City Budgets

CITY OF ASHEVILLE

NORTH CAROLINA

Adopted Annual Budget Fiscal Year 2015-16

Esther Manheimer

Mayor

Gary W. Jackson

City Manager

Paul Fetherston

Assistant City Manager

Barbara Whitehorn

Chief Financial Officer

August2B,2015

TO: FROM: SUBJECT:

Mayor Manheimer and City Council Members Gary W. Jackson, City Manager f

2015-16 Adopted Annual Budget

I am pleased to present you with a copy of the 2015-16 Adopted Annual Budget Document. This document, which was prepared by the City's Budget & Financial Reporting staff, reflects the City's overall budget plan and policies as approved by City Council for the upcoming fiscal year.

The Fiscal 2015-16 Proposed Annual Operating Budget was presented to City Council on May 26, 2015. In accordance with the North Carolina Local Government Budget and Fiscal Control Act, a summary of the Proposed Budget along with a notice of the Public Hearing was published on May 29, 2015. City Council conducted a public hearing on the Proposed Budget on June 9, 2015. The Fiscal Year 2015-16 Budget is balanced with an Ad Valorem tax rate of $0.475 per $100 of assessed value, which represents a $0.015 increase over the current year tax rate. All essential City services are continued in the Adopted Budget.

There were two minor changes made to the Proposed Budget prior to its adoption by City Council on June 23, 2015. Those changes are summarized below.

· Strategic Partnership Funding: At the June 9 City Council meeting, Council agreed to consider budgeting an additional $50,000 in Strategic Partnership grants, pending the recommendations of the Housing and Community Development (HCD) Committee. At their June 16 meeting, the HCD Committee considered applications from ten eligible organizations that had not been granted funds at the June 9 City Council meeting and granted $50,000 in additional funding. Council is taking action on these recommendations in a separate agenda item at tonight's meeting. Staff has adjusted the FY 2015/2016 Proposed General Budget to reflect this expenditure increase, and the sales tax revenue budget has been increased by

$50,000 to provide the necessary funding.

· Capital Improvement Program - Craven Street Bridge: Funding for this project was shown in the Proposed Budget Document Capital Improvement Program (CIP) section as part of the overall RADTIP cash flow. The Adopted Budget Document will show cash flow, including

$300,000 in funding from Buncombe County, for Craven Street Bridge separately from RADTIP. The overall cash flow totals for the five-year GIP remain unchanged.

The FY 2015-16 budget numbers and all narrative in this document reflect the budget as adopted by City Council on June 23, 2015, including the changes noted above between the Proposed and Adopted Budgets. The City Manager's Budget Message, however, is included as it was presented with the Proposed Budget on May 26, 2015.

"

GOVERNMENT FINANCE OFFICERS ASSOCIATION

Distinguished Budget Pre sen ta tion Award

PRESENTED TO

City of Asheville

North Carolina

For the Fiscal Year Beginning

July 1, 2014

/.

Executive Director

ASHEVILLE

( TABLE OF CONTENTS )

( INTRODUCTION )

INTRODUCTION

Budget Guide

City Manager’s Budget Message Organizational Structure Budget Process

Financial Policies

The City of Asheville budget document is designed to emphasize service areas instead of organizational units or funds. Five major service areas are identified in the budget document: (1) Public Safety; (2) Environment & Transportation; (3) Culture & Recreation; (4) Community Development; and (5) General Government.

The budget document is divided into the following sections:

Introduction - This section begins with the City Manager’s Budget Message which highlights and explains the major budgetary issues facing the City of Asheville during the 2015-16 fiscal year. The Introduction also includes a description of the budget process and City organizational structure and a presentation of the City’s financial policies.

Budget Summary - The Budget Summary section provides a detailed picture of the City’s FY 2015-16 adopted annual operating budget, including information on total budget expenditures, revenues, and staffing. This section concludes with an estimate of fund balance for the City’s general fund.

Fund Summary - The Fund Summary section segregates the expenditures and revenues by fund. Detailed information is included for all City operating funds, with a focus on the City’s largest fund - the general fund. This section also highlights the City’s major revenue sources and summarizes the trends and assumptions that were used in developing the FY 2015-16 revenue estimates.

Service Area Summaries - The next five sections present budget data for the major service areas. Detailed budget information is included for the City departments and divisions associated with each service category. Departmental goals, objectives and performance measures are presented in this section.

Capital Improvement Program/Debt Management - The long-range Capital Improvement Program (CIP) describes planned capital improvement projects and funding sources for the next five fiscal years. This section also contains information on the City’s annual debt service requirements.

Supplemental Information - The budget document concludes with a Supplemental Information section that includes a community profile, which provides demographic and economic information for the Asheville area. This section also contains a glossary of frequently used budget terms.

Please direct any comments or questions to: Tony McDowell, Budget/Financial Reporting Mgr City of Asheville

P.O. Box 7148

Asheville, NC 28802-7148

Telephone: (828) 259-5635

Fax: (828) 259-5619

Honorable Mayor Manheimer and City Council Members:

It is my pleasure to respectfully submit to you the City Manager’s Proposed Budget for the fiscal year beginning July 1, 2015 and ending June 30, 2016 with a total operating budget of $154 million. The proposed budget includes a total General Fund Budget of $103 million, a 3.6% increase over the adopted fiscal year 2014-2015 budget. The proposed budget includes an increase to the property tax rate of 1.5 cents per $100 of valuation, bringing the total millage rate to 47.5 cents.

Economic Improvements and Constraints

The 2015-2016 proposed budget for operations continues existing service levels while striving for a more balanced financial foundation. The City of Asheville has entered a period of consistent growth. After several years of experiencing the negative effects of the Great Recession, Asheville has, over the last few years, witnessed slow but steady economic improvement. This improvement has provided opportunity for the City to begin addressing long-term structural sustainability. Meanwhile, City staff continues to work on reengineering and managed cost savings with a goal not only of long-term structural sustainability but also continued high level of service.

Asheville entered the operating budget process for fiscal year 2015-2016 with clear direction from City Council: fund the implementation of the classification and compensation study, continue funding strategic improvements in the Police Department, and evaluate City programs and services that are taxpayer subsidized for potential reductions in the level of subsidy. I am pleased to once again present a proposed budget that successfully meets the City Council strategic goals, while maintaining the high level of service the citizens of Asheville expect.

City staff has planned, prioritized, and worked cross-departmentally to ensure that the budget for fiscal year 2015-2016 includes the efficient use of resources while continuing current service levels. In the past year, Asheville has been highlighted nationally for its culture, cuisine and quality of life. While this is exciting and inspiring, the City of Asheville’s fiscal health is dependent on two distinct factors: the local, regional, and national economy and the legislative environment within the North Carolina General Assembly. The General Assembly continues to pursue a number of legislative issues, in particular sales tax redistribution, which could impact municipal finances and service delivery. Asheville staff works to optimize the use of limited resources while attempting to contingency plan for legislative and regulatory changes. Ongoing careful fiscal management and reengineering efforts allow management to entertain strategic goals beyond the maintenance of core services. Asheville has shown remarkable increases in sales tax collections and development revenue over the last year. Sales tax receipts are a lagging economic indicator, suggesting this phase of economic recovery is well underway within the City. Increasing development revenue indicates not only the City’s current positive economic health, but the likelihood of continued growth. More visitors and more residents add pressure to the City’s aging infrastructure and make investment in long-term capital improvements all the more important. As the economic hub of Western North Carolina, Asheville’s long-term financial sustainability has a significant impact on the economic health of the region as a whole.

