Gearing up for Budget Hearing - TribPapers

Gearing up for Budget Hearing

In the last budget worksession before the public hearing, city staff explained to members of Asheville City Council that there were price points beyond which more money does more harm than good.

Asheville – It was the final budget worksession of the year for Asheville City Council. Budget Director Taylor Floyd answered councilmembers’ questions about the city’s fund balance, like what it is and why it is so high. He reviewed that the Local Government Commission (LGC) requires municipalities to maintain their fund balances at 8% of the general budget, but the City of Asheville set its own minimum at 15%. Retaining a higher balance helps the city keep its AAA bond rating, which is the highest rating possible.

Over the last several years, the city has kept its fund balance between 15% and 20%, with the exception of the pandemic years, when it fell to 14.5% and 14.6%. Applications of fund balance in recent years that were highlighted by Floyd included retirement contributions for firefighters ($155,000), additional hours for public records personnel ($39,000), COVID operations ($100,000), public engagement for reimagining public safety ($50,000), broadband for underserved communities ($50,000), grants for neighborhood initiatives ($150,000), and a disparity study ($375,000).

Currently, the city is expected to begin the next fiscal year with a fund balance of 23–24%. This is based on projected revenues of $158,300,000 and expenditures of $156,600,000, and a fund balance that grew from $34,600,000 to $36,300,000. Floyd attributed the growth to “responsible financial management” and strong sales tax growth.

Sales tax revenues were up around 17% year-over-year, an amount Floyd said was “very abnormal.” Combined growth in sales and property taxes are projected to boost the city’s budget by $4,700,000. Other streams of increased revenue include the new sanitation fee ($400,000) and unused and re-assignable American Rescue Plan Act (ARPA) funds ($2,000,000).

While analysts are tottering on the verge of declaring a recession, staff is expecting to see continued but slowing growth in property and sales taxes that will not keep pace with costs of delivering services. Therefore, for the next fiscal year, staff is recommending that the city spend down the fund balance by somewhere around $4,000,000 on top of the $2,000,000 already committed toward renovating McCormick Field. Floyd said he would be much more comfortable recommending numbers after the sales tax revenues are known; council can transfer sums from fund balance at any time during the fiscal year.

While city council has the responsibility of balancing municipal employee compensation with the ability of taxpayers to support those salaries, this year, even would-be beneficiaries in the budget department were at odds with council’s generosity. For example, staff supported increasing hourly differential pay for evening, overnight, and weekend work from $0.75 to $1.50. Council wanted to pay $3.00, and staff compromised at $2.00. The reason was that 9-to-5 roles typically require more expertise and experience, and staff did not want to incentivize those qualified for these positions to seek jobs with lower qualifications. The compromise is expected to cost $250,000 for the year.

In another example, staff supported increasing daily on-call pay from $20 to $30. Council wanted to pay $40, and staff could not justify going over $30. The staff report explained, “the primary goal of compensation recommendations is to reward employees on the job.” Floyd said there were better strategies for recruitment and retention. On-call workers who end up working receive overtime, which is going to increase, anyway. This is expected to cost $150,000 for the year.

Other increases included raising salaries above Just Economics’ living wage rate, credential-based differential pay for police officers, 401(k) retirement matches, and employer healthcare contributions, among other new and expanded perquisites and incentives. All told, next year’s budget should reflect an increase in employee compensation of $7,200,000.

Before taking on water rates, Floyd took a moment to discuss council priorities and demonstrate continuing budgetary commitment to them. (See sidebar “Strategic Priorities.”) Floyd said an across-the-board 3% increase in water rates would support continuing operations with a slight transfer for capital projects, but it would not include compensation increases required by the city and state. Council, however, did not want residential rates to increase, even though residential ratepayers far outnumber any other class.

To further justify their request, staff researched rates in four other North Carolina cities. Compared to these, at least, Asheville’s commercial base rates were excessive. Only Raleigh came close. Asheville’s commercial usage rates were in the middle of the pack, and both its residential base and usage rates were relatively low among comparables. If staff’s recommended increase were implemented, the average residential customer would pay $7.13 more on their bimonthly bill and $19.89 more overall, given the stormwater and solid waste rate hikes.

Members of council wanted to know what the budgetary impact would be if residential rates did not increase, and Floyd returned with an estimate of $2,500,000. Simply shifting the burden to commercial users would have consequences, as, at last count, the city had 53,528 single-family residential customers compared to 4,653 commercial users.

The city is currently working with a consultant to come up with a tiered rate structure that better reflects the amount of strain various residential customers are imposing on the system. The study should be completed by fall of this year. Water Director David Melton expects to issue debt for system improvements in 2024, and this will require the approval of the LGC. Floyd said the LGC has been stricter about approvals following a couple mishaps in other jurisdictions. Long-term planning, consistent funding, and a well-managed system are criteria that will be important to bond raters.