Asheville City Council

Fallout from the spreading national economic debacle is affecting not only financial institutions, investors and taxpayers, but also the city of Asheville, Chief Financial Officer Ben Durant told City Council.

The Oct. 7 Council meeting did get off to a positive start. Assistant City Manager Jeff Richardson said the city had been able to significantly reduce its fuel consumption during the recent gasoline shortage caused by refinery disruptions on the Gulf Coast in the aftermath of Hurricane Ike. Council members, meanwhile, vowed to do a better job of communicating with residents, government agencies, oil companies and gas-station owners to minimize any future disruptions as much as possible.

But the second part of the 80-minute special session called by Mayor Terry Bellamy to discuss the gas situation and financial matters wasn’t so sunny. “We have some serious financial instability in the national economy” that is quickly trickling down to the local level,” Durant told Council members.

The meltdown is obvious to anyone who’s been following the news or the stock market. But while the headlines have focused on the woes of financial institutions, investors and taxpayers (who will help fund the $700 billion the federal government has earmarked to rescue financial firms), the meltdown also directly threatens the city, said Durant.

A multi-edged sword is hanging over Asheville, he warned: An unstable financial sector, a weakened economy and an extremely tight credit market will probably hinder the city’s ability to borrow money for capital projects while depressing property- and sales-tax revenues. The city’s own investment income should remain fairly stable, Durant reported. The city is prohibited by law from investing in the stock market, and the bulk of its investments are in bonds and safer, cash-based instruments such as Treasury notes, money-market funds and certificates of deposit.

“Our investment portfolio is fine,” Durant emphasized. “Our investment manager is not going to let us lose any money [there].”

But the overall financial situation has led to an uptick in local unemployment along with a significant decrease in building permits and new business licenses, he said.

And City Manager Gary Jackson added, “We’re really concerned about the economic slowdown going into the Christmas season.”

The city takes a conservative approach to projecting its revenues and expenses each year, said Durant. Nonetheless, at this point in the fiscal year, revenues are below the projections and expenses are higher.

Since the last fiscal year, property-tax revenues have grown at a scant 2 percent, compared with a 10-year average of 3.3 percent. And sales taxes, which have averaged 7 percent growth over the last four years, are also down to 2 percent. Meanwhile, this fiscal year, Powell Bill revenue—state money allocated for maintaining, repairing, constructing or widening local streets—is down 9 percent, Durant noted.

At the same time, price inflation is rampant, he reported. Health-care costs for city employees are up 28 percent over the last fiscal year; fuel costs are up 35 percent; asphalt and concrete costs for capital projects are up 89 percent and 77 percent, respectively. And with winter approaching, Durant also noted that road salt will cost 121 percent more. Furthermore, a Progress Energy rate increase will mean an additional $143,000 in energy costs in this fiscal year.

Even before the current crisis hit, the city had taken steps to cut costs where possible, said Durant. When preparing the current budget, for example, Asheville left some staff positions vacant and eliminated the city manager’s contingency fund, among other measures—all without raising property taxes or curtailing core services.

“We’ve been well on top of this, but we may need to go further,” Durant said, noting that the city might consider additional cuts in capital and equipment expenditures. The city, he said, will also continue to “re-engineer work processes and procedures” and explore the possibility of reducing some city operations and prioritizing services in an effort to trim costs, though he offered no specifics.

Council member Carl Mumpower worried about the effects of the state’s economic situation, which will inevitably trickle down to the local level. Durant concurred, noting that any significant cost-cutting by state government “will roll downhill to us.”

“We have potentially catastrophic straits ahead of us,” said Mumpower. “Perhaps there are stronger steps to take … that would include holding onto every dollar in our savings account. … I would want to support you as being overly conservative rather than under-conservative.”

Noting that conservation measures had enabled the city to cut fuel costs significantly during the recent gasoline shortage, Council member Robin Cape urged Durant and Jackson to continue such conservation efforts.

But she also warned against wholesale cost-cutting that might save money now but incur greater costs later.

Jackson said that any further cuts would be strategic rather than across-the-board, adding that staff would be mindful of the longer-term budget implications.

Council will revisit budgetary issues next month, when Durant is slated to deliver a detailed first-quarter financial update.