Though Asheville successfully weathered the economic storm of the Great Recession, costs of supporting existing city services continue to outpace growth in revenues. One consequence of a recovering economy is an increasing cost of materials and labor. These increases are good for Asheville’s economy as a whole, but make managing costs for the City more challenging. This ongoing structural gap is a phenomenon familiar to cities, particularly to those cities that are long-established and have

( CITY MANAGER’S BUDGET MESSAGE )

( Adopted Budget 2015-2016 ) ( 2 ) ( City of Asheville )

infrastructures dating back a hundred years or more, which adds pressure to operating and capital budgets already stretched to cover rising costs. Over the past few years, Asheville has addressed this gap by reducing expenditures, primarily through freezing salaries, reducing staffing levels through hiring freezes, and deferring capital improvements. Unfortunately, while these tactics allowed the City to weather the economic storm, they did not come without consequences. The City fell behind in capital

maintenance and investment, employee compensation fell behind market, and current staffing levels are inadequate to maintain a high level of service.

In addition to challenges facing cities throughout the United States, the North Carolina General Assembly passed HB 1050 in the 2014 Short Session, eliminating cities’ ability to charge a local privilege license fee as of July 1, 2015. This bill has had a significant impact on North Carolina cities. As a result of this legislative action, Asheville started the budget planning for 2015-2016 with a revenue hole of $1.5 million, or almost 1.5 percent of the General Fund budget. In order to fill this gap, the proposed budget contains a

1.5 cent increase in the property tax rate, as mentioned above.

Management Initiatives, Compensation and Staffing

The 2015-2016 operating budget proposes implementation of the city-wide Classification and Compensation Study completed in April, 2015, as well as a one-percent across the board increase for all employees. The classification structure and compensation plan developed by Segal Water consultants working with Human Resources and other teams within the city, will enable Asheville to establish a baseline for competitive salaries that should reduce turnover and improve recruitment of qualified candidates. The recommendations include market increases for employees making less than the minimum for their job, and compression increases to account for the time an employee has served in a role. The total cost of these initiatives is $1.15 million. With the additional one-percent across the board increase, the total compensation increase in the General Fund for fiscal year 2015-2016 is $1.65 million. The operating budget also includes $250,000 to extend the living wage to temporary/seasonal classified employees. At the May 12 work session, Council directed management to further evaluate the classification of employees as temporary/seasonal versus permanent part-time; staff evaluation of positions is currently underway.

The economic growth in Asheville is exciting. In order to support the City’s investment in Innovation Districts and job creation in our improving economy, the operating budget includes an increase from

$60,000 to $100,000 for the City’s contribution to the Asheville Economic Development Coalition and Asheville 5x5 Plan. While an improving economy presents opportunity, growth is placing considerable pressure on existing City staff. Improving compensation is part of the equation to address this challenge; however, in order to maintain a high level of service, staffing levels have to increase. Some positions were added during fiscal year 2014-2015 to address this challenge; additions below are included in the 2015-2016 budget. Staff evaluates opportunities for efficiency and considers multiple alternatives before recommending any additional full-time equivalent positions be added to the City budget. In several cases, staff collaborated to provide resources across departments, sharing positions or transferring vacant, authorized positions to other areas.

The fiscal year 2015-2016 operating budget will add 14.25 positions in the General Fund and 10.37 in enterprise funds.

General Fund

( 1.25 1.00 1.00 2.00 )3.00 3.00 3.00

Enterprise Funds

( 0.37 )10.00

Water Resources Stormwater

Right Size, Right Staff

The Police Department will add an Administrative Services Manager, a Financial/Budget Analyst, two part-time Property and Evidence Technicians, and other administrative service positions. Several of these are offset by efficiencies and reallocations of existing positions, for a net increase of three full-time equivalents. These additions will help address challenges faced by the department. The Fire Department will add three fire inspectors with an expectation that the associated costs will be 100% offset by increased inspection revenues. Development Services, in light of the significant increase in workload, will add Permit Facilitators and move to a five-day schedule for the Development Services office. The Stormwater Fund will have an additional ten positions, including a crew of six maintenance workers, with

a goal of reducing capital costs over the long term by increasing the amount of current maintenance work that can be completed. Fractions of positions above indicate the conversion of a part-time position to full- time. In addition, based on Council direction to more closely regulate short-term rental properties, a full- time inspector position, with offsetting fee revenue, will be incorporated by the conclusion of the budget process.

To address the increasing cost of labor and the challenge of retention, staff is working to identify the right mix of employees: full-time, permanent part-time, temporary/seasonal and temporary contract. The first step has been to identify temporary contract employees in important roles across the City that are full- time and could be defined as permanent. Through this analysis, five positions were identified for conversion from temporary contract positions to permanent City positions. These changes have no net financial impact.

Capital Improvement Program

The capital budget for fiscal year 2015-2016 continues the rolling five-year capital improvement program (CIP). The program seeks to address Council priorities, infrastructure needs and deferred maintenance by including projects that meet one or more of the City Council’s strategic goals: economic growth and sustainability, affordable housing and community development, and high quality of life. Additionally, projects are evaluated for potential outside funding sources in the form of grants or contributions, and perceived return on investment using a triple bottom line approach considering social, environmental, and financial returns. The plan will be revisited annually, at which point project timelines may shift and priorities realign. As a rolling five-year budget for capital projects, each year, one year of the five-year plan will be adopted as the capital budget.

The capital improvement program, begun in fiscal year 2013-2014 is now in full swing. The program, which leverages the funds available for CIP through a long-term debt model and the use of outside sources of funds, will enable the City to fund significant investment in capital improvements city-wide over the next five years, including the construction of signature projects like the Riverfront Redevelopment, greenways, sidewalks and other transportation connections, investment in the City’s aging fleet and critical infrastructure repairs. Capital investment needs, which could easily cost more than $400 million, continue to far exceed available resources which forced staff to work diligently to prioritize projects and ensure that the available CIP funds are put to the highest and best use.

Adopted Budget 2015-2016 5 City of Asheville

( CITY MANAGER’S BUDGET MESSAGE )

Details of the capital budget begin on page 135.

Summary

2014-2015 has shown steady growth in revenues, with notable growth in local development permitting revenue and sales tax, as previously mentioned. Permitting activity has increased precipitously in the last two years; 2013-2014 revenue increased almost 32% over the previous year, and 2014-2015 is anticipated to increase another 6%. As a leading indicator of the economic health of the City of Asheville, increases in permit activity will translate over time into additional ad valorem taxable value. The turnaround for projects from permit to completion is usually 12-24 months, so the City should start to see the impact of the increased activity as early as fiscal year 2015-2016.

