Durham County budget office recommends 3.5¢ property tax increase as revenues slow

Durham County budget staff presented the manager's recommended 2025'26 budget on May 13, recommending a 3.5'cent increase in the property tax rate to close the gap between constrained revenues and rising expenditures.

Budget Director Keith Lane said the county's general fund budget is about $688 million and that total county budgets across funds exceed $1 billion. Lane identified slowed revenue growth in sales tax and occupancy tax, a loss of an "oxy" state tax source that will drop to zero in two years, and sharply rising expenditures for Durham Public Schools (DPS), employee benefits and debt service as the primary drivers of the shortfall.

Lane summarized the numeric tradeoffs the county faces: without a tax rate change staff estimate roughly $15.3 million in new recurring revenue for 2025'26; the manager's proposal adds the 3.5¢ tax rate increase to generate roughly $29.9 million more, producing about $47.7 million in added revenue when combined with natural property growth. That request includes a 1¢ increase dedicated to capital financing and debt service tied to the 2022 general obligation bond program, Lane said.

The recommendation would raise the county's combined general fund and capital financing-rate from the revenue-neutral rate of 51.92¢ to 55.42¢ per $100 of assessed value. Lane provided an example showing the county estimate that a 3.5¢ increase would add about $105 a year in property tax for a $300,000 home.

Why it matters: commissioners were told that DPS accounted for roughly 33% of the general fund and requested a $10.35 million increase for 2025'26. Lane said employee benefit costs are increasing by about $6.3 million and merit increases will add another roughly $5.3 million. Lane characterized the budget choice as a mix of limiting some departmental requests, reallocating positions and asking the public to absorb part of the gap through the proposed property tax rate change.

Supporting details and context: Lane walked commissioners through five-year trends showing sales tax and other nonproperty revenue sources have flattened or declined from recent pandemic-era peaks; he said local occupancy tax is projected to fall by roughly $1.6 million this year due to a state law change and then decline further in subsequent years. Lane also reviewed fund balance history, noting a decline from about 46% in earlier years to roughly the low-30% range today and that staff plan to keep fund balance and fiscal stability as the top priority.

Board reaction and next steps: Commissioners asked for follow-up details on fund-balance policy, DPS presentations and the property revaluation impact on taxpayers. Tax Administrator Kiara Doyle, who briefed the board separately in the same meeting, described the 2025 reappraisal and reported a countywide median sales ratio near 100% and more than 5,000 pending appeals as of the presentation.

Lane and staff said the board will have additional budget work sessions and a public hearing later in May. Lane and Manager Hager signaled they will return with more granular options for narrowing the gap, including potential reductions and the manager's recommended adjustments.

Ending: Commissioners agreed to continue the work-session schedule and to receive detailed follow-ups on fund balance, DPS funding, and tax-rate implications before formal budget votes later in June.