Officials project a $17.6 million shortage in Asheville’s city budget, and the drop in revenue throws next year’s budget into a state of “uncertainty,” City Manager Debra Campbell told Asheville City Council members at their annual retreat late last week.
“This is not a traditional time for our community or a traditional budget process,” Campbell said during a budget presentation on Friday.
The retreat was facilitated by consulting firm Fountainworks, Inc for a fee of $27,600.
Typically, the council retreat involves a budget presentation from city staff that is “already baked” and with fleshed-out recommendations for next year, Campbell said, but this year’s presentation revealed a slew of losses in the current fiscal year – and a list of difficult questions that lie ahead.
“We’re not asking you for any decisions today. This is going to be an evolving process. We have a number of other meetings and additional work sessions, because this is an unusual process. We don’t have all the information we need to make some key decisions,” she said.
While the city is slated to get $225 million in federal recovery funds, most of that money cannot be applied to the city’s operational costs, which are by far the city’s largest expense, Campbell said.
In addition, FEMA does not offer reimbursement for lost government revenue – the driving factor behind the mid-year shortfall.
In recent months, the city’s water department – which paused billing during Asheville’s 53-day-long water crisis –suffered a $7.6 million loss in revenue.
Sales tax revenue, which was already lagging before Hurricane Helene, saw steep declines in September and October 2024, with an 11% and 14% decrease, respectively.
November sales tax – the most recent figures available – saw a 6.5% decline. Based on these numbers, the city is estimating a $4.1 million total loss in sales tax for the year.
Tony McDowell, the city’s finance director, said he expects an additional $1.5 million in unpaid property taxes, $2.5 million in reduced parking revenue, $2 million less income generated by Harrah’s Cherokee Center Arena and a $200,000 shortfall to pay for transit services.
In response to these losses, the city has already instituted “extra scrutiny” in hiring, Budget Manager Lindsay Spangler said.
The city is also planning to implement $5 million in cuts this year, Spangler said. That includes foregoing a $1.6 million annual payment to a trust fund that helps cover post-retirement costs for city employees.
The city also proposed delaying and reducing purchases, for savings of $1.5 million, and suspending most training and travel for employees, as well as a $1.1 million cut in contracted services.
The remaining budget losses are coming out of the city’s enterprise fund, meaning that losses in water, parking and civic center revenue can be covered through separate reserves, McDowell told BPR in an email.
“Finance staff has and continues to work with staff in the enterprise funds to identify savings in those areas as well. If any of those funds end the year in a negative position then it would be covered by reserves in those funds; not General Fund fund balance,” he said.
Another challenging budget year ahead
Last year’s budget process was a challenge due to flat revenue growth and inflation which led to an increase in health care, retirement and personnel costs. City Council members decided to balance the budget – which included staff raises – by raising property taxes and using $7.8 million from Asheville’s fund balance.
The upcoming budget process is likely to be even more challenging because city officials expect local sales tax revenue to be lower than last year. Leaders said retirement and health care plan costs have risen and the city will need to fund an anticipated $2.5 million increase.
A formal presentation of a draft fiscal year 2026 budget is expected in May, with a planned City Council vote on spending in June.
Elected officials may need to increase property taxes and cut “non-core services” to balance the budget, McDowell said.
For example, a 7.08-cent increase to property tax rates would fund a 1% raise for city workers, cover projected revenue losses related to Helene, and eliminate the need for the city to dip further into Asheville’s fund balance, or savings. If adopted, that tax hike would increase the average homeowner’s property tax bill by $249 annually.
There’s also a planned water rate increase, stemming from a multi-year plan to address water and stormwater infrastructure needs.
Under the current proposal, that would bring a 7.5% increase in water rates for residents with potentially higher adjustments for other customer classes.
Council member Sage Turner questioned city leaders’ negative outlook on sales tax revenue.
“So is this like a conclusion we draw because we're worried or do we have advisers or state level people saying, ‘Hey this is likely going to happen,’” she asked.
McDowell replied that because the city is down about 6.5% in sales tax revenue this fiscal year, Asheville would need to see “some pretty significant growth” to bounce back.
“There's a lot of unknown about this … We're going to be tracking that over the next few months and updating it,” he said. “If we see we are recovering faster, we can budget more, obviously.”
A public input session on budget priorities is scheduled for Feb. 25. For more on the budget process, see our Asheville Budget Primer.