Legislative Climate

A level of uncertainty remains in the intergovernmental arena, and Asheville will need to remain flexible and adaptive as the North Carolina General Assembly’s legislative session comes to a close and the FY 2015-2016 budget is adopted. Several key legislative assumptions are included in the budget:

· Disposition of the City of Asheville’s Municipal Water System: On June 9, 2014, Judge Manning issued a Memorandum of Decision and Order RE: Summary Judgement. In the Decision, Judge Manning ruled that HB 488 violates Article II, Section 24 of the North Carolina Constitution (prohibiting local acts related to health and sanitation), Article I, Section 19 of the N.C. Constitution (prohibiting the taking of a proprietary asset with no rational basis), and Article I, Section 19 and 35 of the N.C. Constitution (because the taking results in no change in use and is not a valid exercise of the legislative power to condemn). Judge Manning ruled further, if it were determined that HB 488 was a valid exercise of the sovereign power of the State of North Carolina, then the City would be entitled to just compensation for its water system. The State of North Carolina filed a Notice of Appeal from Judge Manning’s Memorandum of Decision and Order RE: Summary Judgement to the North Carolina Court of Appeals on July 8, 2014. Allowing time for preparation of the Record on Appeal and briefing of the issues, it is anticipated the North Carolina Court of Appeals may issue a decision in the case in the next few months. It is unlikely that the Appeals Court would overturn the decision of Judge Manning.

· Senate Bill 369, Sales Tax Fairness Act; Senate Bill 608, Simple and Fair Formula for Sales Tax Distribution: These two bills convert the local sales and use tax authorized under Articles 39, 40 and 42 of the North Carolina General Statutes to a State sales and use tax. Both bills redistribute this state revenue to counties on a per capita basis; the key difference is that SB 608 begins with a base level of revenue that will not be reallocated. Proposed reallocation would negatively impact all of the State’s economic engines and redistribute tax from sales in areas of economic growth to rural counties. Cities like Asheville, experiencing economic growth including increasing sales tax, would be hardest hit. Using information provided by the State and the North Carolina League of Municipalities, the revenue loss to the City of Asheville is estimated to be between $250,000 and $4.1 million in budget year 2015-2016 were one of the bills to pass. These bills not only directly impact the financial health of cities, they redefine the tax itself as a State tax, no longer controlled by cities or counties, which could be redefined, reallocated, or removed from cities’ revenue altogether. While it does not appear that there is enough support in the General Assembly for one of these bills to pass, the devastating effect that they could have on the fiscal health of the City cannot be understated.

( CITY MANAGER’S BUDGET MESSAGE )

( Adopted Budget 2015-2016 ) ( 10 ) ( City of Asheville )

· House Bill 903, County Tax Flexibility/Municipal Rev Opts. This bill would give counties increased flexibility within their current authority for sales and use tax and would allow cities to adopt, by resolution, a local one-quarter cent sales and use tax to offset the loss of the privilege license tax repealed in 2014. This bill is not considered likely to pass; however, were one of the other bills to pass, this bill’s passage would become important in order for cities to maintain service levels.

Government-wide Highlights

City Council budget goals 2015-2016

Classification and Compensation Study, Managed Savings

· City of Asheville Staff has worked to carefully manage departmental budgets since the financial downturn. With slow but steady improvement in revenues, this conservatism created adequate savings to fund an increase in employee compensation in the fiscal year 2014-2015 budget, as well as funding a classification and compensation study to evaluate whether the City’s compensation package is adequate to recruit and retain high quality employees. In order to ensure that any adjustments to the compensation plan could be funded, staff was tasked with continuing careful budget management. Asheville continues to pursue rightsizing and

· reengineering of service delivery to make the most cost effective use of the limited resources available. The FY 2015-2016 budget for personnel costs includes fully implementing the classification and compensation study recommendations, as well as a 1% across the board increase for all City employees.

Asheville Police Department Management Goals and Strategic Plan

· Chief William Anderson retired in December 2014. Chief Steve Belcher, a well-known police consultant, has filled the chief’s role since February 2015. Chief Belcher has worked to identify challenges within the Asheville Police Department (APD) and develop management strategies for improvement in line with the strategic plan to improve service delivery, employee retention, and resolve structural issues within the department. The 2015-2016 budget funds several changes within the civilian support structure of the APD, including the addition of an Administrative Services Manager, as well as assigning a Human Resources Consultant and a Financial Analyst who will work with the APD but will report to Human Resources and Finance, respectively. This structure is intended to increase communications and cross-departmental cooperation. The classification and compensation study performed in 2014-2015 evaluated issues of compensation in the police department, including salary compression, which will be addressed with the implementation of the plan in fiscal year 2015-2016.

· The replacement of the aging APD vehicle fleet will continue to be funded in fiscal year 2015- 2016, working toward the eventual goal of replacing patrol vehicles on a five-year asset life schedule. APD management is evaluating the department’s take-home vehicle policy to determine the most efficient and effective method to manage such a program so that it benefits not only the employees, but the community with the visibility of take-home vehicles in neighborhoods.

Reducing Taxpayer Subsidy of Programs

· An ongoing area of focus is examining programs and services that the City provides that are taxpayer subsidized, some of which might be more appropriately funded through user fees and other sources of revenue. The Solid Waste Collections fee will increase in 2015-2016 according to the plan developed by staff in 2011 to move the program toward full-cost recovery. Additionally, the City contracted a comprehensive Parks and Recreation fee study in fiscal year 2014-2015, which helped staff identify which programs are most heavily subsidized. Identified among these were the Aston Park Tennis Center, which was 80% taxpayer subsidized, and the Western North Carolina Nature Center, which was 65% taxpayer subsidized. Council expressed a desire to reduce the subsidy at the Tennis Center. New fees adopted in March accomplish this by shifting costs to the users, while still maintaining a facility that is significantly less expensive to use than other comparable clay-court facilities in the region. The Council goal for the Nature Center is to reduce the taxpayer subsidy to more accurately reflect the use of the facility by City of Asheville residents. Residents make up about 25% of the visitors to the Center annually. Staff developed a three-year plan to reduce the subsidy. Key components of the plan include increase financial support from the Friends of the Western North Carolina Nature Center and raising gate admission rates, which have not been increased since 2007. The new rates will remain below the national average for similar facilities. City of Asheville residents will continue to receive a discounted rate for gate admission.

Continuing Sound Financial Management by Addressing Long-Term Liabilities

· The City contributes to the statewide Local Governmental Employees’ Retirement System (LGERS), a cost-sharing defined benefit pension plan administered by the State of North Carolina. No increase is required in fiscal year 2015-2016.

· In December 2011, the City of Asheville created an irrevocable trust and fully funded the City’s net obligation for Other Post-Employment Benefits (OPEB), which consists of retiree health care benefits. The City invested its assets with the State of North Carolina State Treasurer’s OPEB Investment Fund, which mirrors investments used for statewide pension funds. Concurrent with establishing the trust, the City also adopted a five-year step up plan to fully fund the annual required contribution to meet the ongoing OPEB obligation. The proposed FY 2015-2016 budget includes an annual contribution in the amount of $800,000. It should be noted that the City suspended offering the retiree health care benefit to new employees hired after June 30, 2012, which will limit future growth of the OPEB obligation. These actions show that Asheville is taking deliberate steps to ensure retiree health care benefits are sustainable and affordable over the long term.

General Fund Highlights Revenue Highlights:

· The property tax is the single largest source of revenue for the City. Based on projections

received from the Buncombe County Tax Office, staff is assuming a 1.8% increase in the City’s property tax base in FY 2015-16. The proposed FY 2015-16 budget also includes a 1.5 cent increase in the City’s property tax rate to offset the loss of revenue from the business privilege

license fees which were eliminated by state legislation. If staff’s proposal is approved by City Council, the City’s tax rate for FY 2015-16 will be 47.5 cents per $100 of assessed valuation.

