Tax increase on the horizon for Chapel Hill property owners?

GOVERNMENT

By Adam Powell
Correspondent

CHAPEL HILL – It’s been said that in life, the only certainties are death and taxes.

As the Town of Chapel Hill prepares to unveil its 2024-25 budget, it’s beginning to appear more and more certain that local homeowners, business owners and landowners are about to get a modest increase in their property taxes.

In recent meetings and work sessions, the town council and staff have been discussing their ongoing budget needs and some of the many things they would like to do to improve the town as part of a larger wish list of new recreational opportunities and facilities.

Based on feedback from town planners and staff, it appears that Town Manager Chris Blue will likely recommend a 1.5-cent property tax increase for the 2024-25 General Fund and a competitive cost-of-living increase for town employees. The Town Manager will also recommend that most community partner funding levels remain the same year after year from the 2023-24 budget.

To their credit, town leaders are being transparent about the strong likelihood of a tax increase in the 2024-25 budget as they look ahead to a 2025 Orange County property tax revaluation that could substantially increase assessed home values and result in significantly increased revenue for Chapel Hill.

“We’re still getting final cost increases for contracts and we are still waiting on final estimates from the county,” Town Manager Blue said during a recent budget work session. “Here’s what you will likely see in our recommended budget –the penny and a half increase for the General Fund, which is consistent with year two of our five-year budget strategy. This will continue to chip away at some of the basic needs we discussed last year and continue to talk about, and be a bridge to next year, when the county revaluation may significantly impact our revenues.”

In a late March email address to the community, Mayor Jessica Anderson was upfront about the town’s finances. She anticipates homeowners and property owners should expect a tax increase comparable to an increase in a phone or utility bill.

“In keeping with our five-year budget plan, we are strongly considering a tax increase to continue catching up on a backlog of operating needs and ensure long-term financial sustainability for Chapel Hill,” the mayor stated in her email. “At this time, the data we’ve received suggests the need for a 1 1/2 to 2 cent increase. For many of our households, this will result in an annual increase of $100-$200.” 

During the town’s March budget work session, which involved heads of various town departments and the Town Council, Blue indicated the need to recognize the hard work of city employees with a cost-of-living upgrade and address various unmet needs across town.

“We know that we need to offer our excellent employees an additive cost-of-living adjustment this year. And we’re looking to keep our community partner funding levels at around the same level,” the city manager explained. As we share some hard truths with you, we think you will understand our thinking behind that approach. All of this, of course, is subject to change based on what we hear from you and these continued conversations.”

Speaking of hard truths, Blue mentioned three in particular.

Revenue is down across major categories throughout Chapel Hill, including collections of property taxes and utility fees. In addition, the cost of doing business has substantially increased across all municipal departments over the past few years.

According to town staff, Chapel Hill also has a significant backlog of ongoing needs. 

“Revenue is down across our major revenue sources in the areas of property taxes, sales taxes, and development fees,” said Business Management Director/Finance Officer Amy Oland. Property tax growth is minimal. It takes a lot of new developments to move the needle just a little.”

Oland explained that while Chapel Hill’s tax growth has historically been about 1.8 percent, which is usually enough to cover cost-of-living adjustments for employees, the figure is typically never enough to fully cover all of the town’s increase in the cost of doing business.

Oland indicated that Chapel Hill is looking at less than 1 percent growth in terms of revenues for fiscal year 2024-25, while sales tax figures are also projected to be lower.

“While this [property] tax trend alone has a huge impact on our budget development, it’s not the only one,” she said. “Sales tax projections are also down and they’re down across the entire state. The retail economy that was so hot during the pandemic is finally cooling off, as are the corresponding sales tax revenues.”

For fiscal year 2024-25, Oland’s office expects sales tax projections for Chapel Hill to be around 4 percent, which is significantly lower than in previous years, when it has averaged between 6 and 12 percent. Oland also indicated that development revenues are projected to be down 22 percent for the Town of Chapel Hill for fiscal year 2024-25, a significant decrease for this revenue stream.

“Development revenues are a small but important source of overall town revenue and are down as well,” Oland stated. “These fees have a knockoff effect downstream on everything, from planning fees to inspection permits further downstream. This leads to even less growth in our property tax revenues.”

In her message to the community, the mayor indicated that Chapel Hill has the existing funds to make a wide range of capital and infrastructure improvements within the upcoming year’s budget.

According to the mayor, these infrastructure improvements will not draw funds from the anticipated tax increase, although town leaders will eventually call for a $50 million bond referendum to fund some of the larger-scale projects the town would like to complete in the coming years.

“With respect to our larger capital and infrastructure projects, the town is in a solid position to continue making progress on sidewalks and roads, affordable housing, public safety facilities and other key project areas,” Anderson explained. “This can be done without additional revenues or taxes. In the coming months, we will be deciding two things. One, what mix of projects to fund and two, the timing of a voter referendum to approve $50 million in new bonds.”

“We know that these decisions will impact individuals, families and businesses across our community and do not take these decisions lightly,” the mayor added. “At this point, we are midway through the budgeting process and Council has asked for more information prior to making these decisions.” 

Although the town hasn’t yet committed to a tax increase for the Transit Fund, staff is also considering a nickel tax increase (0.5 cents per 100 dollars of assessed property value) to add to that fund’s coffers.

“We may recommend a 0.5 cent tax increase for the Transit Fund,” the town manager explained. “You’ll hear more about the transit fund in an upcoming work session. We wanted to signal that we may need to put a half-cent toward that fund with this budget this year, and we’re still running some numbers.” 

The next budget discussion will be at the Chapel Hill Library on Monday, April 15. That budget work session will lead to two public hearings related to the budget at Chapel Hill Town Council meetings on Wednesday, May 1 and Wednesday, May 15. The 2024-25 budget will be adopted later this spring and go into effect on July 1.


Adam Powell is a reporter on local news and sports and an education communications professional. A 2001 graduate of UNC-Chapel Hill, Powell has served as managing editor of multiple local publications, including the Mebane Enterprise, News of Orange County and TarHeelIllustrated.com. The public information officer for Rockingham County Schools in Eden, N.C., Powell is the author of four books and lives in Mebane with his wife and two children. This reporter can be reached at Info@TheLocal Reporter.press

 

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