AGENDA ITEM EXECUTIVE SUMMARY
ITEM TITLE*
title
FY 2025 Excess Fund Balance Appropriation Proposal
presenter
RESPONSIBLE STAFF, TITLE, DEPARTMENT*
Amy Oland, Director, Business Management Department
STAFF RECOMMENDATION*
Staff recommends that Council adopt O-1 to appropriate $3 million in FY 2025 General Fund excess fund balance.
body
ACTION/DECISION POINTS*
Council must approve or reject the excess fund balance appropriation recommendation.
LEGISLATIVE CONTEXT*
In order to appropriate the excess fund balance, Council must amend the current budget as described in state statute 159-15.
BACKGROUND AND CONTEXT*
The Town finished FY 2025 in a much better financial position than we had originally projected. Mid-FY 2025, we found ourselves in an unusual set of circumstances because sales tax numbers were plummeting and lapsed salary saving projections were anticipated to be very low. We immediately began having conversations with departments about holding off on all major expenditures. We made the decision to intentionally hold off on non-critical hirings and projects to ensure we ended the year to the good.
Things started to turn around after the budget was adopted. Revenues were not as bad as we predicted they would be (specifically sales tax and inspections permits) and lapsed salary savings were much higher than projected.
Most importantly, the impacts of these discussions and of year-end results don’t influence the budget discussions from last year’s budget preparation. We are looking at one-time funds to allocate vs ongoing revenue needs to continue funding our operations.
The Local Government Commission and rating agencies prefer to see a financially sustainable approach to budgeting that results in some excess fund balance than for communities to use fund balance to balance their budget. Excess fund balance is the Council’s opportunity to identify one-time investments toward goals and priorities. Ideally, we would end each year with $1-$2 million and could allocate those dollars for one-time needs.
Available fund balance is the amount remaining after all commitments for future expenditures, required reserves defined by State statutes, and previous designations have been calculated. The Town strives to maintain a targeted available fund balance of 22% of General Fund expenditures (including transfers). The total fund balance at June 30, 2025 was up by $2,650,391 (from $35.5 million to $38.2 million). The amount of fund balance that is actually available to appropriate at the end of FY 2025 is $3 million.
Here is the proposed funding recommendation:
|
Greene Tract MOU |
$ 100,000 |
|
FEMA Administrative Support Contract |
140,000 |
|
Street Maintenance Equipment |
327,500 |
|
Downtown |
360,000 |
|
Fire Station 4 Demolition & Cost Overrun |
1,000,000 |
|
Parking Fund Debt Payment Offset |
1,072,500 |
|
TOTAL |
$ 3,000,000 |
Greene Tract MOU ($100,000)
This funding will cover services already rendered in support of the ongoing Greene Tract master planning process. The services include the market and financial feasibility analysis completed by the Development Finance Initiative as well as an associated geotechnical study and site planning efforts.
Orange County holds the contracts for these services and is responsible for paying the vendors. Per the 2021 Interlocal Agreement that governs collaboration on the Greene Tract master planning process, the Town is responsible for reimbursing Orange County for 43% of the cost of the services. The 2021 Interlocal Agreement commits Orange County, Carrboro, and Chapel Hill to jointly plan for the future use and redevelopment of the Greene Tract. Under the agreement, Orange County and Chapel Hill are each responsible for 43% of total costs while Carrboro is responsible for 16%. This allocation of costs mirrors each jurisdiction’s ownership of the Greene Tract.
Funding was not included in the FY 2026 budget for this work, and an alternative funding source has not been identified.
FEMA Administrative Support Contract ($140,000)
The Town engaged with IEM International Inc to help the Town manage a Federal Emergency Management Agency (FEMA) grant for disaster recovery related to Tropical Storm Chantal. The contract amount of $140,000 is based on 2% of the Town’s estimated damage from Chantal, which totals just over $7 million. Under FEMA’s Public Assistance Program, the Town of Chapel Hill is allowed to claim these administrative costs as part of the disaster recovery process, and the Town will be reimbursed for these expenses.
By leveraging the consultant team at IEM, we have access to dedicated subject matter experts with extensive experience working not only with FEMA but also with North Carolina Emergency Management. This team is ensuring that we meet all required deadlines, serving as our advocates throughout FEMA’s current operational posture, and helping departments maintain sufficient and well-organized documentation.
