City committee crunches the numbers, hopes for Mission sale windfall

During a Finance Committee meeting on March 29, City Council members, from left, Vijay Kapoor, Gwen Wisler and Julie Mayfield heard from city staff about ways to close a $3.2 million budget gap. Photo by David Floyd

When viewed on paper, the “structural gap” in Asheville’s finances reminds Barbara Whitehorn of the open mouth of an alligator — a mouth that the city has to force shut every year.

“If you look at a graph of it, it’s like every year there’s this little space where revenues and expenditures don’t meet,” said Whitehorn, the city’s chief financial officer, during a Finance Committee meeting on March 29. The committee consists of three members of City Council: Vice Mayor Gwen Wisler, Julie Mayfield and Vijay Kapoor.

According to a projection shown during Council’s first budget work session on March 20, Asheville could face a shortfall of about $13.5 million by fiscal year 2023 if expenditures continue to outstrip revenues.

Coming out of the session, Council was looking for a way to overcome an estimated $3.2 million deficit for next year’s budget, a number that didn’t take into account the cost of police reforms Council members had suggested during the same meeting.

For Wisler, who has served on the Finance Committee for five years, the budget cycle has a familiar pattern. “Every year I’ve been on City Council, the original iteration comes back and revenues are not as much as aspirational expenses, so it’s pretty common to have a gap,” she said. This year, Wisler said, that gap is a little bit bigger than past years. “We started some things last year, and this year we’re getting the effect of annualizing those,” she said, pointing specifically to transit and public safety spending.

Taking into account the money it would take to expand the city’s Equity and Inclusion Office — one of the policies City Council discussed on March 20 — Council members considered several steps that could cut the deficit to about $1.7 million.

Healthy money

Despite its budget crunch, the city does see a bright spot on the horizon.

Asheville has the potential to see $6.8 million in new property tax revenues, thanks to the proposed Mission Health merger with HCA Healthcare, according to a staff report. Because HCA Healthcare is a for-profit entity, the deal would make more than a billion dollars worth of real estate that is currently exempt from taxation in Buncombe County taxable and would also bring additional sales tax revenue to the city, a figure that staff is still calculating.

However, staff cautioned that the city likely wouldn’t see increased property or sales tax revenue until fiscal year 2019-20.

Following a phone call between city officials and representatives from Mission, Mayfield said, she has the sense that Mission is committed to the deal. Interim City Manager Cathy Ball agreed, but she noted that there is still a chance for the merger to fall through.

“Until it’s a done deal, we don’t know,” Ball said.

Making room

As part of reforms proposed in the wake of leaked police body camera footage that showed a white Asheville police officer beating a black city resident in March, the city is hoping to round out its equity and inclusion office, which currently consists of only manager Kimberlee Archie.

City staff estimates that adding three more positions would cost $365,000 for a full year, plus a one-time cost of $15,000 for equipment and space configuration. Staff estimates that staggering the hiring process could save the city $40,000.

“As someone who manages people, I wonder about the wisdom of adding three new staff people in one year,” Mayfield said, “and whether it might make sense to take that a little more slowly.”

Mayfield said the city hasn’t yet drafted the ordinance that would expand the equity office and suggested bringing on just one or two new people this year.

Archie said she is working on an action plan for the equity office, which is being vetted by city department heads right now and could serve as a helpful guideline for drafting an ordinance. Council members decided they would hear the results of the plan at a future meeting.

Penny pinching

Staggering the hiring process for the Equity and Inclusion Office was one suggestion on a laundry list of savings that city officials believe could bring Asheville closer to a balanced budget.

Staff also recommended that Council cut a proposed salary increase for city employees from 3 percent to 2.5 percent, a move that could save the city $300,000.

Kapoor said the proposal merits a bit more scrutiny because it could make the city a less competitive employer. “We’re in a pretty robust market right now for public employees, and a 3 percent increase is something I’m seeing is pretty typical,” Kapoor said. “…My concern is at some point when we deal with wage compression or the economy turns … are we going to multiply the same problems we’ve been having right now with saying, ‘We can’t hire people, our wage scale is too low’?”

Wisler proposed that the city exclude Council members from the pay increase. “It’s not much money,” she said, “but I would propose that if we’re asking everybody to tighten their belt, then we should at a minimum do that.”

Staff also suggested financing about $700,000 in miscellaneous capital expenses, including sidewalk maintenance, guardrail maintenance and traffic calming, through the capital fund rather than the general fund — a move staff said would reduce the annual cost to the city. Staff suggested re-evaluating the debt-funding next year and moving the money back to the general fund in fiscal year 2019-20 if the opportunity presents itself — for example, “if somehow we get $6.8 million in new revenue,” Mayfield said.

Staff also suggested using about $300,000 from the city’s fund balance to supplement its revenue for the fiscal year 2018-19 budget, a move that Whitehorn said is not an uncommon strategy.

“When you’re in a period of flux, often cities will use fund balance as a balancing line in their budget,” Whitehorn said. “…You don’t want to do that every year, obviously, and we don’t want to see our fund balance go down, because our AAA [bond rating] could be affected and then our debt cost goes up. But as a one time, it is not out of the question.” As a policy, the city keeps its fund balance at or above 15 percent. Under this plan, the city’s fund balance would remain at 16.6 percent of its operating budget.

Although there’s nothing “evil” or “nefarious” about drawing from the fund balance, Kapoor said the idea gives him heartburn. “Although we always want to say it’s one time, we rarely see one time become one time,” he said. “…Mission to me is a wild card right now.”

