How we got here: A primer on Asheville’s budget crunch

A financial gap for the city of Asheville is nothing new, but one of this extent is unusual. In previous years, the city’s gaps were due to the fact that growth in property and sales tax revenues weren’t keeping pace with rising expenses in areas ranging from fuel to transit. Tonight, at 6 p.m. Asheville City Council will hold a special town hall meeting at Koontz Intermediate School in South Asheville to discuss the issue.

Asheville also has an unusual situation: its daytime population is far higher than its nighttime population, meaning that a lot of people use city services who don’t pay property taxes. Other cities with a big tourism sector usually have special taxes on hotel stays or prepared food and beverage to derive some revenue from this situation. But the local hotel tax goes to the Tourism Development Authority, and efforts to get such revenue streams granted by the state haven’t received much serious traction. A 2010 “crossroads report, done in the depths of the recession, spelled out the underlying issues in detail.

Until 2010, the city weathered the recession by closing sizable budget gaps through cuts to training, vacant staff positions, and using its reserve funds. In 2010, the city, partly helped by the thawing economy, stopped dipping into its reserves, and relied on cuts and fee increases to make up the gaps.

Earlier this year, city staff’s projections showed that, like previous years, they anticipated a shortfall ($2.2 million in this case) that would be made whole by a combination of increased fees (especially a new solid waste charge) and smaller cuts.

Staff have noted multiple times the need to address the gap through some structural changes (they recently updated the 2010 “crossroads” report for 2013). Earlier this year, the city planned to do this through ending Bele Chere in 2014 and looking at the way it provided other services to see if more efficient models were possible to finally tame the city’s underlying issues. But this was projected as a multi-year process: staff asserted they had enough of a handle on the situation to hopefully stave off major service cuts or a sizable tax hike.

That’s where state legislation comes in. Some of the legislation affecting Asheville is statewide in nature. The proposed elimination of local privilege taxes (costs city $1 million starting next year), utility taxes ($1.5 million a year), and beer and wine excise taxes ($90,000 starting next year), all combine to hit the city’s bottom line.

Then there’s legislation de-annexing property around the Asheville Regional Airport (costing the city $200,000 a year in property tax revenue), ending the city’s extra-territorial jurisdiction (ending $219,000 in development review revenue) and, of course: taking the water system. Controversial state legislation proposes transferring the whole thing to the Metropolitan Sewerage District, with no compensation for the city.

The water system’s funds are self-contained — a special state law requires it — with two major exceptions. The first is the ability, allowed by 2010 state legislation — to use up to five percent of water revenues for related street and sidewalk improvements. The rationale, according to city officials, was that if they were going to tear up roads to replace aging water lines, they needed the money to make upgrades when patching them up afterwards. Separate state legislation ending that ability will cost the city a potential $1.6 million a year as staff would have to either not improve infrastructure or find the funds somewhere else.

The second exception stems from the fact that the water system currently shares the city’s administration; it doesn’t have its own human resources department or attorney, for example. The city uses $1.9 million in water revenues to help pay for overall administration, since the water system, like other city departments, benefits from it. While the loss of the water system could reduce staff’s workload some, the city projects that it won’t save enough to make up for the loss: it’s one less source of revenue to help fund the costs of the city’s central administration.

All that combines to leave the city’s gap potentially at $5.9 million.

Some state legislators, including Rep. Nathan Ramsey, one of the sponsors of the water legislation, have said the city has a legitimate point about the loss of revenue, hoping to find ways to leave the city financially unaffected, and one proposed change to the statewide revenue overhaul would reduce the city’s gap from $5.9 million to $4.5 million. But while Lauren Bradley, the city’s finance chief, has emphasized that staff don’t know exactly how the state’s legislation will shake out this year, they have to start planning for the worst. Council, asserting that the state’s actions threaten to cripple city government, have asked the public to direct their anger about potential cuts to the legislature.

From 2008 to the present, the city attempted to ride out the economic downturn by focusing on cuts that wouldn’t affect services the public would notice. But every cut leaves less flexibility to deal with a serious shortfall, and their projections now say that closing a gap of this magnitude will require either new revenue (in the form of tax increases) or a drastic scaling back of services. Drastic meaning closing the pools, ending Saturday bus service, ending all youth and adult athletics, cutting police overtime, closing the WNC Nature Center, closing a fire station, and ending Bele Chere this year instead of next.

In their attempts to both make the public aware and rally support, the city is holding a series of town halls. The first, in the civic center, drew over 100 people, most quite angry at the state. Whatever citizens say at tonight’s meeting, the budget issue isn’t going anywhere for a long time to come.