Chapel Hill homeowners face a smaller tax increase after a Wednesday night vote.
Instead of the planned 3-cent tax-rate increase, the Town Council approved a $110.97 million budget that only raises the tax rate by 2 cents — one penny toward the town's operating expenses and one penny for growing transit costs.
The council and Town Manager Roger Stancil trimmed the third penny by delaying construction debt and saving money on town employee insurance costs.
The town is gaining traction in its efforts to diversify the tax base, Mayor Pam Hemminger said, noting new stores like Target and the future Wegman's Food Markets and the expansion of existing businesses.
"Nobody really likes to raise taxes on citizens; that's not really the goal," Hemminger said. "We try really hard to take the longer view. The longer view is changing and diversifying commercial space. We can't keep depending on residential property taxes and business property taxes to keep us going."
Next year's town tax rate will be 52.8 cents per $100 in assessed property value, adding $80 to the tax bill for a home valued at $400,000.
Chapel Hill homeowners also pay a Chapel Hill-Carrboro City Schools district tax, currently 20.18 cents per $100 in property, and Orange County property taxes.
The county commissioners plan to vote June 19 to raise the county tax rate by 1.27 cents next year, to 85.04 cents per $100 in value.
The combination of the schools tax rate with the new town and county tax rates would generate a total tax bill of $6,320.80 for the owner of a $400,000 home.
Downtown property owners pay an extra district tax of 7 cents per $100 in property value.
Next year's budget will be balanced with $3 million from the town's fund balance — money left over after the bills are paid. The town's policy is to keep an amount equal to 22 percent of its annual operating costs in the fund balance.
"We have noticed over recent years that our fund balance dips below the 22 percent target at the end of the year, and that's not a good place for us to be, because that's our fund for emergencies and cash flow," Stancil said.
So part of the tax increase going to the operating budget will start weaning the town off the fund balance, he said, and rebuild both the fund balance and the debt
At the same time, town staff has warned the council that the debt fund could face a deficit within the next five years, requiring either a tax increase or additional cuts or delays for town projects.
The town is examining its priorities but also how to generate new revenues, Council member Donna Bell said.
"Anything you do makes it so that the pressure on our property taxes is decreased, but it doesn’t take away the fact that some increases in our property taxes over time ... is going to be necessary," Bell said. "I, as a council member, never want to give fellow citizens and my constituents the idea that we’re going to be able to run our town over the long haul without having to pay increased costs for the things that we love, the things that we want to support."
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. 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.
▪ Additions: The council added $5,000 for a pilot project that would provide child care and transportation to residents who want to get involved with a town advisory board; $75,000 to enhance urban design review of development applications; and $10,000 to restore economic development funding.