Smart shopping has limits

You can’t get Nordstrom quality on a Walmart budget. From town manager Roger Stancil’s finance and economic update last night, a report he promised to deliver monthly until the council’s budget retreat in February, he has trimmed and juggled and stretched the town’s budget with the best of them. And the bare patches are beginning to show.

When the economy collapsed in September 2008, Stancil planned for a short-term dip. He pledged no municipal layoffs, no cuts in employee benefits and no rise in taxes. And he’s been true to his word. But to do that, he has had to keep temporary workers on temporary status, rather than move them to permanent status after a year. He has not filled positions vacated through attrition, and co-workers have had to pick up the slack. The increased workload has meant slower response times when council or the public asks for information, and some services have been cut back (recall the reduced hours of the Community Center pool).

The town is operating with an 8 to 10 percent staff vacancy rate, and as Gene Pease pointed out, that’s not sustainable. Even so, Stancil had to pull $1.1 million from the General Fund to pay the town’s bills. If the county reduces property values in its 2012 revaluation, the town will have to raise the tax rate to remain revenue neutral in 2013.

Stancil made a couple of suggestions for increasing revenue. One idea was to raise the sales tax in town, which he said would make sense because the revenue would come from the same commercial cluster that uses the services. (It also would provide even more incentive for shoppers to spend their money in Durham.)

Another way to raise money would be to sell town assets, he said. (Police Chief Chris Blue is probably more than willing to put his department’s cache of assault rifles up on Craig’s List at this point.) Stancil suggested council make an inventory of town properties and flag which ones they wanted to keep and have a fire sale of the rest. He cited the men’s shelter on Columbia and West Rosemary streets. I’m also betting the former Chapel Hill Museum building will have a “For Sale” sign on it. Stancil has made no secret of the fact that the building would need more than $1 million in refurbishing to come up to code.

As for increasing the commercial tax base to take pressure off residential taxpayers, Stancil said building two more University Mall-size projects would increase the commercial tax base by only 1 percent.

So start budgeting now for higher taxes by 2013. And begin rounding up a pool of investors. You might soon be able to get some good deals on town property.
– Nancy Oates

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  1. John Kramer

     /  November 29, 2011

    Yes! In Chapel Hill, higher taxes is always the answer! Good one.

  2. Road Warrior

     /  November 29, 2011

    It gets better, we’ll be in court paying to defend a useless, unenforceable cell phone ban. Sometimes I really do get sick to my stomach living here. As an actual Liberal, I don’t understand why we do so little for the people of this town.

    As a side note, the IFC REFUSED to give up the shelter on the corner, even if the new one is built (which will also require Town money). So this is going to get ugly quick.

    The Occupy thing brought up the unused space on Franklin Street. We also have our high-rise project at 140 West that will now be even more worthless. And as long as people who don’t pay property taxes – students, the University and renters – have more say than people who do, of course the answer is New Jersey level tax rates.

    As someone with a child in Public Schools, it’s still a bargain, but it’s safe to say that those will be cut build shelters, empty condos and defend unconstitutional cell phone bans. So I am just counting the years until I can put the house on the market and sell to someone else with kids – if they don’t destroy the schools in 3 years.

  3. George C

     /  November 29, 2011

    Road Warrior,
    I find it hard to believe that you’re a card-carrying Liberal if you think that renters don’t pay property taxes. What, you think the owner of the rental unit doesn’t pass the cost of their property taxes onto the renters? Also, since you enjoy the public schools you might be interested to know that their budget is entirely independent of the Town’s budget.

  4. John Kramer

     /  November 29, 2011

    George C is correct, you get your own, personal line item for the schools on your tax bill. Makes things look less expensive, imagine the tax rate if the schools were included. Pretty ingenious trick!

  5. Deborah Fulghieri

     /  November 29, 2011

    Thank you, Nancy, for watching or attending the Town Council meeting and distilling it as you have. Interesting to learn that town staff estimate that 2 large new malls would increase the commercial tax base about 1%. Thus, eliminating the rural buffer and building malls on virgin land would have a minimal effect on the tax base, without any mention made of the effect on service demands (fire, police, storm water, garbage/recycling).

    My middle-schooler suggested that Chapel Hill just annex Southpoint Mall. Mr. Stancil, how ’bout it?

  6. Ed Harrison

     /  November 29, 2011

    “Stancil made a couple of suggestions for increasing revenue. One idea was to raise the sales tax in town, which he said would make sense because the revenue would come from the same commercial cluster that uses the services. (It also would provide even more incentive for shoppers to spend their money in Durham.)”

    Nancy, this completely misinterprets what Stancil said. As everyone on the Council knew, he was referring specifically to increasing the amount of sales tax revenue available to the town by increasing commercial enterprise, not to raising the *rate* of sales tax. In NC, only counties can do that, and only by referendum vote. Both Orange and Durham Counties just did that, with vote margins of at least 16 percent in all three cases (Durham County had two referenda).