· Based on statewide projections from the North Carolina League of Municipalities and local trend data, staff is projecting a 7.5% increase in sales tax revenue in the current fiscal year and a 4.0% increase in FY 2015-16.

· Revenue from licenses and permits in the General Fund shows a 12.0% decrease due to the loss in revenue from business privilege licenses. Part of the loss in this category is offset by continued strong performance from development services (DSD) permit revenue. Based on current year trends, DSD revenue shows a budget-to-budget increase of 35% or approximately

$900,000.

· Intergovernmental revenue in the General Fund, which includes state-shared utility taxes as well as Powell Bill funding, is budgeted to increase 5.4% in FY 2015-16 mostly as a result of an increase in utility tax revenue due to changes in the distribution method for the electricity sales tax. It should be noted that intergovernmental revenue is negatively impacted by the expiration of the COPs grant.

· The FY 2015-16 proposed General Fund budget includes no fund balance appropriation, which is shown in the table below under Other Financing Sources.

( 2012-13 Actual 2013-14 Actual 2014-15 Budget 2015-16 Proposed 46,891,865 11,171,151 17,067,516 4,594,340 5,382,921 69,341 1,755,350 3,604,870 52,052,585 10,801,589 17,793,854 8,673,961 5,844,444 158,368 1,917,784 83,765 52,103,473 11,476,750 18,704,766 8,595,455 5,175,010 150,000 1,342,500 2,000,000 54,833,390 12,098,379 20,079,180 9,985,234 4,550,994 150,000 1,401,450 0 90,537,354 97,326,350 99,547,954 103,098,627 ) Revenues:

Property Taxes Intergovernmental Sales & Other Taxes Charges For Service Licenses & Permits Investment Earnings Miscellaneous

Other Financing Sources

Total Revenues

Expenditure Highlights:

· The FY 2015-16 proposed budget includes General Fund expenditures that are 3.6% more than the FY 2014-15 adopted budget.

· Public Safety is the largest General Fund service area, accounting for 45% of all general fund expenditures. Public Safety expenditures show a $1.0 million increase in FY 2015-16. A portion of this increase is the result of the salary adjustments discussed early in the budget document. In addition, the Police Department proposed budget includes funding to begin implementation of the Strategic Operating Plan & Organizational Assessment. Specific items funded in the budget

include the addition of a Deputy Chief, an Administrative Services Manager, a Financial Analyst, and Property & Evidence Technicians, along with additional funding for management training and development. A portion of the cost of these enhancements will be offset through the reallocation and freezing of existing vacant positions along with some reductions in the overtime budget. The new impact of the changes is approximately $157,000. The Fire Department budget includes funding to add three positions to enhance the fire inspection program. The cost of the three positions will be fully offset by additional revenue from the inspections that they perform.

· Environment & Transportation represents 15% of the FY 2015-16 General Fund budget. This service area shows an increase of approximately $354,000, which is primarily the result of the salary adjustments discussed early in the budget document, as well as the addition of one greenway position in the Transportation Department and the shifting of the mowing program from the Parks and Recreation Department to the Public Works Department.

· The increase in General Government expenses is due to several factors including: 1) a $538,000 increase in economic incentive payments; 2) the inclusion in the budget of every-other-year City Council election costs and; 3) mid-year FY 2014-15 staffing additions in the Human Resources Department and the Communication & Public Engagement Division.

· The budgetary change most directly impacting the Culture and Recreation service area is the proposal to begin paying all temporary/seasonal staff a salary that meets the living wage guidelines for Buncombe County. This change has the biggest effect in Parks & Recreation and at the US Cellular Center, which are both large users of non-benefitted labor. In Parks & Recreation, the estimated impact is $150,000 and at the US Cellular Center it is $90,000.

· The slight increase in the Community Development service area is primarily the result of the addition of 2 FTE positions to help meet increased workload in the Development Services Department.

( 2012-13 2013-14 2014-15 2015-16 rvice Areas Actual Actual Adopted Proposed Public Safety 40,978,957 42,668,751 45,499,309 46,569,606 Environment & Transportation 12,919,184 13,994,542 14,919,678 15,274,671 General Government 10,339,111 12,847,324 14,053,914 15,785,300 Culture & Recreation 10,420,301 9,596,690 10,774,113 10,955,585 Capital Pay-Go/Debt 6,038,478 8,057,714 8,995,878 9,086,878 Community Development 7,287,481 4,930,139 5,305,062 5,426,587 Total General Fund 87,983,512 92,095,160 99,547,954 103,098,627 ) Se

Unassigned Fund Balance Analysis

The City of Asheville Financial Management Policy recommends that the City maintain a fund balance in the General Fund equal to 15% of expenditures. The City ended FY 2013-14 with $17.0 million in unassigned fund balance. The adopted FY 2014-15 budget included a $2.0 million fund balance appropriation, which brought that total down to $15.0 million. Since the start of the fiscal year, an additional $218,518 has been appropriated from fund balance. Based on the positive revenue and

expenditure trends observed through the first three quarters, staff is projecting that instead of decreasing, fund balance will actually increase slightly in the current fiscal year. Current revenue and expenditure projections for FY 2014-15 indicate that unassigned fund balance at June 30, 2015 will be $17.7 million or 18.0% of estimated expenditures. As noted earlier, the FY 2015-16 General Fund budget does not include any appropriation from fund balance. Therefore, based on the proposed budget total of $103 million, unassigned fund balance at the end of the FY 2015-16 would be 17.2%.

Highlights from Other Funds

Water Resources Fund

· In April, City Council approved minor rate adjustments for the 2015-16 fiscal year based on the Raftelis financial model. These rate adjustments are expected to generate approximately

$465,000 in additional revenue.

· The FY 2015-16 proposed budget includes $11.98 million in pay-as-you-go funding for water capital improvement projects and $335,000 to fund the routine replacement of vehicles and equipment. The capital budget is partially funded with a $1.89 million appropriation from Water fund balance.

· Operating costs show an increase due to $750,000 budgeted in Professional Services for on-call professional engineering contracts. On-call contracts will allow the department to expedite project design, bidding, and construction

· City staff is currently in the process of completing a refunding of water debt that was issued in 2005 and 2007. This refunding will result in substantial debt service savings over the life of the repayment. Since the transaction has not closed yet (scheduled for June 11), staff has not adjusted the debt service budget for FY 2015-16.

Stormwater Fund

· Based on the financial model developed in the previous fiscal year, staff submitted and City Council approved in April a 5% increase in Stormwater fees for FY 2015-16. This rate adjustment is expected to generate approximately $240,000 in additional revenue for the fund.

· The proposed budget includes funding for an additional crew of 6 FTE to enhance the stormwater maintenance program. The crew will be utilized to perform additional preventative maintenance services including performing ditching activities and replacing failed drainage systems.

· In addition to the crew noted above, there were several other position changes during FY 2014-

15 including the addition of a utility locater, a project manager, and a customer service representative. Half of the salary of an engineering technician position formerly charged to the General Fund is now also being charged to Stormwater.

Transit Fund

· The adopted FY 2014-15 budget included a half-year of funding to implement limited Sunday service and make other minor route changes on January 1, 2015. The FY 2015-16 proposed budget includes a full year of grant and City funding for these service enhancements.

