Street maintenance in Chapel Hill
Pay me now, or pay me later
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This post concerns the Town’s $17.3 million deferred street maintenance backlog and its implications for the Town’s long term financial capacity to fund things besides streets. I became interested in this topic after encountering a mysterious reference to the backlog in a staff report this spring. One thing led to another, and I ultimately spent multiple days researching the Town’s street maintenance situation and browsing the literature on street maintenance optimization. That was a questionable use of time. And yet it proved a surprisingly interesting rabbit hole. Having gone down it, I wrote this piece to convey what I learned, and what I think we should do now.
Before I get into details, here’s the five-sentence take: After two decades of disinvestment in the street network, the Town is moving toward at least partially addressing the problem. That’s good, because deferring street maintenance compounds long term costs. But there’s a critical process weakness in the Town’s decision making about the streets budget, which is that nobody has quantified the consequences of continuing to defer street maintenance in a way that clarifies trade-offs and facilitates sound strategic decisions. Given the serious financial stakes, the Town should develop a menu of strategic options for addressing the street maintenance backlog, including a quantitative analysis of consequences for each. This work should inform the Town Council’s decision on next year’s post-revaluation property tax rate, as well as next year’s budget.
The rest of this post provides context on the Town’s situation and current plans and more detail around my procedural suggestion. Assuming you’re reading this in your email, you might need to click “View entire message” to see the end of the post.
The political invisibility of street resurfacing intervals
If you take the universe of municipal functions and then remove the things that are politically salient, one by one, and you keep doing that for a long time, until you can’t think of anything else to remove, the list that remains will still be pretty long. It might even comprise most Town functions, some of which are hard to list without consulting a directory of Town departments.
What we want most of the things on that remaining list – things like solid waste collection, landscape services, inspections and permitting, parking services, and so on – is that they remain off the radar. And as long as they manage to generally avoid causing undue inconvenience to residents on a regular basis (the DMV being a state function that does cause undue inconvenience but not on a regular basis and thus remains almost immune from reform), they will remain in the political backwater, which is where we prefer them.
Street maintenance is a good example of a Town function that has remained politically invisible because it’s done well enough to avoid regular inconvenience to residents. It’s not inherently off the radar. Quite the opposite. People rely on and care deeply about the roads. Gretchen Whitmer successfully ran for governor of Michigan on the tagline “fix the damn roads.” But if the roads are serviceable, we’re good. And generally they are serviceable.
One problem with the way political salience works is that it mostly ignores financial stewardship. We could be wasting a lot of money on street maintenance, or committing ourselves through lack of maintenance to a future of expensive street reconstruction. (As discussed below, the Town has in fact done the latter.) But this sort of thing requires real work to ferret out, and the political rewards for doing this work are limited. It’s too technical and arcane, not virtuous enough on its face, too removed from any political constituency that’s paying attention to it, too easy to conflate with fiscal conservatism, and too long term in its impact. Never mind that the funds squandered could have built affordable housing, new parks, and so on.
The economics of street maintenance (or: things you didn’t want to know)
Before examining how this standard bit of illogic has played out in Chapel Hill’s street maintenance practices, it’s useful to clarify something about the relationship between street maintenance intervals and long term cost: Over the long term, by far the cheapest way to maintain a street network is to keep it in good condition.
Town staff puts it this way: “Continued deterioration of the roads leads to significantly increased maintenance costs and could result in the eventual need to reconstruct the street. There’s a rule of thumb for estimating the cost of deferred streets maintenance – a dollar spent repairing a street in good condition turns into 6 dollars for a street in fair condition, and 14 dollars for a street in poor condition.” Those numbers apparently come from the National Center for Pavement Preservation, a nonprofit affiliated with Michigan State University.
As further explained by Chapel Hill Streets and Construction Superintendent Mike Wright (starting at minute 15 of the linked video), routine maintenance for a street in good condition may involve coating the existing surface with some kind of slurry, thereby extending the life of the street. (We don’t do this, although seemingly all sources, including our own pavement consultants, say we should.) Once the street degrades to “fair” condition, the surface may require milling down and replacing with a new top layer of asphalt, with more significant surgery in isolated areas. Unmaintained streets eventually get big cracks and holes that allow water and ice to cause widespread damage to the base, necessitating total removal and regrading ($$$).
The bottom line, as depicted in the chart below (also provided by staff), is that the longer we wait to maintain a given road, the more work we must do to restore it, and the more costly it becomes – by a lot.