    All annexations by Chapel Hill of Durham County tracts have been completed, starting in the Spring of 1969 (yes, that’s not a typo) and finishing in the Summer of 2006.

    Annexations into the Rural Buffer would require formal agreement of Orange County and Carrboro. Most don’t find that likely.

  7. Anita Badrock

     /  November 29, 2011

    In 2010 our town’s bill to provide health care benefits to retirees exceeded the bill to provide health care benefits for current employees. Some years ago the town offered a benefit package that guaranteed paid lifetime medical coverage for all employees who retired with either 20 or 30 years of service. I think–but am not sure–that this has been changed for new hires.

    I use this example as illustrative only to ask a question about how we discuss and make decisions. I am not making any suggestion to change a compensation package mid stream. A lot of people made career decisions based on the overall compensation package, and I understand that and am not about to suggest that we balance our budget on the backs of people who did their part expecting us to do ours.

    However, this situation is one I understand well enough to use to as an example of my broader point. Here’s my question: —did anyone do any kind of analysis or projection to help the town understand how much this benefit was going to cost the town on an annual basis when it was originally offered? Was that information ever requested by the Council or provided to them to inform their budget discussions? Was anyone checking in periodically to see how the actual costs trended with the projected costs (if there was a projection done) so that the benefit plan could be monitored and modified if necessary? Were projections modified over time to more adequately mirror actual performance? Did the offered benefit help achieve the desired recruitment and retention outcomes? Were we measuring what we needed to measure in this area and using that information in a timely fashion to make good decisions? Did the council get reminded of this future liability in previous budget discussions?

    Do we know even now what the future cost of this benefit will be over the next 20 years? Is anyone even interested? Do we have any idea how much in actual dollars or what percentage of our budget will be committed to this line item in 15 years?

    When I served on a compensation committee several years ago, this unfunded future liability did not even show up on the town’s books. I believe that has since changed as a result of state reporting requirements, but when I and others asked if anyone had any idea how much the town should be setting aside on an annual basis to adequately fund this future liability, this information could not be provided.

    This is the kind of question I expect our elected officials to be asking about every commitment we are making. It’s not enough to figure out how to pay for something for the next two or three years; we need to have at least some idea of the costs over a longer period of time and keep this information as part of the institutional memory for future Councils.

    This is the kind of work and analysis our elected officials will have to do to navigate us through what is going to be a protracted economic slump.

  8. Nancy Oates

     /  November 29, 2011

    Excellent observation, Anita. I recall when the rule changed to report the unfunded future liability, Matt Czajkowski questioned how much the town was setting aside for it. I don’t recall the figure, but I remember thinking it wasn’t much compared to what the liability was. Kevin Foy was mayor at the time, and he bristled at Czajkowski questioning the amount. Foy defended the amount as being more than most towns of this size set aside, which didn’t sound like a solid basis for making a decision, given the downward spiral of the economy at the time. One more reason why I back candidates who know about finances. As Ed Harrison points out, my knowledge of economics doesn’t go beyond balancing a checkbook, so I want people on council who understand what Ken Pennoyer is talking about when he rattles off all those numbers and flashes through the charts.

  9. DOM

     /  November 29, 2011

    “Stancil said building two more University Mall-size projects would increase the commercial tax base by only 1 percent.”

    OMG, can this really be true? If so, we’re in even deeper than I thought.

  10. Jon DeHart

     /  November 29, 2011

    Hope is not a strategy ….

    “Best we can hope is for some slow growth,” he said. “What we know is that we can’t continue to try to provide the same level of services that we have provided as we continue to cut the budgets; we just can’t continue to do that

    The tax base is one function and then the sales tax created from it is another .

  11. Mark Marcoplos

     /  November 29, 2011

    Will we see any correction to the narrative, based on Ed Harrison’s reporting?

  12. FYI unfunded retirement liabilities – I questioned Council on it first, followed up later.

    More info here:

    Like a lot of our current fiscal problems, this was a long time developing including poor financial decisions made over 6 years ago. Unlike the Mayor and Manager’s spin, the poor economy has only exacerbated structural problems with our budget (drawing down the reserves, increasing debt loads, healthcare costs, forward retirement liabilities, etc.) which our only now beginning to be addressed. This trainwreck was foreseeable and avoidable, a shame most citizens won’t really get that message.

    I’m going to ask the Council, once again, to create an ad hoc Citizen Budget Advisory Board to help explore and evaluate a range of options.

  13. I was surprised by the reports that Roger Stancil had stated that it would take two University Mall developments to increase the tax base by one percent so I asked him if he was only referring to the property tax impact or the combination of property taxes and sales tax. He responded that indeed he was only referring to the property tax generated by such a development. I have asked Roger to look at the sales tax impact as well since that is where the greater bulk of the benefit should be and because without it the data can be misleading. In the past we have been told that it is difficult to get specific sales tax information because of confidentiality issues. That having been said, Aaron Nelson of the Chamber of Commerce has mentioned several times that the Walmart in Hillsborough is the largest single source of sales tax revenue in the County and contributes approximately eight percent of the county’s total sales tax revenue. The point is that high density retailers generate significant sales tax revenue. When we consider the impact of a significant retail development on the tax base we MUST consider both. In addition some of the sales tax benefit also accrues to the County which helps mitigate its reliance on property taxes as well.

