Agenda 04-16-2026; 2 - Operating Budget Model Update

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1 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: April 16, 2026 Action Agenda Item No. 2 SUBJECT: Operating Budget Model Update DEPARTMENT: County Manager ATTACHMENT(S): INFORMATION CONTACT: Travis Myren, (919) 245-2308 Caitlin Fenhagen, (919) 245-2303 Kirk Vaughn, (919) 245-2153 PURPOSE: To receive an update on the Operating Budget model since the January 16, 2026 Board Retreat. BACKGROUND: At the January 16t" Retreat, the Board received a budget update that estimated a $21.5 million gap between estimated revenue growth and known cost factors. Since then, the County has refined multiple estimates going into the budget, which has decreased the estimated gap to approximately $15 million, and the County Manager continues to work with departments to close that gap as much as possible before considering a recommendation to increase the tax rate. Below are some of the largest changes to the operating model that will be detailed in the presentation: Property Tax: The property tax base has stabilized since the January Retreat. At that time, the property tax base was estimated to grow by 2% from FY 2025-26. Since that time, valuation appeals have been finalized, and large exemptions have been recognized. The County had assumed a tax base loss of 3% due to valuation appeals; however, based on informal and formal appeal decisions, the actual loss is 1.47%. Although the lower percentage has a positive impact on the tax base, the County also lost significant tax base due to complex exemptions of properties that qualify as affordable housing and properties that have been redeveloped on brownfields. The FY 2026-27 tax base is also affected by property damage from Tropical Storm Chantal. When taken together, those fluctuations result in a new growth estimate of 2.27% from FY 2025-26. Sales Tax: Based on new data related to the County's Hold Harmless payment, the sales tax revenue projection has been decreased by $500,000 as State Medicaid expenses significantly exceeded sales tax growth in FY 2025-26. Other sales tax categories are left unchanged since the Retreat. Although FY 2025-26 actual collections are exceeding estimated growth, uncertainty about the global economy requires caution in projecting future growth. Living Wage: Since the presentation at the Retreat, the County has reviewed its living wage requirements. The living wage calculation is directly tied to fair market rent in Orange County and surrounding counties in which employees are likely to live. Based on average rent in Orange County and its adjacent counties, the living wage will be $20.02 in FY 2026-27. This represents an increase of $1.84 per hour from the current year.