Staff has compared the choice among street maintenance intervals to the choice a homeowner faces between replacing roof shingles at the end of their lifespan or waiting for them to leak, at which point both the shingles and the underlying plywood sheathing needs replacing and water damage in the main part of the house requires major repairs to drywall, flooring, and so on. As the saying goes, “you can pay me now, or pay me later.”
Later is now
Chapel Hill, like essentially every municipality in the United States, has gotten behind on street maintenance. A quick review of the numbers reveals the depth of the problem.
The Town is responsible for maintaining approximately 760 streets, comprising 165 center line miles (excluding state-maintained streets). According to staff, we're on track financially to resurface these streets every 82.5 years on average. That’s 5.5 times the recommended (cheapest) maintenance interval of 15 years. Underlying this 82.5 year projected maintenance interval (which obviously won’t work, unless we revert to horse transportation) is a $17.3 million deferred maintenance backlog. That’s 22 times our current annual streets budget of approximately $800,000. To maintain the optimal 15-year maintenance interval, we’d need to resurface about 7% (or 11 miles) of our streets annually (100% / 15 years = 6.67% per year). But to reduce the deferred maintenance backlog in a financially efficient manner, we’d need to substantially exceed that number temporarily. Lately we’ve ranged from about 2% to 5%.[1]
We’re on a trajectory where our overall street network condition will go from “fair” (yellow) to “poor” (orange) within the decade.
Chapel Hill Pavement Condition – Historical and Projected[2]
Keep in mind that the overall network condition measure is just an average. Chapel Hill has plenty of streets in each condition category. As of 2022, 18% of our streets were rated “poor” or “very poor” (see page 12 of the linked report). These are the ones that seem to get prioritized for maintenance. For example, 65% of the streets on the Town’s 5-year proposed resurfacing list (as of January) were in poor or very poor condition.[3] Only one (or 3% of the list) was in “good” condition. It seems the Town does not have the luxury of sealcoating or slurry sealing streets in good condition to extend their lifespans and reduce long term maintenance costs; we do none of this, even though it would save us money in the long run,[4] because we’re too busy triaging streets that haven’t been touched in 2-3 decades just to keep them serviceable. We seem to be triaging well enough that most residents don’t notice a pavement condition problem, which keeps the deferred maintenance issue politically invisible.
In the Town’s defense, assuming the 2024 projections are accurate, we’re only about 6 points below the average rating (80) of the 30 or so North Carolina municipalities evaluated by the Town’s pavement condition consultant. But let’s put this in perspective. According to the Volcker Alliance (a nonprofit founded by the late Paul Volcker, former chair of the Federal Reserve Board, and focused on empowering the public sector workforce to solve national challenges), “the cost of making deferred repairs [to public infrastructure] at the state level may be as large as $873 billion, equivalent to 4.2 percent of US gross domestic product, or almost three times the value of all investment by states and localities in nonresidential fixed assets.” If this is the peer group we’re being compared to, being slightly below average doesn’t cover us in glory. (For the record, Carrboro’s pavement condition rating is a very respectable 89.)
The plan is to leverage the upcoming property tax revaluation
Happily, the Town is not only aware of the problem but also showing signs of, well, considering maybe taking appropriate steps to sort of resolve it – assuming everything works out.
Let’s start with what I’ll call the Town’s “baseline plan,” which is the plan that does not rely on speculative future revenues tied to the upcoming property tax revaluation. Under the baseline plan, we've increased this year’s operating budget for streets by $250,000 (see pages ii and 16 of the linked document), so that it totals about $800,000. The 5-year budget strategy has us continuing to do this every year for the foreseeable future. As staff points out, under this strategy, “it will take the Town ~18 years in FY43 to reach the recommended $5.2M to maintain our streets, excluding adjustments for inflation.” Furthermore, “[i]t’s expected that th[e $17.3 million] backlog will continue to increase until a sustainable level of funding is reached a[t] which time it will start to stabilize and reverse over the [following] fifteen years or so.” So 18 years + 15 years = 33 years. The cumulative cost of avoidable street reconstruction that would be realized by taxpayers over this 33 years isn’t stated (more on this later).