· Overall operating costs for the transit system, including the item noted above, are up about

$260,000 in FY 2015-16.

Parking Services Fund

· Revenues in the current fiscal year are performing better than budget, and this trend is expected to continue next fiscal year. There are no rate changes included in the FY 2015-16 proposed budget.

· The proposed budget includes a $300,000 appropriation from Parking fund balance for capital projects including: 1) elevator rehabilitation in the three older garages, and 2) structural maintenance in the Civic Center Garage.

· The proposed budget also includes funding to hire a consultant to prepare a comprehensive parking study from a “big picture” vantage point in order to develop the appropriate strategic framework and philosophy to help formulate policy decisions to ensure that resources are used efficiently during the next 10 to 15 years.

· A half-time account clerk position was added to the budget during FY 2014-15.

US Cellular Center Fund

· Event bookings and operating revenue have been lower than originally anticipated in the adopted FY 2014-15 budget, and this trend is expected to continue in FY 2015-16.

· The proposed US Cellular Center budget includes funding to pay all temporary/seasonal employees a living wage beginning in FY 2015-16.

· The General Fund transfer shows a slight decrease due to a reduction in the Center’s charge for indirect costs.

Street Cut Utility Fund

· The FY 2015-16 proposed budget includes $240,000 for equipment/vehicle replacement in the Street Cut Fund. Debt proceeds will fund these purchases.

· Otherwise, the FY 2015-16 proposed budget for the Street Cut Fund reflects a continuation of existing programs and services.

Conclusion

I am pleased to present a proposed budget for Fiscal Year 2015-2016 that make improvements to service delivery and continues the comprehensive capital improvement program begun in 2014-2015 that is sustainable and will move Asheville to a higher level of financial sophistication and security.

I would like to take this opportunity to thank our department director team for their leadership during the budget process and recognize the tremendous work of the staff in the budget division, Tony McDowell, John Sanchez and Erin Marie Wheeler. Special thanks to the project managers, directors, staff, Barbara Whitehorn, Paul Fetherston and Cathy Ball for their tireless work on the capital improvement program. I would also like to recognize the efforts of all city employees for their dedication to delivering quality services to the Asheville community.

I look forward to working with you and the community to adopt the Fiscal Year 2015-2016 Budget. Sincerely,

Gary W. Jackson City Manager

Goal 1: Implement the Economic Development Capital Improvement Plan Action Item: Add Special Obligation Bonds to the menu of available permanent financing options.

Action Item: Elevate efforts to use additional funding to leverage money from other partners including NCDOT, Buncombe County, the TDA, as well as other public and private partners.

Action Item: Extend the Capital Improvement Plan to 10 years.

Goal 2: Invest and leverage investment in community infrastructure.

Action Item: Research, develop and propose incentives for in-fill and redevelopment. Evaluate City owned property to determine best use.

Action Item: Evaluate the opportunities to improve ART services.

Action Item: Respond to results of Asheville In Motion Plan incorporating Complete Streets and Multi modal transportation policies.

Action Item: Prioritize transportation system that supports walking, biking, greenways and transit.

Action Item: Support I-26 Connector improvements.

Action Item: Promote innovative forms of development including Form Based Code, mixed use development, and strategies for sustainable infill development in coordination with the comprehensive plan.

Action Item: Research access to better broad-band internet connectivity throughout the city and for underserved populations.

Goal 3: Create economic development and community investment opportunities through partnerships, planning and incentives.

Action Item: Update the Comprehensive Plan 2025.

Action Item: Leverage regional service provider partnerships to assist small businesses and minority businesses in gaining access to effective business plan development.

Action Item: Support the Economic Development Coalition in update to the 5 X 5 Plan

Action Item: Review the City’s current economic incentives policies to potentially include a minimum wage for created jobs and incentives for small businesses.

Goal 4: Support staff’s continued implementation of operational efficiencies and practices of sustainability

( 2015-2016 STRATEGIC GOALS & OBJECTIVES )

( Adopted Budget 2015-2016 ) ( 14 ) ( City of Asheville )

( Action Item: Evaluate the recommendations from the Mayor’s Development Task Force. Action Item: Continue sustainability efforts to reduce the city’s carbon footprint, including options to further solid waste reduction goals. Actions Items: Continue strategic review of management models for key city parks and recreation facilities including the Nature Center and Aston Park Tennis Center. Action Item: Implement environmentally sustainable storm water planning policies. Action Item: Research possible loose leaf collections models. Focus Area 2: Affordability and Economic Mobility Goal 1: Expand Asheville’s supply of quality, affordable homes for current and future residents. Action Item: Develop an action plan with the Housing Authority for the redevelopment of a public housing community to include affordable, mixed income housing . Action Item: Promote affordable housing located close to the CBD, jobs and transportation. Action Item: Identify and initiate use of city owned land for development of affordable housing projects. Action Item: Develop and implement a Comprehensive Aff ordable Housing Strategy which includes review of land use and zoning regulations, recommendations from the Affordable Housing Advisory Committee and development incentives to increase the production of affordable housing units. Goal 2: Improve citizen eq uity by reducing disparity gaps with an emphasis on education and socio-economic mobility. Action Item: Partner with Asheville City Schools to track progress toward the City School Strategic Plan; receive regular updates from the school system through Cit y Council appointed liaison. Action Item: Continue and consider elevating support for the City of Asheville Youth Leadership Academy. Action Item: Identify appropriate partnership opportunities to improve access to affordable housing, transportation, and living wage jobs. )

Focus Area 3: High Quality of Life

Goal 1: Make Asheville one of the safest cities in America based on approved metrics for similarly sized cities

Action Item: Develop strategies to address nuisance behaviors.

Action Item: Address traffic and pedestrian safety throughout Asheville in partnership with the North Carolina Department of Transportation.

Action Item: Implement the Asheville Police Department Strategic Plan including an open and transparent process for the selection of the police chief.

Action Item: Support and expand community based policing efforts to improve relationships between the police and the community.

Goal 2: Encourage policies that improve public health and safety for City of Asheville employees and citizens.

Action Item: Continue implementation of the Food Action Plan, including public/private partnerships to create community gardens and farmers markets on publically owned land, to ensure all citizens have access to affordable healthy food options.

Action Item: Continue emphasis on disease management and wellness for City of Asheville employees.

Goal 3: Continue to support Asheville as a culturally diverse city.

Action Item: Create strong public/private partnerships to bring festivals and public art to Asheville that will promote a sense of community.

Action Item: Continues support of entertainment, art, and cultural centers.

Goal 4: Continue to develop City Council communications and partnerships with citizens, community leaders, the media and elected officials.

Action Item: Evaluate and implement best practices to improve effective community engagement.

Action Item: Improve diversity and engagement of City Council’s Boards and Commissions.

Action Item: Engage and develop working relationships with state and local legislators on issues regarding the City’s legislative priorities.

Action Item: Create opportunities to communicate City efforts and achievements through traditional media, social media and community meetings.

Action Item: Explore opportunities to implement open data policies.

The accounts of the City of Asheville are organized and operated on the basis of funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts comprised of assets, liabilities, fund equity, revenues, and expenses as appropriate. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions.

