Chapel Hill has a $6.7M budget gap. Here’s what the town could cut to close it.
Some Chapel Hill homeowners could pay higher property taxes next year as the town tries to preserve programs that help its most vulnerable residents.
The town faces state and federal funding cuts, plus a drop in sales tax revenue, which pays a quarter of its operating costs, Finance Officer Amy Oland said.
Meanwhile, many homeowners saw their property values soar after Orange County’s recent revaluation. The countywide property tax base is up 38.6%, tax officials said. In Chapel Hill, the property tax base is up 34.8%.
Town staff prepared a hefty packet of potential cuts, tradeoffs and budget scenarios ahead of Wednesday’s meeting that could help close a $6.7 million shortfall in next year’s anticipated $89.3 million general fund budget.
Some proposed cuts got immediate support at Wednesday night’s Town Council meeting, while others were rejected, including a suggestion to cut the Police Department’s downtown patrol unit, the Crisis Assistance, Response and Engagement (CARE) team, and other public safety units.
Many more potential cuts could be considered during May budget talks.
The possible cuts “really shows that we are operating at a very lean level,” interim Town Manager Mary Jane Nirdlinger said. Town staff have cut costs where they could for years and reduced spending in street repaving, new vehicles and non-core services, she added.
“When you go through the departments’ operations and their budgets, you would see that in order to do an 8% to 10% reduction, you would have to implement everything in that packet, and it’s pretty dramatic,” Nirdlinger said.
Higher property values set new tax rate
Council members were open to cuts, but also could add four or five cents to the “revenue neutral” property tax rate, which is set as a starting point after properties are reassessed to generate the same property tax revenue as before a revaluation..
Orange County conducts a revaluation every four years. Many residents saw their property values double and even triple this year. On Tuesday, over a dozen residents told the Orange County commissioners they fear rising property taxes will take their homes.
In Chapel Hill, home values grew 53.4% last year, compared with 30.2% growth in commercial tax values, county Tax Administrator Nancy Freeman said. The average Chapel Hill home is now valued at $640,180, town staff said.
Property taxes pay nearly half the town’s annual operating costs, with homeowners picking up about 72% of that bill.
The new, revenue-neutral town tax rate would be 44.2 cents per $100 assessed value, staff said. A penny on the tax rate generates over $1.3 million.
A five-cent increase would create a new town tax rate of 49.2 cents per $100 in assessed value. The owner of a $600,000 home would pay $2,952 in Chapel Hill taxes, plus county taxes, a Chapel Hill-Carrboro City Schools district tax, and other local taxes and fees.
“We’re just looking at these very small things that we [the town] can affect, but I do think that thinking about the whole bill is important, because that’s the check that people are writing,” council member Adam Searing said.
Council cites slow growth, expensive homes
The town’s situation stems in part from growing inflation, which has outpaced the town’s average growth rate of 1.14% over the last four years, Council member Theo Nollert said. That makes it harder for the town to afford basic services and amenities, he said.
“I’m very eager ... to see a [revised land-use plan] that will not stick us in this position where we are forced to choose between cutting services and failing to meet the duties of the town or raising taxes,” Nollert said.
The town is currently revising its land-use plan, which guides where future development could go and how densely it could be built. Past land-use decisions have led to more suburban development, single-family homes, and shorter, less dense commercial buildings.
Council member Paris Miller-Foushee agreed, and pushed for adding up to four cents to the revenue neutral tax rate.
The town’s slow growth has “caught up to us [and] we’re now not getting the support from our federal and state governments, and we’re bearing the brunt of it. And not only are we bearing the brunt of it, our people are going to bear the brunt of it,” she said.
Some Chapel Hill residents who live in expensive homes can afford to pay higher taxes if it saves critical services that lower-income people need and helps address complaints about people living on the street, council member Melissa McCullough said.
“If we can mine that value increase for most people who have been paying that kind of money for houses, and then take some to help the people who are going to be hurt, I see that as a value for the town,” she said.
Nollert agreed, but added, “I wouldn’t want us to make assumptions.”
The council will discuss the budget again at its April 23 meeting, and Nirdlinger will present her draft 2025-26 budget on May 7. The council will then hold a public hearing, followed by a possible vote on June 11. The new budget takes effect July 1.
How often does the council raise taxes?
Chapel Hill’s property tax rate stayed roughly the same or changed very little between 2009 and 2023. In 2024, the council approved a five-cent rate increase to start addressing a $60 million backlog of maintenance, building and big-ticket needs. Last year, the council approved another two-cent increase.
The council is in the third year of a five-year plan to address the backlog.
Council member Elizabeth Sharp said Wednesday that she would like to see the town “get to a place where we have a sustainable budget [and] we are doing the core things we’re responsible for as a town.”
What could the town cut to save money?
Staff brought up to $11.9 million in suggested cuts to the council Wednesday, including:
▪ Closing the Chapel Hill Public Library and Parks and Recreation facilities one day a week, and reducing cultural festivals and library, public art and summer camp programs.
▪ Modifying the loose leaf collection program.
▪ Cutting back on building maintenance and street resurfacing. There’s now a $14 million backlog.
▪ Cutting funds for human service programs.
▪ Eliminating bus routes and positions, including drivers.
▪ Searing suggested reallocating about $1 million from the downtown budget, including district tax revenues and money for the Chapel Hill/Orange County Visitors Bureau.
This story was originally published April 17, 2025 at 9:01 AM with the headline "Chapel Hill has a $6.7M budget gap. Here’s what the town could cut to close it.."
