Carrboro has been on steady financial ground for a while.
The town recovered and revitalized itself after the tremors of 2008 and for the fourteenth time in a row the town received a Distinguished Budget Presentation Award. Property taxes haven’t been raised in over seven years.
But this year something changed. The financially sound foundation is starting to shake.
The town is under seismic treat, Town Manager David Andrews said, because property taxes have failed to keep pace with inflation.
Andrews expressed concern about the taxes in the January 24 board meeting. Alderman Bethany Chaney said she is beginning to worry about the possibility of raising the property taxes to avoid a crisis.
“I think anytime we hear a statement like that there is reason to be concerned,” Chaney said. “Nobody likes having to figure out a funding gap when potentially one of the options on the table, or the best option on the table is raising the tax rate.”
Scott Mooneyham, the director of public affairs for the North Carolina League of Municipalities said in an email that the if the property tax doesn’t rise with the rate of inflation the town can be put in an uncomfortable position.
“The property tax is really the only tax that local governments—municipalities and counties—have real control of,” Mooneyham said in an email. “If inflation is rising faster than the growth in property tax collection—and those collections do make up the bulk of revenue for the vast majority of municipalities—then over time the governing boards of those municipalities really have only two choices: cut services or raise the property tax rate.” Carrboro’s current property tax rate is about 59 cents for every $100 in property value. The property value for the town that lies within the Orange County limits is also facing a property reevaluation which could affect the town’s taxable income for the next fiscal year. The town was last evaluated in 2009. The final budget, which will be released in May, will reflect the potential tax changes. Andrews said the property taxes for the town have not been increased for over seven years.
Carrboro’s current property tax rate is about 59 cents for every $100 in property value. The property value for the town that lies within the Orange County limits is also facing a property reevaluation which could affect the town’s taxable income for the next fiscal year. The town was last evaluated in 2009. The final budget, which will be released in May, will reflect the potential tax changes. Andrews said the property taxes for the town have not been increased for over seven years.
“The property tax rate has been flat and we’ve seen sort of marginal increases from some developments coming online which has helped it to grow but certainly not at a high pace,” Andrews said.
The board has not yet been asked to formally consider a tax increase, but Chaney believes it will be part of the discussion going into the budget negotiations.
“The staff has not asked us to consider it yet, but I can say with confidence that we can no longer avoid (raising property taxes) as a real possibility over the next three years,” Chaney said.
Alderman Randee Haven-O’Donnell also expressed concerns about the Carrboro’s inability to meet the goal laid out in their planning document, Vision 2020, that called for a doubling of the commercial tax base.
“The residential tax base remains the critical scaffolding for our financial solvency,” Haven-O’Donnell said in an email. “It is obvious tax rate sustainability is in jeopardy and is struggling to keep pace with inflation rates.”
The balance of the percentage of taxes the town was collecting from sales taxes could also potentially be too high, Andrews said. He said they could leave the town financially vulnerable if the town were to face an economic downturn. Andrews was, however, optimistic that the taxes were coming from a diverse mix of sources.
“I’m not sure what the exact right mix (of property and sales tax) will be,” Andrews said. “Even though property tax revenues have really increased modestly, the bright side is our sales tax and other types of revenues have grown at a stronger pace which has allowed us to continue to balance our budget.”
Mooneyham said the Carrboro property and sales taxes were not unusual for a town of its size but expressed concern about its lack of diversification.
“Most economists who study tax and finance issues would say governments should have more varied revenue sources than municipalities enjoy because relying on too few revenue sources can lead to wide swings in revenue based on the economy and unequal tax burdens for residents,” Mooneyham said.
The Board also expressed concerns at the meeting about the lack of affordable housing in Carrboro. Affordable housing is partially funded by the town, which contributes one percent of its overall budget toward the cause. Despite the contribution, residents gave the town its only failing grade in the town’s first-ever Biennial Citizen Survey for the lack of affordable housing. Chaney said the funding is already under scrutiny for possibly contributing to tax increases in the future.
“I think some members of the board are concerned about is that that one percent could be the triggering factor for higher taxes down the road,” Chaney said. “I disagree that that’s the case. I think we are committed in general as a board to continue to fund affordable housing efforts.”
Chaney also criticized the North Carolina General Assembly for immobilizing certain revenue streams for the town like the income the town collects from occupants in hotels.
“There are very few actions we can take as a board that are independent of the state,” Chaney said. “When the state’s legislature is as conservative and as bitter as it is we find that we are very constrained in the way that we can creatively raise resources and pour those resources.”
Despite the constraints, both Chaney and Haven-O’Donnell still stand opposed to tax increases. But Chaney said unless the town invests in large-scale commercial development, it will continue to be constrained.
“The town of Carrboro has always been committed to keeping our property tax rate as low as we can and we are constrained by our size of the town—we are 6.5 square miles,” Chaney said. “So unless we build up and unless we are willing to commit to large development projects, we are not going to grow that tax base.”
The Carrboro Town Council Chamber sits empty prior to the January 24, 2017 board meeting. Photo by Ari Sen.