The story of Asheville City Council’s annual retreat, held this year on March 8 at the Buncombe County administration building, came down to two sets of colored dots. The first, a collection of green and red sticky markers plastered on pieces of paper with Council’s strategic goals, prioritized the group’s ambitions. The second, projected on financial charts in orange and blue, made some Council members doubt whether they could achieve any of those ambitions at all.
Even accounting for an estimated $8 million in new annual tax revenue starting in fiscal year 2021 — the spoils of the purchase of nonprofit Mission Health by for-profit HCA Healthcare — city staff projects that Asheville will take in less than it spends on operations by fiscal 2022. That structural gap will open solely as the result of cost increases for existing city services and does not include the impact of additional programs.
Council’s green and red priority dots highlighted new initiatives such as implementing the Transit Master Plan, eliminating disparities in Asheville City Schools, amending the zoning code and developing a business inclusion program for minority city contractors. But Council member Keith Young called the fiscal reality “sobering” as he addressed those who might seek funding for specific projects.
“This may hurt some feelings, but you can no longer operate the city of Asheville like it’s the Oprah Winfrey talk show, where you get a car and you get a car,” Young said, referencing the daytime TV host’s famous giveaways. “As much as we love all these programs and trying to help the public good … this is the time to close the bank.”
Vice Mayor Gwen Wisler went a step further, indicating that the city may have to cut some of its existing programs to ease the budgetary strain. “This scares me to death,” she said. “This is the year that we also have to start looking at some of the things that we’ve funded in the past and really making sure that everything we’re doing right now is consistent with our mission, down to the $50,000 items.”
Dancing with deficit
Tony McDowell, the city’s budget manager, explained that Asheville’s predicament is not unique among North Carolina cities. Municipalities in the state must rely on property taxes as their primary source of revenue, he said, and increases in property value “just can’t keep up with expenses.”
Labor expenses are among Asheville’s biggest cost drivers, McDowell said. State-mandated increases in employee retirement contributions, for example, will cost the city roughly $600,000 next year and continue to grow over the next three years. Asheville also faces nearly $28 million in unfunded retiree health care liability, although the city’s trust fund for that purpose contains over $9.5 million.
Without the infusion of the Mission/HCA taxes, McDowell noted, the city’s expenses would have exceeded its revenues starting in fiscal 2020. The exact amount Asheville will receive from the health system remains uncertain due to a pending appeal of its Buncombe County tax valuation.
City staff members also say Asheville should be preparing for the end of its current boom period. “We’re very far into an economic growth cycle,” warned McDowell. “There’s the potential that there’s going to be a recession sometime in the next five years. It’s likely there will be; nobody really knows when it’s going to happen right now.”
Mayor Esther Manheimer said the city had long wrestled with such situations, noting that Lauren Bradley, former executive director of finance and strategic planning, presented a similar slide at budget meetings as far back as mid-2011. “But I think it’s really important to ground us, to remind us, that this is the trajectory unless you alter it by either making cuts or raising taxes or finding efficiencies,” the mayor added.
Something’s gotta give?
Council members appeared to be divided over which of those strategies to pursue as they reckoned with the budget. In contrast with the possible need for cuts, as Wisler suggested, Julie Mayfield argued that Asheville couldn’t afford to stop any of its current work.
“What it really comes down to is, who are some of the people that we have that maybe we don’t need anymore?” Mayfield asked. “I didn’t come up with anything.”
Instead, Mayfield said the budget crunch highlighted the importance of boosting city revenue. “Nobody likes to talk about [it], and it’s not politically popular, but we can increase property taxes,” she noted. Manheimer also said she would “go to bat and work on additional revenue sources,” including a quarter-cent sales tax devoted to transit funding.
Young countered that a property tax increase would work at cross-purposes with other city programs. Efforts such as the Down Payment Assistance Program and for-sale affordable condominiums on city-owned property at 360 Hilliard Ave., he said, are designed to help low-income individuals become property owners — the same individuals who would be hit hardest by a tax bump.
“We’re talking about people who are the least among us, who are just now getting a slice of the pie,” Young said. Hiking property tax rates, he continued, would be like the city saying,“‘We know you barely got here, but we want you to pay a little bit more because somebody else wants another car. And this is the Oprah show, so we gotta make sure that everybody gets what they want.’”
“It’s not who gets a car,” Mayfield responded. “It’s whether transit, which is unanimously our No. 1 priority, gets an infusion of $3.5 million this year and ongoing and then continues to expand.”
Council member Vijay Kapoor, while not weighing in about possible changes to the property tax rate, suggested that Asheville should develop an ongoing general obligation bond program as “part and parcel” of capital funding. Brian Haynes and Sheneika Smith, who with Young voted against the city’s current budget in June, offered no comments during the budget discussion.
An important takeaway from the budget talk, suggested City Manager Debra Campbell, was that Asheville doesn’t need to make drastic decisions immediately. Thanks to the Mission/HCA taxes, she said, Council and staff members have a bit of breathing room to plan. “While we’ve got this window, we’re going to work really, really hard,” she emphasized.
“It’s a window, but it’s a window only if, for instance, we don’t do anything to implement the Transit Master Plan,” Mayfield pointed out. “If we do something to implement the Transit Master Plan, that window closes.”
Council will continue to work on the budget throughout the coming months. The body’s first budget work session takes place on Tuesday, March 26, followed by a second session and the adoption of city fees on Tuesday, April 9. A public hearing will take place on Tuesday, May 28, and final adoption of the fiscal 2020 budget is scheduled for Tuesday, June 11. Reaching that conclusion, said Young, will not be easy.
“If we don’t get it together, you’re going to be dealing with a lot more than telling somebody no,” Young warned his colleagues. “We’ve got to work with what we have now. The community knows this is not a fiscally hawkish, conservative Council. But looking at this, we need to be.”