Funds included in the City of Asheville adopted budget can be grouped into two types: governmental funds and proprietary funds. Governmental funds are those through which most functions of the City are financed. Proprietary funds are used to account for City activities that are similar to those often found in the private sector. Specific City of Asheville funds include:

General Fund

The General Fund is a governmental fund that encompasses most of the City’s day-to-day operations, such as police, fire, refuse collection, street maintenance, and parks and recreation. General Fund operations are primarily funded through property tax dollars, but are also supported through sales tax revenue, charges for service, license & permit fees, and investment earnings.

Enterprise Funds

Enterprise Funds are proprietary funds used to account for activities that operate like private businesses, where expenses are primarily financed by revenues derived from user charges. For the City of Asheville, these funds include:

· Transit Services Fund

· Parking Services Fund

· Water Resources Fund

· US Cellular Center Fund

· Stormwater Fund

· Street Cut Utility Fund

Capital & Special Revenue Funds

Capital Funds are used to account for capital replacements and improvements, and Special Revenue Funds are used to account for specific revenue sources that are restricted or committed to expenditures for specific purposes other than debt service or capital projects. Funding is provided from operations, federal or state grants, or long-term financing and may be annual appropriations or project appropriations. Appropriations are approved through the Capital Improvement Plan process. Capital & Specail Revenue Funds include:

· General Capital Projects Fund

· Community Development Fund

· Water Major Capital Improvement Fund

· HOME Fund

· US Cellular Center Capital Fund

· Parking Services Capital Fund

· Transit Services Capital Fund

How Funds Interact

City funds interact in a variety of ways. Expenses that occur in one fund are frequently incurred to benefit another fund. When this occurs, the benefiting fund may reimburse the fund providing the goods and services. Examples of such transactions include general government services provided by the General

Fund to the Water Resources Fund. Interfund transfers may also result from the exchange of resources between funds to cover operating and capital expenses. For example, the FY 2015-16 budget includes a

( ORGANIZATIONAL STRUCTURE )

( Adopted Budget 2015-2016 ) ( 17 ) ( City of Asheville )

( ORGANIZATIONAL STRUCTURE )transfer from the General Fund to the US Cellular Center Fund to support operations. Transfers between funds result in the budgeting of dollars in both participating funds.

Departments & Divisions

Departments are organizational units that provide a major type of public service, such as fire or police protection. Departments are usually subdivided into one or more divisions. For instance, the police department consists of three divisions: administration, criminal investigations, and patrol. Often within each division there are smaller units responsible for performing specific activities. For example, within the police patrol division is the K-9 patrol team and the anti-crime team.

A City organizational chart is presented on the next page.

( Adopted Budget 2015-2016 ) ( 18 ) ( City of Asheville )

( ORGANIZATIONAL STRUCTURE )Citizens of Asheville

City Council

( Adopted Budget 2015-2016 ) ( 19 ) ( City of Asheville )

City Attorney Robin Currin

City Manager Gary Jackson

City Clerk Maggie Burleson

Assistant City Manager Paul Fetherston

Communication & Public Engagement Dawa Hitch

Finance and Management Services

Barbara Whitehorn

Fire

Chief Scott Burnette

General Services James Ayers

Human Resources Kelley Dickens

Information Technology Services

Jonathan Feldman

Parks and Recreation Roderick Simmons

Police

Chief Tammy Hooper

Executive Director of Planning & Multimodal Transportation

Cathy Ball

Capital Projects Walter Ear

Development Services Jason Nortz (Interim)

Economic & Community Development

Sam Powers

Planning & Urban Design Todd Okolichany

Public Works Greg Shuler

Sustainability Amber Weaver

Transportation Ken Putnam

Water Jade Dundas

Budget preparation affords departments the opportunity to reassess their goals and objectives and the strategies for accomplishing them. Even though the budget may be heard by City Council in May and adopted in June, its preparation begins at least six months prior with projections of City reserves, revenues, and financial capacity. It is against this backdrop that departmental expenditure requests are formulated and reviewed. The FY 2015-16 Budget Calendar is displayed on page 22.

Financial Forecasting

The annual budget process begins with the Budget Office preparing revenue and expenditure projections. These projections serve as the framework for financial decision-making during the City’s annual strategic planning and budgeting process. The Budget Office updates the City's general fund forecast annually to adjust for changes in local, state, and national economic conditions and trends; changes in City Council priorities and policies; and other variables that might affect the City’s ability to provide needed services and maintain its financial health in future years.

City Council Strategic Planning

Linking important objectives with necessary resources requires a process that identifies key goals at the very beginning of budget preparation. The annual strategic planning process begins with the City Council Retreat in late January, at which time Council identifies its goals and priorities for the upcoming fiscal year. Council's directives set the tone for the development of the annual budget.

Departmental Budget Development

Departments begin developing their budget requests in January. During this phase, departments are encouraged to thoroughly review all programs and services assessing their value and priority to the citizens of Asheville. Examination of current departmental programs or positions for possible trade-offs, reduction, or elimination is strongly suggested.

Any new programs or services that departments would like funded are submitted to the Budget Office as expansion requests. Expansion requests identify the program’s purpose, costs, objectives, and Adopted funding sources. The expansion request also describes how the new or enhanced program is linked with overall Council priorities. Departments are encouraged to prioritize their expansion requests and only submit a limited number of requests each year.

In addition to the budget worksheets and expansion request forms, departments are required to submit the following information to the Budget & Research Office:

· Low Priority Services. Each department is required to submit a list of existing programs and services that could be eliminated or reduced. These services can be used as possible “program trade-offs,” allowing departments to shift resources from low priority services to new or enhanced services in order to maximize budget target allowances.

· New or Increased Fees. Proposals for new or increased user fees are also submitted with the departmental budget request packages. Some or all additional revenue generated from new or enhanced fees may also be used as a way to maximize departmental target allowances.

· Performance Objectives & Measures. Performance measures are used to report on the achievements, impacts and outcomes of key City programs. Departments submit an update of their performance objectives and measures during the budget process. Departments report on prior year performance, update current year estimates, and set targets for the upcoming fiscal year. Departments are also encouraged to continually evaluate and refine their performance indicators to ensure that they accurately reflect the organization’s mission and priorities.

( BUDGET PROCESS )

( Adopted Budget 2015-2016 ) ( 20 ) ( City of Asheville )

City Manager Review

Once the Budget Office has completed its technical review of the budget, department directors meet with the City Manager in team sessions to discuss the operating and capital budget requests. Expansion requests are evaluated based on the City's financial capacity and on how they relate to City Council priorities. In most years, monies exist to fund only a small number of expansion requests. Following these senior management sessions, a citywide proposed operating budget is developed.

Budget Adoption

The City of Asheville adopts its annual operating budget in accordance with North Carolina General Statutes (N.C.G.S. 159 - Local Government Budget and Fiscal Control Act). These statutes require that City Council adopt a balanced budget in which estimated revenues and appropriated fund balances equal expenditures. The City Manager must submit a balanced budget proposal to the City Council by June 1 of each year, and City Council must adopt the Budget Ordinance by July 1. A formal public hearing is required to obtain taxpayer comment before City Council adopts the budget. By state law, the fiscal year begins on July 1 and ends on June 30.

Budget Amendments & Revisions

After the Budget Ordinance is enacted, state law permits City Council to amend it at any time during the fiscal year. Each amendment must continue to adhere to the balanced budget statutory requirements. Amendments may in no way change the property tax levy or alter a taxpayer’s liability.

