, Allen Buansi, Hongbin Gu, Nancy Oates, Mayor pro tem Jessica Anderson, Mayor Pam Hemminger and Michael Parker - will consider a 3-cent tax rate increase in 2018.
The Chapel Hill Town Council - Donna Bell (clockwise from top left), Karen Stegman, Rachel Schaevitz, Allen Buansi, Hongbin Gu, Nancy Oates, Mayor pro tem Jessica Anderson, Mayor Pam Hemminger and Michael Parker - will consider a 3-cent tax rate increase in 2018. Town of Chapel Hill

Property owners could pay more taxes next year for town services, transit, and to build a $31.4 million Municipal Services Center housing a new police headquarters, and other projects.

Town Manager Roger Stancil's proposed $111.1 million budget includes a 3-cent tax rate increase — 1.2 cents for the town's operating expenses, 1 cent for the transit fund and 0.8 cents for the debt management fund.

The budget also uses $3 million from the fund balance, which is the money left over after the bills are paid.

The Town Council will open a public hearing on the proposed budget Wednesday, May 9. A decision is expected June 13, after multiple council work sessions to discuss the options.

Council members asked Wednesday for staff to bring more information to the work sessions about the cuts that were considered, other options and how the tax increase would affect people at a range of incomes.

Business management director Ken Pennoyer said the town's tax revenues haven't kept pace with rising costs for several years. The tax increase is a move toward matching the town's revenues with its spending, he said.

Ken Pennoyer.jpg
Ken Pennoyer Town of Chapel Hill Contributed

"What we've been doing is trying to balance the general fund budget using fund balance, and we used a little bit more than we probably should have, and the fund balance went down [last year]," he said.

The town's current tax rate is 50.8 cents per $100 in property value. The increase would add $90 to the tax bill for a home valued at $300,000, putting the total tax bill at $1,614.

That would be in addition to county and Chapel Hill-Carrboro Schools district taxes. While the commissioners have the option of raising the 20.18-cent school district tax, no one has recommended that yet.

The current school district tax bill on a $300,000 home is $605.40.

However, County Manager Bonnie Hammersley has proposed increasing the county's property tax rate by at least 1.4 cents next year to 85.19 cents per $100 in property value. That would generate a $2,555.70 county tax bill for the owner of that $300,000 home.

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While the proposed tax increase is tough to hear, the town has made some strategic moves, particularly with employee health care and transit, Mayor Pam Hemminger said.

"I'm very pleased that we're no longer looking to fund balance to plug the holes of an operating budget," she said. "That's never a good move, and I'm glad we worked away from that."

Keeping up with costs

Chapel Hill has only raised taxes in three of the last 10 years, Pennoyer noted. The last, 1-cent tax increase was in 2014-15, and a penny on the town's tax rate now generates $819,000 in revenues.

"In the past, what we've been trying to do is basically say is we're going to have savings from vacancies and other savings, so we'll try to incorporate those into the budget so we don't have to increase taxes," Pennoyer said. "But as we started to use more and more fund balance, we got to a tipping point where we were using more than our savings on an annual basis."

Roger Stancil
Roger Stancil

The largest piece of the recommended budget is nearly $66.4 million for town operations — an increase of $2.8 million over this year's general fund, or operating, budget.

The second-largest expense is the $24 million transit budget. Transit costs also have been covered in past years with money from the town's fund balance, but that is unsustainable, Stancil said. Carrboro and UNC also will pay more for transit next year.

The three entities form the Chapel Hill Transit Partners group, which has been studying how to keeping the system funded despite rising costs and big state and federal funding cuts. The system took a hit especially with the loss of federal grants that previously paid 80 percent of the cost for new buses, Pennoyer said.

Stancil noted Chapel Hill Transit is seeing some benefit from the half-cent sales tax collected for the Durham-Orange light rail project and other regional transit improvements. The tax originally was aimed at funding more bus service hours, but Chapel Hill Transit's rising service costs have reduced the improvements so far.

The 2017 Orange County Transit Plan also noted Chapel Hill Transit's aging bus fleet also has limited service improvements. However, the agency expects to add 37 new buses and 12 EZ Rider demand-response vehicles in the next two years.

"I think incremental improvements to our service, like modifications to a route or small changes to service, are really being taken care of with those new funds from the sales tax that we get," Stancil said. "I think it you started talking about the dramatic changes to service that our community often talks about ... that's not going to be funded by the half-cent sales tax."

Another big part of this year's tax rate increase is trying to maintain town facilities, including the construction of a new police station and regular repairs that crop up as buildings get older, Stancil said.

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Salary increases, housing

Other budget highlights:

Employee pay: The budget includes a 3 percent salary increase for all town employees.

Affordable housing: The Penny for Housing continues to add $688,395 to the budget for developing and preserving affordable housing. Next year's budget also includes $403,730 for the Orange Community Housing and Land Trust and the Homeless Initiative and $398,637 for affordable housing partnerships.

Housing bond: Town voters also will be asked to approve a $10 million affordable housing bond in November. If approved, the bond could add another penny to the property tax rate in 2019-20.

Tammy Grubb: 919-829-8926; @TammyGrubb