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.
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.
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.
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.”