Chapel Hill Town Council FY 2025-2026 Budget Work Session - June 4, 2025

The Chapel Hill Town Council held a work session on June 4, 2025, to discuss the Manager's Recommended Budget for FY 2025-2026. The meeting focused on the proposed property tax rate, employee compensation, transit funding, and various cost-cutting options. Council members expressed a range of positions on the tax rate and budget priorities, with no formal vote taken; staff was directed to prepare a budget ordinance for a future vote.

Discussion Items

• Manager's Recommended Budget Overview: Interim Town Manager Mary Jane Nirdlinger presented a proposed budget of $163,672,372, with a recommended property tax rate of 5.0 cents above the revenue-neutral rate (totaling 5.8 cents over revenue neutral). The budget includes a 5% cost-of-living adjustment (COLA) for employees, $1,517,000 for key operating priorities, and a five-year forecast for capital and operating needs. She outlined options to reduce expenses, including adjustments to transit funding, Parking Lot 2 improvements, the Throne Bathrooms initiative, the General Fund Balance, and the COLA.
• Transit Funding: Council discussed the Transit Fund, which has approximately $35.8 million in available fund balance but also aging infrastructure and capital needs. Some council members questioned the high fund balance and suggested using it for one-time capital purchases to lower the tax rate, while staff cautioned that much of the fund balance is already obligated or needed for a six-month reserve. Council member Camille Berry noted that transit partners had expected a higher allocation from the town. The council did not reach consensus on reducing the transit allocation.
• Parking Lot 2 and Throne Bathrooms: Council agreed that the $100,000 allocation for Parking Lot 2 improvements was not a priority this year and could be repurposed. There was strong support for maintaining the $60,000 allocation for the Throne Bathrooms (public restrooms downtown), with several members emphasizing the need for basic sanitation. Staff noted the Throne project depends on regional participation through Central Pines, and if it falls through, the funds could be redirected to other priorities.
• Employee COLA and Compensation: Several council members expressed support for the 5% COLA, arguing it is necessary to retain staff and address market rates, while others preferred a lower increase (2-3%) to keep the tax rate down. Staff explained that reducing the across-the-board raise would require a larger implementation fund to bring employees to market, resulting in only marginal savings.
• Fund Balance and Tax Rate: Council debated the appropriate level of the General Fund Balance (currently 22% of expenditures, about $20.7 million unassigned). Staff advised against depleting fund balance, warning of potential impacts on the town's AAA credit rating. Some members advocated for using a portion of fund balance for one-time capital needs to lower the tax rate, while others stressed maintaining the policy.
• Council Member Positions on Tax Rate: Council members expressed a range of positions on the recommended tax rate (5.8 cents over revenue neutral). Support for the full manager's recommendation came from Council Members Berry, Sharp, and Miller-Foushee, as well as Mayor Anderson (via vote) and Council Member Stegman (expressed support for a rate close to 5.8, possibly 5.0). Others, including Council Members Searing, Ryan, and McCullough, favored lower rates (3.5 to 4.5 cents over revenue neutral), citing affordability concerns and the need to avoid burdening lower-income residents.

Key Outcomes

• No Formal Vote: The council did not take a formal vote on the budget; instead, members provided guidance to staff. The matter was received and filed.
• Direction to Staff: Staff was directed to prepare a budget ordinance for council consideration at a future meeting (likely June 18 or 25, 2025). The council requested that staff develop options for a tax rate between approximately 4.5 and 5.8 cents over revenue neutral, incorporating the following adjustments: keeping $60,000 for the Throne Bathrooms; cancelling the $100,000 for Parking Lot 2 (with funds to be held for potential redirection to unhoused community needs, subject to further discussion); assuming 2% sales tax growth (0.2 cents); funding the Rogers Road obligation from the debt fund (0.2 cents); and reducing the five-year capital allocations by $800,000 (0.2 cents) with a commitment to revisit fund balance use at year-end. The council did not reach consensus on employee COLA or transit allocation.
• Closed Session: The council unanimously voted to enter closed session to discuss economic development, property acquisition, personnel, and/or litigation matters, as authorized by G.S. 143-318.11(a)(5). The meeting adjourned at 9:03 p.m.