What a difference two weeks makes in a city budget

By Leslee Kulba

Asheville – At Asheville City Council’s most recent work session, Asheville CFO Barbara Whitehorn shared progress staff has made in getting a budget together for presentation May 26. For the rest of this year and next, staff is making projections with “major uncertainty.”

She described the budget as the same as last year’s with few additional expenses. Department heads were also looking for line items they could cut with minimal disruption to services the public expects. Before the discussion was in full swing, Vice Mayor Gwen Wisler counseled presenters not to use the phrase “worst-case scenario,” preferring something like “best, worst-case scenario,” as nobody knew how bad things were going to get. She hoped staff would have a “Plan A, B, C, …, J.”

Like most city and state budgets, Asheville’s has been destroyed by responses to COVID-19. Asheville, however, has worked hard to maintain a healthy fund balance, which was going to be maintained at 18% of general fund revenues in preliminary budget discussions. Whitehorn explained North Carolina cities are expected to keep two months of operating funds in reserve. “It’s great that we have this and are able to use it,” she said.

Since the council’s first budget discussion, the city has, temporarily, made transit and downtown parking free. It has also cut slack for people who owe the city money. It has partnered with county government to establish the One Buncombe relief fund, provided shelter for homeless people, and installed social-distancing measures. Modified projections considered declining sales tax revenue, a shrinking general fund and parking enterprise fund, and no idea how much state and federal subsidy the city would receive. Asheville City Manager Debra Campbell said the city’s essential workers have been working extra-hard during the COVID crisis, and so staff is still trying to make sure all are paid at least $31,200.

Since council’s last work session, April 14, staff has integrated the following assumptions into this year’s budget: ABC sales tax revenues will be down $200,000, overall sales taxes for the final quarter will be down 20%, and state deferrals of vehicle registration fees will push some percentage of collections into FY20-21. The city has also reduced expenditures by $1 million through department-head discretion and a hiring freeze. Whitehorn said this has closed the city’s budget gap to $2.5-$5 million, which is $300,000 less than the previous projection. Adding to this the $1.5 million loss expected from parking services, the city could still close the gap by dropping its fund balance to 14%-16%, Asheville Mayor Esther Manheimer said the state, whose budget is impacted more by fluctuations in sales tax collections, was doing its own projections. She expressed interest in learning their formulae, but Budget Director Tony McDowell said they were recalcitrant to share.

Manheimer also said she had been looking at a $3 trillion relief package put together by the House of Representatives that would award $222 million to Buncombe County and another $50.1 million to Asheville this year, and half as much again next year. Manheimer then suggested Congress may only have created a “positioning bill,” knowing it would fail in the Senate. For context, the city’s current-year, pre-COVID budget, estimated annual sales tax revenues at only about $28.5 million, the proposed relief exceeding one-quarter of projected revenues.

Whitehorn only spoke in PowerPoint terms about next year’s budget, as staff is still waiting for more dust to settle. She said, out of deference to struggling citizens, the city intended to keep the property tax rate flat, at 42.89 cents-per-$1000-valuation, and not raise any fees. The capital improvement charge will be eliminated from water bills, and the city is, in fact, working with Raftelis to restructure its water rates. Should the outlook worsen, this year or next, the city would cut more operations and services, defer maintenance, hold flat contributions to its benefits programs, and slow investment in capital improvements. Another $1.5-million transfer from the fund balance seemed probable.

At a previous meeting, the council had discussed how federal CARES Act funding has put Asheville transit in a better financial position than it had been before the COVID crisis. Asheville Councilor Julie Mayfield wanted to know if the city could use CARES Act funding for hazard or bonus pay for frontline transit workers. She realized that, even if the federal government allowed it, the city contracts with a management company for transit services, so creative workarounds may be needed. Asheville Assistant Transportation Director Jessica Morriss replied her understanding of the act was that the funding was only for administrative pay. Mayfield asked Morriss to double-check the rules and then asked for what the city could use leftover CARES Act funding. She recommended using it for improving transit facilities and expanding routes. Asheville transit intends to spend $1,526,000 in CARES Act funding this year and up to $4,872,000 next year.

Asheville Councilor Vijay Kapoor, who in his day job provides financial consulting to cities, expressed appreciation for Just Economics of WNC (JF), lobbying, the city but said they were working at cross purposes. JF’s mission statement “…is to educate, advocate, and organize for a just and sustainable economy that works for all in Western North Carolina. When the city had the money, Kapoor enthusiastically supported implementing the next phase of the city’s compensation study, to keep salaries and wages competitive and in line with the cost of living. However, transit expansions, which were running a deficit before COVID, are crowding out the city’s ability to pay living wages. He said the city could play shell games to get more money into transit, but he recommended, instead, establishing a dedicated transit fund.

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