    Two considerations when looking at the most efficient use of space for retailing are sales per square foot and sales per customer visit. The higher that both are the more sales tax revenue generated per shopping trip. When we model the impact of a major retail center on our tax base we should consider the revenue based on a high dollar per square foot retailers. These are all vital considerations as we move forward with Chapel Hill 2020 and I am confident that the staff will incorporate them into the materials and discussions.

  14. Terri Buckner

     /  November 30, 2011

    In a time period where many people are struggling financially, is it really wise to put too much emphasis on retail sales? Wouldn’t we be better off looking for businesses that have a longer lifespan, hire more employees, and pay higher wages?

  15. WJW

     /  November 30, 2011

    To Ms. Badrock:

    Just wanted to say a very informative comment.

  16. Deborah Fulghieri

     /  November 30, 2011

    Also, I have heard, “Blue Cross Blue Shield is looking for a buyer for its building and 38 acres near I-40.” I am in no position to evaluate what I hear, but does the Town have any information about this? Is there a contingency plan in case it’s true?

  17. DOM

     /  November 30, 2011

    Ms. Buckner:

    “…is it really wise to put too much emphasis on retail sales?”

    What would you recommend? Wholesale?

  18. Terri Buckner

     /  November 30, 2011

    How about software/apps development, start ups from UNC, small businesses that offer services, etc.

  19. Nancy Oates

     /  November 30, 2011

    Laney Dale pointed out during his campaign that start-ups and entrepreneurial businesses don’t generate a lot of money unless they hit it big, and only a very small percentage hit it big. On the other hand, people will always shop, even when they don’t have the cash to cover their purchases. In the past few years of the recession, people still spend money, but small-ticket items and discount merchandise sell more than big-ticket or high-quality merchandise. People also continue to spend money on food: grocery stores, Farmers’ Market and restaurants still have many customers, though people may be buying less expensive items or using coupons. That’s part of the concern over food trucks. If they offer a low-cost alternative to restaurant meals, parents who would take the family out to eat because they worked late and don’t have time to cook might treat food trucks as an even cheaper alternative to take-out. When 3 chicken pieces & a side of fries at Chick-Fil-A cost $7.50, you could probably do better at a food truck that doesn’t have the overhead.

  20. Anita Badrock

     /  November 30, 2011

    With respect to nonresidential development:

    We also do a very good job exploring and quantifying the impacts to existing residents (parking and traffic) existing service infrastructure (roads, public works) , or to environmental factors (stormwater runoff). I don’t think we bring the same level of rigor to the analysis of long term impacts to tax revenue, job creation, quality of life enhancements, the development of creativity clusters, or providing desired products and amenities to current and future residents. And I understand that part of that reason is because it is more difficult to know those things–we don’t necessarily know who will occupy the office space or retail space that is being developed at the time the development is being reviewed.

    Who would have thought that a start-up, locally created, high quality investment firm would occupy the Exchange at Meadowmont when it was proposed? Yet Morgan Creek Capital Management –started by the former head of the UNC Endowment Fund–provides many well paying local jobs and rents space in a beautiful local building. I doubt they would have located in Chapel Hill without a high quality office location like the Exchange available to them.

    So the “costs” of development—immediate, easy to quantify, and impacting current residents–often get more attention than the benefits—attracting business, creating jobs, increasing tax revenue–things that are more valuable later—-because those benefits are just harder to know and less certain.

    But I don’t think we should dismiss them from consideration just because we can’t count them the same way we can count car trips or gallons of stormwater runoff. I think there has to be some way to more sytematically assess and quantify these longer term benefits–I just wish I knew how!

  21. John Kramer

     /  November 30, 2011

    Chapel Hill will never have a big box, although as Matt says that is just what it needs. Pretty funny to see the stream of cars into Durham every day to do shopping.

  22. Anita, some great answers and questions on this thread.

    As you know, I used to work for a software company Downtown. While the business didn’t directly pay property taxes, I’m sure a good chunk of our lease payments went to that purpose. It did pay sales tax on sales.

    Several years after our acquisition by a California company there was an effort to move from Downtown. Workers resisted the company’s efforts because they liked the benefits of being Downtown. Several years ago I even documented my yearly expenditure – thousands of dollars at over 70 businesses – to make the point that activity Downtown doesn’t have to be retail to produce great economic benefit. We needed a balanced approach, which even now, we still don’t have.

  23. John Kramer

     /  November 30, 2011

    Will, if by “balanced approach” you mean all different sorts of businesses then I agree. Of course the real money makers are the national chains such as Wal Mart. You know as well as I that a vocal minority is against that sort of “evil corporate” store on “ethical” grounds, whatever that means. Here’s hoping there is enough wisdom on the Town Council to do what is best for the majority; that is long overdue.