Budget revisions are transfers within a fund which do not change the total fund appropriation. Budget revisions do not require City Council approval.

Basis of Budgeting

As required by the North Carolina Local Government Budget & Fiscal Control Act, the budget is prepared and adopted using the modified accrual basis of accounting. Briefly, this means that obligations of the City are budgeted as expenditures, but revenues are recognized only when they are measurable and available. The City considers all revenues available if they are collected within 60 days after year end, except for property taxes. Those revenues susceptible to accrual include among others: investment earnings, sales tax, and grants-in-aid earned.

During the year, the City’s accounting system is maintained on the same basis as the Adopted budget. This enables departmental budgets to be easily monitored via monthly accounting system reports. At year-end, the City’s Comprehensive Annual Financial Report (CAFR) is prepared on a basis consistent with “generally accepted accounting principles” (GAAP). This basis of accounting conforms to the way the City prepares its budget, with a couple of notable exceptions. One, certain items that are referred to as revenues and expenditures in the budget are included as other financing sources and uses in the CAFR. In addition, for financial statement presentation, proprietary funds are adjusted to the full accrual basis. The most significant differences between budget and CAFR for proprietary funds are: a) capital outlay & debt service principal payments are recorded as expenditures for budgetary purposes as opposed to adjustments of balance sheet accounts in the CAFR (GAAP); and b) depreciation is recorded as an expense in the CAFR (GAAP) and not recognized for budgetary purposes.

All outstanding encumbrances on the accounting system on June 30 are carried over into the next year’s budget. Outstanding encumbrances at year end do not constitute expenditures or liabilities.

( FY 2015-16 BUDGET CALENDAR )

( Adopted Budget 2015-2016 ) ( 22 ) ( City of Asheville )

A. Operating Budget Policy

1. Current operating revenues will be sufficient to support current operating expenditures. Fund balance appropriations shall be limited to non-recurring expenditures.

2. Debt proceeds or non-recurring revenues will not be used to finance recurring operating and recurring capital expenditures.

3. The City will integrate performance measures and productivity indicators with the annual budget.

4. The City will prepare a five-year operating budget projection which will include projections of annual growth plus allowances for operating costs of new capital facilities.

5. It is the City’s policy that the operating budget be prepared in accordance with Generally Accepted Accounting Principles.

B. Reserves

1. The City will maintain an undesignated fund balance equal to 15% of the General Fund operating budget, with any amount in excess of 15% being credited to a capital reserve account. This transfer shall be made upon completion of the annual financial audit. The City Council may appropriate this transfer through an amendment to the subsequent year’s Budget Ordinance.

2. For all other operating funds, the City shall seek to maintain a minimum fund balance as follows:

C. Interfund Transfers

1. The City will strive to ensure that enterprise funds are financially self sufficient; however, the City may budget a transfer from the General Fund to an enterprise fund to ensure operational and/or capital support for the activities of the fund. If financial performance in the enterprise operating fund is better than budgeted, and the enterprise fund meets the reserve standards set forth in Section B of this policy, then any remaining portion of the

( FINANCIAL POLICIES )

( Adopted Budget 2015-2016 ) ( 23 ) ( City of Asheville )

interfund transfer shall be returned to the General Fund as part of the annual financial audit process.

D. Revenue Policy

1. Revenue estimates shall be set at realistic and attainable levels and shall be monitored periodically.

2. The City will conduct an annual review of specific programs and services which have been identified as potential opportunities for user fees and for which user fees are charged. Where appropriate, user fees will be set at a level sufficient to recover the full costs of the program or service.

3. Regulatory fees shall be set at a level that strives to recover full costs (direct and indirect costs, such as depreciation or usage costs associated with capital assets) of providing the service, unless statutory restrictions limit the fee amount.

4. Non-regulatory fees are charged for a wide variety of services with the primary purpose for non-regulatory fees being to: 1) influence the use of the service and 2) increase equity.

5. Non-regulatory fees shall be set at a level that is competitive in the marketplace and strives to recover full costs (direct and indirect costs, such as depreciation or usage costs associated with capital assets) except when:

· free or subsidized service provides a significant public benefit;

· the City has determined that it should influence personal choice to achieve community- wide public benefits;

· full cost recovery would result in reduced use of the service or limit access to intended users thereby not achieving community-wide public benefits;

· the cost of collecting the user fees would be excessively high;

· ensuring the users pay the fees would require extreme measures.

E. Capital Improvement Policy

1. The City will update and readopt annually a five-year capital improvement program which details each capital project, the estimated cost, description and funding source.

2. The capital improvements plan should be tied to the City’s comprehensive growth plan, “City Plan 2025,” as well as the City’s other adopted Master Plans, to ensure that the capital items requested meet the future growth needs and long-term vision for the City.

3. The City shall appropriate all funds for Capital Projects with a Capital Projects ordinance in accordance with State statutes.

4. Operating expenses for all capital projects will be estimated and accounted for in the Capital Improvements Program and incorporated into the annual operating budget.

( FINANCIAL POLICIES )

( Adopted Budget 2015-2016 ) ( 24 ) ( City of Asheville )

5. Capital expenditures included in the CIP as a project will cost at least $50,000 and have a useful life of at least five years. Equipment purchases are considered operating expenses and will not be included in the CIP.

6. Capital facilities to be financed with bond-indebtedness must adhere to the debt policies of the City including maintenance of adopted debt ratios.

F. Accounting Policy

1. The City will establish and maintain the accounting systems according to the North Carolina Local Budget and Fiscal Control Act, Generally Acepted Accounting Principal (GAAP) and standards established by the Govermental Accounting Stansdards Board (GASB).

2. Full disclosure will be provided in the financial statements and bond representations.

3. Financial system will be maintained to monitor expenditures and revenues on a monthly basis.

4. All revenue collections will be consolidated under the Director of Finance and be audited at least annually.

5. The City’s Fiscal Procedures Manual will be maintained as a central reference point and handbook for all activities which have a fiscal impact within the City and will serve as the City’s authoritative source for fiscal procedures.

G. Audit Policy

1. An annual audit will be performed by an independent public accounting firm which will issue an official opinion on the annual financial statements, with a management letter detailing areas that need improvement if required. The City will prepare a Comprehensive Annual Financial Report that will be submitted to the Local Government Commission each year according to the commission’s stated deadlines.

2. When obtaining the services of independent auditors, the City of Asheville shall enter into multiyear agreements of not more than five years in duration through a series of single- year contracts as consistent with applicable legal requirements. It is the City of Asheville’s policy that the independent auditor be replaced at the end of the five-year engagement to enhance auditor independence unless lack of competition among audit firms fully qualified to perform public-sector audit make mandatory rotation counterproductive. The principal factor in the selection of an independent auditor is the auditor’s ability to perform a quality audit. In no case should price be allowed to serve as the sole criterion for the selection of an independent auditor.

H. Water Utility Policy

1. Setting Water Rates & Charges: Charges for the water users shall be set at the level to provide sufficient revenues to cover all annual operating and debt services expenditures, to accumulate funds for the acquisition and replacement of capital equipment and

facilities, and to finance the long-term Capital Improvement Plan. As the Water Fund relies solely on user fees, the City of Asheville will continue to be guided by cost-of- service principles with regard to rates, fees and charge, and will operate the water system at the lowest rates consistent with the obligation to provide proper and efficient services, now and in the future. Rate increases will be evaluated annually and implemented with a maximum level of predictability, consistency and affordability.