The Town will receive reimbursement from FEMA at some point in the future for these expenses. However, a current funding source to pay for these services has not been identified.
Street Maintenance Equipment ($327,500)
Recent changes to the Town’s loose-leaf collection program have encouraged residents to manage leaves more sustainably in support of the Town’s Climate Action Plan.
In order to more timely remove the loose leaves that naturally accumulate along curbs in the fall, the need exists to purchase a leaf vacuum truck to supplement the street sweepers in cleaning curblines. This truck is designed to remove accumulated loose leaves more efficiently and is the norm used by other municipalities to meet the same interests.
Downtown ($360,000)
Staff propose using these funds to support downtown safety and attraction/experience. The funds will help advance several council goals and priorities, including improving wayfinding to make it easier for people to find key destinations like the new public restrooms at the 125 E Rosemary Deck; supporting costs for the new Downtown Police Substation; purchasing lights and decorations to boost community vibrancy; and addressing other needs that improve the experience for businesses, residents, and visitors in Downtown Chapel Hill.
These funds will replace the previous excess allocation to the Visitor’s Bureau. By managing the funds ourselves, the Town can help ensure we are best meeting the needs of our community.
Fire Station 4 Demolition & Cost Overrun ($1,000,000)
On February 13, 2026, the Town received projected cost estimates for demolition which will total $416,640. Demolition will be completed in two phases. The first phase, which includes demolition of the two training towers, boring, paving, concrete curbing, trees, cistern, and other items is $230,250. The second phase, which includes the demolition of the Fire Station 4 building, is $186,390 for the same services. We are asking for the Council to allocate $500K to ensure that we have some contingency in place in case we need to address anything else on the site.
On January 23, 2026, Little Design presented the Fire Department with four renderings of a final design that we could select from. The design that best meets the needs and interests of the fire department will cost us between $9.9 million - $10.5 million, without including demolition costs for the training center or fire station.
The Town has $10 million in general obligation bond funds for the build of Fire Station 4. This allocation did not include funding for design or demolition. We have already issued $1.23 million for design. That leaves $8.77 million for construction. The remaining $500,000 from excess fund balance could be allocated to help make up some of the cost difference.
Parking Fund Debt Payment Offset ($1,072,500)
There are several factors contributing to the shortfall in parking fund revenues. 1) The new parking deck construction took longer than anticipated. 2) The Wallace Deck has remained open longer than originally projected. 3) The Town has maintained several parking lot leases that were established under previous market conditions. 4) Parking demand shifted following the pandemic.
The Town is planning a comprehensive parking study to evaluate how the system can be right-sized and optimized for current demand. Potential strategies to increase revenues include: adjusting parking rates, passing credit card fees on to the user, rebalancing the mix between leased and hourly parking, phasing out parking leases that are not financially sustainable, and focusing management on Town-owned decks, lots, and on-street parking. By concentrating on assets, the Town owns and controls, we can better manage pricing, utilization, and long-term financial sustainability.
For FY 2026, the Parking Fund will fall short of revenue projections. To make up the difference, and to keep the Debt Fund from having to transfer additional funds and negatively impact the timing of other planned debt financed projects, this allocation from excess fund balance is needed.
TRADEOFFS, ALTERNATIVES, IMPACTS
We have heard from Council that it is helpful to understand the basis for the staff recommendation. Factors that were considered were:
• Is the need one-time rather than ongoing?
• Is alternate funding available?
• Does it represent a high-impact opportunity or need?
• Does it advance a Council goal or key priority area?
We also looked at the Town’s major priority funding areas, including facilities, fleet, and streets. These areas are making steady progress through the annual budget process, and sustainable funding for them is best achieved through dedicated ongoing revenues rather than one-time sources.
Housing needs were another consideration. Because public housing operates as an enterprise fund, best practice is to support these needs using housing operating revenues. In addition, the Town receives an annual capital grant that can address many of the ongoing capital needs within public housing.
ATTACHMENTS
Budget Ordinance
Draft Staff Presentation
Staff Responses to Council Questions from February 11, 2026 Meeting
end