Fortunately, the baseline plan is not the actual plan. The actual plan assumes that the upcoming property tax revaluation will yield increased revenues – a safe assumption, largely within the Council’s control (see below) – and those revenues can be used to reduce the resurfacing backlog over time and put the operating budget on sustainable footing. In Orange County, we conduct a property tax revaluation (i.e., mass reappraisal of property values) every 4 years. New valuations will be determined this year, effective in your 2025 property tax bills. Normally the Town makes a “revenue neutral” adjustment, meaning it drops the property tax rate to offset the higher Town-wide property valuation (see slides 17-18 of the linked presentation, which show rate decreases in 2010, 2018, and 2022).[5] But it’s not required to, and staff and Council members alike have openly discussed their intention to leverage the upcoming revaluation to fill budget gaps. According to staff, the $250,000 increase in the 2025 streets budget simply “[b]ridges the gap to next year’s revaluation, where we propose to use the expected tax growth to ‘rightsize’ our budget” (see slide 8 of the linked presentation).
The plan seems vaguely promising but needs a lot more work
Absent a revenue-neutral adjustment, the revaluation would by all indications produce a massive increase in residential property tax revenues. The Federal Housing Finance Agency’s index of single-family home values in the Durham/Chapel Hill MSA has increased almost 60% since first quarter 2020.[6] This isn’t how the County does revaluations, but it’s a sign of how much market conditions have changed. This past fiscal year (2024), the Town collected approximately $55 million in property taxes (see page 5 of the linked document), which includes taxes on both residential and commercial properties. I won’t speculate about how the recent run-up in residential property values will change the Town’s total property tax base except to say that I’d be surprised if the Town’s projected annual property tax collections wouldn’t increase by seven figures (over $10 million) before any back-end adjustment. We’ll know the answer soon enough.
This raises the question how much of the customary revenue-neutral adjustment the Town and, by extension, the electorate is willing to forego to “right size” the budget. Here again, it’s best to address this question after we see the revalued assessment base. Given the recent run-up in property values, the Town might be able to both lower its tax rate below the long term average rate and collect sufficient additional revenue to tackle the resurfacing backlog in a serious way. But that might not be the case; we’ll see. Even if it is the case, the Council might choose to prioritize other things.
In a sense, what we really have is a “plan to have a plan.” To convert it to an actual plan, we need information about the Town’s new property tax base (forthcoming). Then we need to decide how quickly to address the street resurfacing backlog, and how much steady-state street maintenance we’re willing to fund on an ongoing basis. This will entail negotiations and compromises among competing priorities.
We should stop flying blind
My main concern about the resurfacing situation isn’t its tractability (I think it can be addressed) but the possibility that the Town won’t actually prioritize it. Back in 2021, Town staff said that the streets resurfacing backlog “needs to be addressed through [a] future bond referendum” (see page 31, Table 2-1 in the linked document). When it came time to formulate this fall’s bond referendum, staff seemed to change its mind (perhaps due to new information?), stating in May 2024 that “[t]he best funding source for streets is an annual appropriation in the Town’s operating budget. Our goal is to increase this allocation over time to an amount that will provide a sufficient stream of funding to address our backlog.” That’s fine. (I am deliberately publishing this after Election Day to avoid subverting the bond, which passed.) We can hopefully address the backlog through the operating budget. But those who watched the bond referendum work sessions understand that other claims will be made on the revaluation money, including for the worthy cause of affordable housing.
I’m going to dwell on this last point for a second because it’s a key piece of context. During the work sessions, some Council members expressed a desire to provide approximately $30 million in additional funding to affordable housing over the next five years. This is the difference between the $50 million recommended in the Town’s 2023 Affordable Housing Plan & Investment Strategy, the $15 million included in the bond referendum (after passionate debate), and other affordable housing funds currently included in the regular budget or available from other sources. These Council members understood the Council’s 2023 vote to approve the housing plan as a “commitment” to provide the recommended level of funding. Others expressly stated otherwise at the time of the vote, or were not on the Council at the time. The $50 million figure, or $10 million annually for five years, was intended to match the level of affordable housing production achieved over the preceding five years (albeit at a lower historical cost of $4 million per year) and to expand existing programs and investments “in response to the scale of the need.” The Affordable Housing Plan contains no analysis of the Town’s ability to pay this amount; it was developed and approved outside the context of the Town’s budgeting and capital spending processes. Nevertheless, it may continue to anchor expectations and to influence negotiations over the streets budget and other funding backlogs.