Kapoor also pointed out that the city might have to pay a settlement stemming from the August use-of-force beating incident shown in the leaked video, a cost that might have to come out of the fund balance. “That’s something that’s going to impact us somehow,” he said.

Kapoor also argued that, because the economic outlook is pretty good, the city should be building up its fund balance right now in the event of another recession. “Hopefully it’s not going to be like 2008 or 2009, but what’s going to happen then is the revenues are going to constrict, and then we’re going to be in a real difficult spot because we built our budget and our fund balance is based on a situation where we would be in good economic shape.”

Mayfield said she would be happy to use that money. In her experience, the city gets to the end of the budget cycle, and there’s always a pot of extra money in the fund balance that elected officials allocate for one-time expenses. “If this is the big one-time thing that we’re going to do this year, then I’m cool with doing that,” she said.

Council members heard several other recommendations from staff:

  • Reducing from 20 to 15 the number of extra recruits the Asheville Police Department trains as a buffer against staff turnover. According to a staff report, reducing the number of extra recruits by five would save the city about $200,000.
  • Reducing funds for fleet maintenance in the Asheville Fire Department by $100,000. After pausing its fleet replacement process during the Great Recession, the city recently bought new vehicles, which means less money for upkeep.
  • Increasing parking deck fees to help cover the increased cost of transit services. Increasing support for transit from the parking fund would allow the city to reallocate money in the general fund that’s being used for transit.
  • Reducing the city’s employee health insurance contribution, which would save $255,000.

Taken together, Wisler said there’s nothing on the list of staff recommendations that gives her heartburn.

“I’m feeling moderately confident about Mission Hospital,” Wisler said. “I realize that if we implement some of these things and Mission doesn’t go through, we will be in a crisis in the fall, and we’re going to have to go back and relook at a lot of this stuff.”


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About David Floyd
David Floyd was a reporter for the Mountain Xpress. He previously worked as a general-assignment reporter for the Johnson City Press.

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9 thoughts on “City committee crunches the numbers, hopes for Mission sale windfall

  1. Enlightened Enigma

    Isn’t it totally IRONIC that such a liberal progressive utopic city would even need an equity and inclusion manager? Will she bring the Housing Authority into ‘equity and inclusion’ ? No they still get a pass and continue to blight the whole city daily. They segregate all the poor people. Evil segregationists.

  2. luther blissett

    Saying that Mission under HCA for-shareholder ownership could bring in $7m in property taxes p.a. is basically saying that Asheville and WNC residents are going to be facing an extra $7m in costs every year on those incomprehensible billing statements. Most of that will fall on those least able to pay, given that the loss of non-profit status probably also means losing the incentive to write off bills as charity care. City Council and the county commission ought to be willing to say right now that any windfall from the change in taxable status goes towards anybody affected by the transformation of the local healthcare monopoly into a minor division of a for-profit corporation.

    • Lulz

      LOL you live in lala land. The only thing the money goes towards is RAD redevelopment or downtown stupidity. In no way will residents, especially poor, benefit from it.

      For profit business can write off anything they want as expenses. So don’t worry about an entity that owns a billion in property and up until now hasn’t paid a dime in property taxes. That’s been expected to be made up by the poor and elderly too. Only to go into such important things as the art museum, tourism, and other stuff that benefits only a minority. Mainly corporations and a select few who can afford to own the property in the CBD.

      • luther blissett

        At some point you’ll accept that the city budget goes mostly on cops and firefighters. (And this year that’ll include settling for police brutality and auditing the department.)

        Until that point, you’re just frothing.

        • Lulz

          LOL sure it does. Is that why they’re running deficits? At some point people need to wake up and face the fact that parks, greenways, Radrip, art museums, and non profits cannot all be funded lulz. Never mind the bogus studies in order to not have to make decisions.

  3. NFB

    7 million in property tax revenue for the city/county is NOT worth health care by balance sheet.

  4. Mike

    So if the sale price exceeds Mission’s present debt load, by, say $200,000,000 who gets to keep the $200,000,000??

  5. Gerard Worsyer

    Giving $6.8 million to the current city government as a windfall to support their pet projects and poor financial management is a bad idea in and of itself, but the impact on the cost of medical care will most likely be very painful for much of the residents of the city and Buncombe County. Going from a nonprofit status to a for-profit entity is going to result in a much bigger increase in medical costs then just the addition of property tax costs.

    I do not think the change will be representative of what financial sharks like Cancer treatment Centers of America do, but it will still be very significant. Besides covering their costs, they will be driven by making a healthy profit. I do not have a problem with companies making a profit, but converting an entity that has a medical market share in the county bordering on a monopoly is bad.

    Patients with health insurance, which have negotiates rates (like the Mission – United Healthcare battle) might think they will not be affected, but are in for a surprise. Many for-profit health care providers will often have patients agree to pay the differentials between their “price” and the amount allowed by the insurance company – and this is normally buried in the fine print. These differentials often can be bigger then the amount the insurance company allows.

    This will hit most of the population, except for those on Medicare and Medicaid (although they might not accept Medicaid). Medicare law prohibits charging more then the 20% not covered by Medicare’s allowances, and often covered by supplemental insurance. And of course, with no insurance – it already is painful but will be much worse.

    I am hoping the state agencies reviewing this merger and the impact it will have on medical costs block it – based on the size of Mission and its potential impact on the community. And if this forces the City and County to better manage their spending – that will be an added benefit to the community in the long run.

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