Attachments for January 16, 2026 Board Retreat Agenda

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59 Attachment 4-a ORANGE COUNTY NORTH CAROLINA MEMORANDUM January 16, 2026 TO: Board of Orange County Commissioners Travis Myren, Orange County Manager Caitlin Fenhagen, Deputy Orange County Manager FROM: Kirk Vaughn, Budget Director Subject: Budget Preview Presentation Each January,the manager and the budget office work together to create an updated operating model to understand the initial conditions that will drive budget decisions for the upcoming fiscal year.This model incorporates inputs from the most significant cost drivers that are known at that time and has been a reliable tool in predicting both the final approved budget and the actual performance of the financials in that budget year.This year, the model estimates a significant difference between expenditure cost increases and natural revenue growth, currently over$21 million.The primary drivers of this gap are increasing debt service, the phase-in of the school capital pay-go investment, non-discretionary personnel cost increases like health insurance and retirement contributions, and the county's long-standing commitment to funding public education. While several budget drivers are sufficiently well known by this presentation in January, there are significant portions of the upcoming budget that are still coming into focus and can only be conservatively estimated at this time. County staff have met regularly to keep abreast of changes in the federal budget and various legislation changes. The lack of a North Carolina state budget also provides a new area of uncertainty in budgeting, especially in understanding the operating needs of the two school districts for the upcoming year. Other factors that are contemplated include the timing of the opening of the Crisis Diversion Facility,the tax base for the county given the continuing appeals and neighborhood review process, and the size of the upcoming borrowing in the spring of 2026. Given the lack of certainty and the high-cost pressures that are facing both the county government and its constituents,the budget process has been adjusted this year.The budget office has moved the department expansion request process to the fall, prior to the budget financial deliberations that occur in the spring each year.This change allows the county to review the needs of the departments and ways to achieve department and board strategic goals separate from the cost.That gives staff more time to flexibly solve problems and improve county services without simply adding new programs and positions through the budget.