What’s to prevent the resurfacing backlog from being shunted again, or paid down much too slowly? As of now, very little. Here’s where my procedural suggestion comes in. I believe I’ve read or watched every presentation and every report made about Chapel Hill street resurfacing in the past year. I learned a lot from these materials, including a lot of quantitative information about costs. But none of the presentations or reports provides any kind of scenario analysis that Council members can review to understand the long term financial consequences of pursuing alternative strategies vis-à-vis the resurfacing backlog and steady-state street maintenance. Directionally, it’s clear that failing to address the backlog is not sustainable, and that addressing it quickly will save money in the long run. But that’s about all we know. We haven’t quantified the specific financial trade-offs. We’re flying blind, which helps explain how we got into this situation to begin with.
What kind of scenario analysis do we need?
Broadly speaking, the Council needs a menu of options for addressing the street maintenance situation, on a scale of more to less aggressive/proactive, with both (a) annual operating costs (the amount we would spend each year) and (b) cumulative deferral costs (the accruing, unfunded amount we’re pushing to future taxpayers) attached to each. As a starting point, the Town should consider the scenario analysis methodology developed by a panel of civil engineering academics and consultants under the auspices of the National Cooperative Highway Research Program, published in this 2017 report. (See also this presentation of the same report provided at the Midwestern Pavement Preservation Partnership’s 2018 annual meeting – a raucous occasion by all accounts.)
The report was designed to “provide a set of procedures to quantify the consequences of delayed maintenance to the highway infrastructure,” thereby “support[ing] better maintenance funding decisions.” That’s precisely what Chapel Hill needs now. According to the report, scenario analysis constitutes a key step, which must be “communicated in an understandable and convincing way to agency decision makers.” Specifically, the report recommends something like this (with illustrative numbers not from Chapel Hill!), covering an industry standard 20-year analysis period:
The report explains each row and column in detail. The only thing I want to highlight for present purposes is that the table enables decision makers to see without unnecessary noise the long term relationships, across multiple (customizable) scenarios, between funds spent, backlog costs accrued, and overall condition of the street network. That’s the key information needed. In particular, backlog costs represent resources that must eventually be devoted to streets and not things like affordable housing, parks, bike infrastructure, etc. If the Town can spend a given amount starting today to avoid a proportionately larger backlog tomorrow – while maintaining the overall network in serviceable condition – it should strongly consider doing so. This information doesn’t guarantee responsible, far-sighted decisions. It does ensure informed ones.
Now, this kind of analysis requires reasonably accurate cost and pavement deterioration assumptions and modeling capabilities that are beyond the average municipality. The Town’s pavement consultant, LaBella Associates, seems best positioned to perform this analysis, or some approximation of it. In fact, I think LaBella will be re-engaged soon (if it hasn’t already) for a routine update to its most recent pavement condition report (2022). We can probably have them fold this request into the update, or re-engage them separately to perform this work. It’s a complex calculation, but based on the modeling they’ve already done to project Chapel Hill’s future pavement condition ratings (Section VII of their 2022 report), they can very likely handle it.
Conclusion
After decades of underfunding, Chapel Hill has accumulated a $17.3 million street resurfacing backlog. Fixing this will cost money that might otherwise have gone to affordable housing and new community infrastructure and amenities. Failing to fix it quickly will cost even more. To promote better long-term decision making, I suggest we use a better decision making process – that is, by giving Council members a menu of options with long-term financial consequences clearly presented. The rest is up to them.
Ultimately, this post is about increasing the size of the overall pie that’s available to allocate to things besides street maintenance over the long term. It is not logically possible to be both for affordable housing and against addressing the street resurfacing backlog, unless the point is to build a lot of affordable housing in the short term and very little over the long term. Same for parks, bike infrastructure, and so on. If we fail to address the street resurfacing backlog responsibly, it will eventually consume more and more of our resources, squeezing out other spending categories.
[1] Data compiled from 2020-2021 budget, p. 136 and 2023-2024 budget, p. 138.
[2] The street condition evaluation is performed biennially by a third party engineering firm. The temporary uptick in 2022 ostensibly reflects temporary progress enabled by the Council’s allocation of two-thirds bond proceeds toward the backlog – funds now depleted. See Town of Chapel Hill Five-Year Budget Strategy (Nov. 2021), top of p. 30.
[3] I computed this based on the Proposed Five-Year Resurfacing Plan FY24-FY28.
[4] This is implied on page 6 of the consultant report linked earlier in this paragraph.
[5] For a state-wide perspective on revenue neutral adjustment behavior across counties, see here.
[6] I compared Q1 2020 to Q1 2024.
A solid post, Jon