HILLSBOROUGH - Decreased revenue and increased expenses mean Hillsborough commissioners will consider a property tax rate increase of likely 6 cents, Hillsborough Mayor Tom Stevens said in his state of the town speech last week.

“We want to take care of what we’ve got; we also want to invest strategically in things that make Hillsborough the kind of vibrant place that we enjoy; and we want to minimize the impact on you, our citizens,” Stevens said Thursday. “That’s why our theme tonight is paving the road to the future. It’s just something we need to do to take care of what we’ve got.”

Stevens opened the address by noting major changes in the last year that have improved the quality of life in Hillsborough, including the successful opening of businesses in West Hillsborough, the completion of the Nash Street sidewalk, the opening of Fairview Park and the Hillsborough circulator bus route. He also discussed expanding businesses, new construction and community events that point to the community’s growing vibrancy.

“But if we’re talking about the state of the town,” Stevens said, “I think we’re going to have to talk about a very important subject – and that’s the state of town finances.”

The mayor noted that the town’s revenue – largely from property and sales taxes – has been significantly reduced since the nationwide economic downturn and because of recent lower census figures. Property taxes fund 70 percent of Hillsborough’s general fund budget, while sales taxes fund about 20 percent and are based on Hillsborough’s portion of the county population, which is growing at a much slower rate than Chapel Hill.

For the past three fiscal years, Hillsborough has not raised its property tax rate of 62 cents for every $100 of assessed value. Each penny on the tax rate equates to about $70,000 in revenue for the town. For property owners, each penny means $10 for those with a $100,000 home and $25 for those with a $250,000 home. The town’s revenue is down now about 6 cents, the mayor said, and much of that lost revenue has been absorbed over the years through cuts, including reductions in staff.

“The situation is we’re pretty much at the limit of what we can do,” Stevens said.

Meanwhile expenses, such as health insurance costs and fuel, are increasing while the town must increase efforts to maintain its infrastructure. Included in Hillsborough’s proposed budget for Fiscal Year 2013 is $612,000 for street repaving and repair needs to help the town get back on track with its street maintenance schedule.

A study produced in January 2009 of Hillsborough’s road conditions recommended spending $320,000 annually to maintain streets after addressing key repaving and repair needs totaling $905,000. The recommended annual expense almost doubles the amount previously spent on annual repaving projects. Since the study’s release, one repaving project has taken place — a $354,000 project late last year. To help obtain a better project bid, funds were accrued over several years to allow for a larger project at one time. Also, funds normally used for paving were diverted to pay for the Nash Street and Margaret Lane sidewalk projects.

“The bad news is we’re probably looking at water and sewer fees going up at the same time our property tax rates go up,” the mayor said.

He noted that nearly 100 percent of the Water/Sewer Fund is funded from customer fees. A 5 percent increase in water rates and an 8.8 percent increase in sewer rates are recommended to pay for rebuilding the town’s aging utilities system, including the Wastewater Treatment Plant, which is undergoing a $19.2 million upgrade and expansion.

“We have an old, old plant that needs to be replaced — period,” Stevens said. “We’ve been saying this message for a number of years. We’re required to do it. It’s expensive. We also need to expand our reservoir in coming years.”

The only way to pay for those projects is to increase water and sewer rates, he said.

In addition to maintenance needs, the town must continue to invest in Hillsborough’s vitality, he said, noting the biggest project contributing to that is Riverwalk. The original vision for the project was to connect downtown Hillsborough to Occoneechee Mountain State Natural Area through a greenway along the Eno River. In 2009, the town completed the first phase of the project — Gold Park and its trails, which are to serve as the midpoint for the walkway. Proposed in the FY13 budget is funding to complete Phase 2 of the project, which would connect Gold Park to River Park in the downtown. This second phase would cost an estimated $2.24 million without possible grant funding that the town is seeking.

Stevens likened the project to a halfway-completed home project: “Do you slow down if funds are tight or speed up and say, ‘We just need to get through this’?”

“That’s what we’re working with on Riverwalk,” he said. “How much do we speed up to get done? How much do we slow down to save money?”

The town already has completed land acquisitions necessary to connect Gold Park to downtown and to River Park behind the courthouse. More than $1 million has been invested in Phase 2 plans and land acquisitions.

“Your town government is actually getting smaller,” Stevens concluded, referencing more staff reductions proposed for FY13. “The size of government is getting smaller. The cost of government is getting larger.”

He noted citizens likely will see some service cuts, such as less frequent collection of residential brush, because the cost of providing municipal services continues to increase.

“When your taxes go up,” Stevens said, “here’s what they’re paying for: They’re paying for paving. They’re paying for investments in our future, like Riverwalk.”

The mayor’s State of the Town address may be viewed on Hillsborough’s government access channel (cable Channel 18) and on the town’s website. Look for it soon.