Chapel Hill budget retreat – inside the numbers


By Adam Powell

On February 3, Chapel Hill’s mayor and town council met for their first combined budget retreat of the 2024-25 budget season. Although 2024 is just a few weeks old, town leaders and planners are looking ahead to the upcoming budget season.

Chapel Hill has one of the top bond ratings of any town its size in the state of North Carolina. This makes it more affordable to finance large-scale municipal improvements as it begins planning for the upcoming fiscal year.

Town officials pointed out Chapel Hill’s strong fiscal standing as one of just sixteen municipalities maintaining a AAA bond rating with Moody’s. An AAA bond rating allows the town to obtain top debt service rates when they seek bonds for various town projects and purchases.

“We consistently receive a clean bill of financial health from external auditors,” reads a portion of the town’s budget retreat presentation. “We maintain a healthy savings account above and beyond the required minimum balance.”

However, Chapel Hill faces unique challenges from a long-term tax base standpoint, as it only grows approximately 1 to 1.5 percent on an annual basis.

A review of the current fiscal year budget indicated that Chapel Hill’s general fund expenditures ($84.9 million) are more than 58 percent of the total $144.3 million budget.

Chapel Hill’s Transit Fund is the second-largest budgetary expenditure, comprising approximately 22 percent of all budgeting at $32.1 million for the current fiscal year. Approximately eight percent of the budget – $11.58 million – was appropriated for the town’s debt fund, which is the third-largest expenditure.

Chapel Hill’s municipal tax rate stands at 57.2 cents per 100 dollars of assessed property value for 2023-24 for residents in both Orange and Durham County.

Approximately 74 percent of Chapel Hill’s $144.3 million budget for the 2023-24 fiscal year went to salaries, medical and other employer benefits, and municipal pension contributions for staff.

Town officials pointed out that Chapel Hill’s municipal tax rate is comparable to other local towns, and is actually less than neighboring Orange County communities such as Hillsborough and Carrboro.

Despite the relatively moderate municipal tax rate, the combined tax bill that Chapel Hill residents pay is among the highest in the state of North Carolina. This is partially because of expenditures related to the town’s Transit and Library services. Adding in school taxes paid to the Chapel Hill-Carrboro School System, and Chapel Hill homeowners and business owners essentially pay the highest combined property taxes in the state.

Ironically, in spite of those facts, Chapel Hill’s tax rate actually has gone down in comparison to its fiscal year budget 15 years ago. Chapel Hill’s tax rate stood at 58.1 cents per 100 dollars of assessed value in 2009, whereas it stood at 57.2 cents in 2023-24.

By electing to adopt a revenue-neutral tax rate in re-evaluation years — a concept of budgeting the exact same amount of tax revenue for an upcoming budget year as the previous fiscal year – Chapel Hill has had only two significant tax raises over the past 15 years.

While revenue-neutral taxing helps keep property owners from experiencing huge leaps in property taxes when their properties are re-evaluated, it also means the town loses the impact of revenue increases that are not large-scale in nature.

As the Budget Retreat wound down, town staff pointed out that Chapel Hill’s currently available revenues would not be able to keep up with increasing costs for staff and resources.

The suggestion was that another tax rate increase would soon be necessary, even with a tax increase in 2023-24. Staff also recommended against adopting a revenue-neutral tax rate in upcoming re-evaulation years, which could dramatically increase town revenues, but also lead to significant property tax hikes for Chapel Hill residents.

“Annual property and sales tax growth generally covers costs of employee raises and benefit increases,” the town’s presentation stated. “We don’t usually have anything left to cover annual operating cost increases or new programs/services. Last year’s increase helped us make gains in addressing our backlog of needs and priorities. A reevaluation year is just ahead, and if we adopt a revenue-neutral tax rate again, we will lose those gains.”

*Municipal tax rate figures to the 2023-24 fiscal year provided by the North Carolina Department of Revenue 2023-2024 County and Municipal Tax Rates and Effective Tax Rates | NCDOR

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1 Comment on "Chapel Hill budget retreat – inside the numbers"

  1. This article does not mention the amount of town funds spent on consultants, a major issue in the 2023 campaign. In addition, the article does not mention that new, administrative positions are being added to personnel expenses. A triple A bond rating indicates how reliably we pay our debt, not how efficiently we spend our precious tax dollars. We have the highest overall property taxes in the state and they are going higher. How EFFICIENT is Chapel Hill government compared to other NC towns?

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