Town May Cut Funds, Increase Taxes to Aid Financial Shortfall

The Chapel Hill Town Council met Wednesday with officials from the local finance, police and fire departments to discuss the town's budget for the upcoming year.

The budgetary discussion was affected by Gov. Mike Easley's decision to withhold funds from state municipalities to compensate for a $900 million state budget shortfall. The withheld funds will mean a $1.4 million cut for Chapel Hill.

Mayor Kevin Foy said Wednesday that a 7- to 8-cent tax increase might be necessary to compensate for the lost revenue.

Foy also said that before learning of the governor's cuts, Chapel Hill Town Manager Cal Horton already estimated that a 5-cent tax increase would be necessary to fund the town's original budget. The previously planned 5-cent increase plus Foy's 7- to 8-cent prediction could bring the total tax increase to as much as13 cents.

But Foy said these numbers are purely speculative because the state has yet to determine the exact magnitude of the cuts. Without the exact figures, Foy said, the town cannot accurately project its budget for the next fiscal year.

"You can see that we don't have firm numbers to rely on," Foy said.

"We don't know what the economy or state is going to do. It's difficult to form firm figures."

But Horton said a cut in each town department's budget would probably also be necessary to make up for lost revenue.

"It is likely that we will recommend a combination of cuts and taxing," Horton said.

Foy said some town services will be limited and cited some examples of possible cutbacks the town might have to face.

One option is a refusal to grant the Chapel Hill Police Department's request for new officers. Foy also suggested that the development of new parks and recreation could be restricted.

But Foy stressed that there is only so much money the town can afford to cut from its departments because there are services, like the police, that must be funded at a certain level to work efficiently.

Foy said there is no way for town budget cuts alone to compensate for the money loss. "At some point, there is going to be nothing to cut," Foy said. "Then we'll have to raise taxes."

But because the state has not yet established specific figures on how much money will be withheld from the town, the council has ordered town departments to prepare their budgets with no increase or decrease in value.

Foy said the specific effects of the revenue loss will not be able to be determined at least until May, when the state figures become available.

"It's a balancing act," Foy said.

"You really shouldn't speculate."

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