The national economy is taking a dump, and the detritus is affecting not only financial institutions, investors and taxpayers, but also the city of Asheville.
That was the word from city Chief Financial Officer Ben Durant, who told City Council on Oct. 7 that the national — and increasingly international — economic meltdown is having its effects on Asheville’s finances.
The meeting got off to a positive start. Assistant City Manager Jeff Richardson told Council that the city had been able to significantly reduce fuel consumption during the recent gasoline crisis caused by refinery and pipeline disruptions in the aftermath of Hurricane Ike in the Gulf Coast. Council members in turn vowed that the city would undertake better efforts in the future to communicate with citizens, government and oil-industry authorities and gasoline-station owners to make sure any such future disruptions would be mitigated to the greatest extent possible.
However, the second part of the 80-minute special meeting was not so sunny, as Durant told Council members: “We have some serious financial instability in the national economy,” which is quickly trickling down to the local level.
The meltdown is obvious to anyone who has been paying attention to the news, or anyone vested in the equities market. But while the bad news has been relegated to financial institutions and investors — not to mention taxpayers who will help pay the $700 billion the federal government has earmarked to rescue investment banks, government-sponsored enterprises and insurers such as Bear Stearns, Fannie Mae, Freddie Mac, American International Group and others—the meltdown also directly threatens the city, Durant said.
Durant warned of a many-edged sword hanging over Asheville: an unstable financial sector, a weakened economy and a severely tight credit market. As a result, the situation will likely hurt the city’s efforts to issue debt for city improvements and depress property and sales-tax revenues, but likely will not significantly decrease the profits from the city’s investments. The city is prohibited by law from investing in the stock market, with the bulk of its investments in safer, and more conservative, cash-based instruments such as Treasury notes, money market funds and certificates of deposit (aka CDs).
“Our investment portfolio is fine,” Durant said. “Our investment manager is not going to let us lose any money [there].”
However, Durant warned Council members that the overall situation has led to an uptick in local unemployment, a significant decrease in building permits and a decrease in new business licenses. He also expressed concern that a weak Christmas shopping season could depress city coffers further.
“We’re really concerned about the economic slowdown going into the Christmas season,” said City Manager Gary Jackson.
The city takes a conservative approach to budgeting its revenues and expenses each year. But Durant said the city is nonetheless still falling behind on revenue projections for the current fiscal year, while exceeding expense projections.
Since the new fiscal year went into effect on July 1, property tax growth is growing at a scant 2 percent, versus a 10-year average of 3.3 percent. Meanwhile, sales-tax growth is lagging, also at 2 percent, versus a four-year average of 7 percent. And Powell Bill revenue, which is state money allocated for maintaining, repairing, constructing, reconstructing or widening local streets, is down 9 percent, Durant said.
Price inflation also is rearing its ugly head, he added.
Some examples: City-employee health-care costs are up 28 percent over last fiscal year; fuel costs are up 35 percent; and asphalt and concrete costs for capital projects are up 89 percent and 77 percent, respectively. With the advent of winter, Durant also noted that road-salt will cost 121 percent more. And, thanks to a rate increase by Progress Energy, the city will incur an additional $143,000 in energy costs this current fiscal year.
It’s not as if the city didn’t see hard times coming. Before the current budget was adopted in late June, the city took steps to cut costs where possible, Durant said, noting that the city eliminated some city positions, delayed implementation of take-home vehicles for city employees, eliminated the city manager’s contingency fund, among several other cost-cutting measures — all without raising property taxes or curtailing core city services.
“We’ve been well on top of this, but we may need to go further,” said Durant, noting that the city might consider cutting back other capital and equipment expenditures. Further, the city would continue to “re-engineer work processes and procedures” to cut costs and examine the possibility of reducing some city operations and prioritize services in an effort to cut costs, though Durant offered no specifics.
For more, check out the Oct. 15 edition of Xpress.
—Hal L. Millard, staff writer