Each time Orange County revalues property, staff calculate a property tax rate needed to raise the same amount of money as the year before.

And then the county commissioners approve a higher tax rate, meaning most property owners pay a bigger tax bill.

It's worked that way for at least 20 years, according to information budget director Donna Coffey handed out at a Saturday retreat.

Now with the economy in a spiral and new commissioners on a seven-member board, that could change.

"It would take an extraordinary argument for me to support any [tax] increase beyond the revenue neutral rate," new Commissioner Steve Yuhasz said.

"I agree," said new board Chairwoman Valerie Foushee.

Historic patterns

Orange County's spending has been increasing faster than its tax base. Over the last 20 years, the county's general fund budget, which pays for operating expenses and construction debt, has grown anywhere from 1.8 percent (2002-03) to 9.9 percent (2005-06) per year. On average, spending increased about 7 percent.

At the same time, real property valuation, the value of taxable property in the county, has grown from 1.9 percent (2007-08) to 6 percent (2006-07) per year. On average, the tax base increased about 4.1 percent.

The county has raised taxes to make up the gap, Coffey said.

That pattern is unacceptable, said Commissioner Mike Nelson, who said the county should tie spending to the tax base.

"I have a fundamental, philosophical, ideological problem with the way this organization has done budgets," he said. "It's brought about tax increases."

In revaluation years, the commissioners have set the tax rate several pennies higher than the revenue neutral rate. For example, in 2005-06, the last time property was revalued, a revenue neutral rate would have been 77.8 cents per $100 valuation, but commissioners set the tax rate at 84.3 cents per $100 valuation.

In addition to raising taxes, the commissioners have balanced the budget by taking money from the county's fund balance, a reserve used to manage cash flow throughout the year, Coffey said.

The county has a goal of keeping the reserve at 15 percent of its general fund balance but has gone as low as 11 percent on some years. It currently stands at 13.9 percent.

The economy will force changes this year, including a closer look at how much money the county gives the schools.

The county has a target of spending 48.1 percent of the general fund on the Chapel Hill-Carrboro and Orange County school systems and has typically spent slightly more than that.

"That will be a hard conversation to have," Nelson said. "But if we're really serious about sharing the pain that is where we have to go."

'A difficult year'

It's too early to know this year's revenue neutral tax rate.

County departments are still formulating their budget requests to the county manager, and it will be months before appeals wind down and the county knows the value of its tax base. The commissioners don't have to pass a new budget and tax rate until June.

But the recession has put the budget under the microscope.

"It's been a difficult year," Coffey said. "I think the next two years will be even more difficult in terms of money we get from the state. We will continue to be reliant on the property tax."

Property taxes contributed 71 percent of the county's $128.3 million budget this year with each penny on the tax rate generating nearly $1.3 million. Sales taxes contributed the next largest share, 10 percent.

But sales tax revenue is tanking as consumers tighten spending and the state takes back a portion to pay for the Medicaid program, part of which counties used to pick up. The state has also changed the formula, and a portion of sales tax that used to be distributed based on population now goes to the location where the sale was made.

Throw in less in fees associated with the housing slump, and Coffey, County Manager Laura Blackmon and staff have their work cut out for them.

Blackmon told the commissioners she's already told department heads to anticipate a 10 percent cut compared to the amount of money they got this year.

mark.schultz@newsobserver.com or 932-2003