Operating at a loss

The old joke goes that a naïve business owner admitted he lost money on each product sale, but said, “I make up for it in volume.”

Chapel Hill town staff are familiar with that business model, and after the Town Council retreat this past weekend, we are, too. We learned that for the past couple of years, town revenue has increased at a rate of 1.7% while town expenses have risen at a rate of 3.4%. To pay our bills, we have had to dip into savings.

We can’t keep that up. Over the next few months, council and staff will work together to craft a budget that enables us to live within our means. We can do that by bringing more money in or by cutting back on what we spend.

In theory, if we increase our tax base, we will have more money to spend on operations and capital expenses such as new fire stations, parks and police headquarters, for instance. Some people — often developers applying for a rezoning to be able to build a luxury apartment building in a neighborhood of single-family houses — say that increasing density and bringing more people to live in a tight space will result in more property tax revenue coming in.

But they gloss over the increase in what the town has to spend to take care of those extra people. We need more buses to transport them, along with more mechanics and drivers, and more money to repair the damage to streets from the stress of more cars, buses, and sanitation and delivery trucks. We need more police officers, firefighters, sanitation staff and camp counselors. We need more recreation space and, as buildings get taller, special fire equipment.

This has played out in town over the past couple of years. Revenue expected in the Blue Hill district has come in at a slower pace than projected. The only new development in that area has been apartments. Town councils have approved some 6,000 apartments in the past few years, and coincidentally, as they are opening up, town operating expenses have outpaced revenue.

We can begin to rebalance the equation by recruiting new businesses. Offices, hotels and stores pay a higher property tax rate than residential, and bring in additional revenue through sales tax and occupancy tax.

We may need to scale back our wish list of capital projects, such as buying a theater or building more parking decks. We may need to look for additional revenue by soliciting more advertising on buses and bus shelters, or increasing various fees.

Town staff are motivated to rebalance our financial situation. After our retreat, council members seem to be, too.

— Nancy Oates

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  1. David

     /  January 28, 2019

    I hope the Council members will keep these fiscal challenges in mind when RAM requests a rezoning to build apartments in the University Mall parking lots. That’s the last thing we need.

    The fiscal benefit of recruiting businesses to town is diluted, at least in the near term, when we offer to rebate their tax payments for several years in order to entice them to locate here.

    How much of our current budget is debt service? At one point recently it was around 10%, which is relatively high compared to other NC municipalities. Once we pay off these loans (e.g., library, municipal services center), if we can avoid taking on large new debts (ha!), we should be able to bring our expenses more in line with our revenues.

  2. Plurimus

     /  January 29, 2019

    Not saying it isn’t worth it (I am not sure myself), and it is a beautiful facility with excellent staff but my first thought was didn’t the fiscal problems begin around the time of the new 16 million dollar, 63,000 square foot library?

  3. David

     /  January 30, 2019

    Others know more than I do about the provenance of the town’s debt, but I think the construction of the municipal services center, which came before the library renovation, ended up costing a lot more than originally planned due to the need for wetland mitigation and perhaps other cost overruns, and in absolute dollars I believe that MSC project cost more than the library—and, in contrast to the library, most residents never see it. But the library renovation certainly maxed out the town’s credit card, such that there was no credit capacity available to finance road infrastructure improvements in EF, which in turn led the town to mortgage town hall and pursue “synthetic tax increment financing” for the district, which in turn led the town to lower standards for new development in the district for fear that if new development didn’t occur, the town would have no incremental tax revenue with which to pay back the infrastructure loans. Oh what a tangled web of sorrow, when first we authorize the town to borrow. . . .

  4. Plurimus

     /  January 30, 2019

    Thanks, You seem to know more than I do. I don’t mean to relitigate this, but I think there were lessons ignored and perhaps it might be good to codify some hard stops to overcome the good intentions with which the road to hell is paved.

    The temporary home of the library in University Mall seemed at least as functional, perhaps more accessible and far cheaper. If the credit card is close to being maxed out, isn’t it considered reckless anymore to spend to the limit? It just seems as if caution was called for and ignored.