2. Debt Service Coverage: Utility debt service coverage ratios shall maintained at a level of

1.25 to 1.5 times coverage or greater (as measured by net revenues, excluding capital contributions, available for debt service divided by total debt service requirements).

3. Debt to Net Plant: Utility system debt shall not exceed 70%- 75% (as measured by total long-term debt divided by total net assets).

4. Cash Financing of Capital: Annual revenues and cash reserves shall provide not less than 30% of CIP funding.

5. Service Affordability: The most commonly used and most cited measure of water service affordability of “percent MHI’ – that is, calculating what a year’s worth of water bills for an average level of consumption (e.g. 5000 gallons/month) is compared to the median household income (MHI) in the community served by the utility. This indicator is easy to calculate by simply using the calculated bill amount and the U.S. Census Bureau’s median household income date from their latest 5-year American Community Survey estimated. The City of Asheville’s percent MHI. The average annual residential bill divided by real median household income, shall be < 1.5%.

I. Internal Services Fund Policy

1. Health Fund

a. Health Claims Budget And Rate Setting

Health claims shall be budgeted to adequately fund expenses including trend, administrative costs, stop-loss premiums and risk corridor. Expected claims expenses shall be projected based on annual actual mature claims experience adjusted for trend, enrollment and plan design and network changes.

Trend is defined as year to year medical inflations influenced by utilization, advances in medical technology and increasing cost of medical services.

Risk corridor, calculated at 5% of expected claims expenses is defined as the difference between expected claims and the aggregate potential liability on group claims to be funded from current rate resources as opposed of reserves. The amount over the risk corridor represents the risk the employer is accepting in the self-funded plan which, if claims exceeded the aggregate potential liability funded from current rate resources, would be paid from reserves.

b. Health Fund Reserve Requirement

The health fund shall maintain reserves designed to offset normal variances in claims cost from year to year, unforeseen catastrophic claims beyond and reinsurance, large than

expected medical inflation trends, incurred but not reported claims liability and the impact of future health care legislative mandates.

1. 100% of the incurred but not reported claims liability with the lag factor based on the prior 12-month average, and

2. 100% of reported and not yet paid claims computed as two weeks of annual claims benefits costs, and

3. 30% of the aggregate of 1 and 2 above.

Should the health fund fall to meet the required reserve level, the amount needed to restore the fund to the required reserve level shall be funded in subsequent year’s rate structure and recovered over a period of not more than three years.

Should the health fund exceed the required reserve level, the amount in excess of the required reserve level shall be credited to the subsequent year’s employer health care contribution.

J. Debt Management

1. Capital projects financed through the issuance of bonds shall be financed for a period not to exceed the expected useful life of the project.

2. The general obligation debt of the City of Asheville will not exceed 8% of the assessed valuation of the taxable property of the City.

3. Total debt service on tax-supported debt of the City will not exceed 15% of total general government operating revenue.

4. Payout of aggregate principal outstanding shall be no less than 50% repaid within 10 years.

5. The City will maintain its financial condition so as to maintain a minimum AA bond rating.

6. The City’s Water Resources Utility will maintain its financial condition so as to maintain a AA bond rating.

7. The City’s Debt Policy will be comprehensive and the City will not knowingly enter into any contracts creating significant unfunded liabilities.

It is the policy of the City of Asheville to comply with all applicable federal tax rules related to its tax- exempt debt issuances. The City’s Chief Financial Officer, and his or her designee, has primary responsibility for ensuring that the City’s outstanding tax-exempt debt issuance are, and remain, in compliance with federal tax law. The Chief’s Financial Officer will maintain policies and procedures to ensure compliance with such rules. The City’s Finance Department will consult with other departments within the City, as well as, third-party professionals (e.g. Bond, Counsel and financial advisor), as necessary, to ensure compliance with all applicable federal tax documentation requirements, yield restriction limitation, arbitrage rebate requirements, third-party use limitations and recordkeeping requirements.

( FINANCIAL POLICIES )Investment Policy

The City of Asheville will demonstrate good stewardship of public funds through an Investment Policy and Program that is transparent, fiscally conservative, aligned with City Council objectives and in compliance with all State and local requirements.

Governance

The City of Asheville’s Investment Policy shall be governed by the North Carolina Budget and Fiscal Control Act, North Carolina General Statute (NCGS) §159, the policies of the Local Government Commission (LGC), and the direction of the City Council.

Purpose and Scope

The City of Asheville’s Investment Policy applies to the investment activities of the City of Asheville. All financial assets of the City shall be administered in accordance with the provisions of the Policy. In addition to the Policy, the investment of bond proceeds and other bond funds (including debt service and reserve funds) shall be governed and controlled by their governing ordinances and by all regulations and rulings applicable to the issuance of such obligations.

Objectives

The objectives of the City’s investment activity are, in order of importance, safety, liquidity and yield.

Safety. The primary objective of the City’s investment activity is the preservation of capital in the overall portfolio. Funds shall be invested according to NCGS §159-30-33. These statutes provide the authority to invest idle funds and provide the mandatory framework for cash management, reporting and investment decisions. The statutes outline the investment options open to local governments with an emphasis on preservation of capital and mitigation of risk. The City will invest in those institutions collateralized under the Pooling Method, as prescribed under the North Carolina Administrative Code, Title 20, Chapter 7 (20 NCAC 7). 20 NCAC 7 allows depositories to use an escrow account established with the State Treasurer to secure the deposits of all units of local governments.

Liquidity. The City’s investment portfolio should remain sufficiently liquid to enable the City to meet operating requirements that can be reasonably anticipated. Liquidity shall be achieved by maintaining cash equivalent investment balances, matching investment maturities with estimated cash flow requirements and by investing in securities with active secondary markets. Funds held for future capital projects shall be invested in anticipation of projected cash flow requirements.

Yield. The City’s operating portfolio shall be designed with the objective of achieving a market rate of return through all budgetary, economic and interest rate cycles. The investment program shall seek to augment returns above this threshold consistent with prudent investment principles. This objective is subject to investment risk constraints and liquidity needs as previously stated.

Responsibility and Control

NCGS §159-25(a)6 delegates management responsibility for the investment program to the City’s Finance Officer (FO). The FO shall establish and maintain procedures for the operation of the investment program which are consistent with this policy, State statute, the policies of the LGC, and the strategic plan of the City Council of the City of Asheville. The FO may further delegate authority to persons responsible for investment activities and transactions and the FO will establish and maintain a system of controls to regulate the activities of those persons.

( Adopted Budget 2015-2016 ) ( 30 ) ( City of Asheville )

( FINANCIAL POLICIES )In the absence of a FO and those to which he or she has delegated investment authority, the City Manager or his or her designee is authorized to execute investment activities on behalf of the City of Asheville.

Authorized Investments

The City of Asheville’s management of cash and investments must comply with the North Carolina Budget and Fiscal Control Act (NCGS §159) and the policies of the LGC. Funds of the City of Asheville may be invested in the instruments described below, all of which are authorized by the Act and the LGC.

· Obligations of the United States

· Obligations of US Government Agencies, including, but not limited to:

· Federal National Mortgage Association (“FNMA”)

· Federal Home Loan Bank (“FHLB”)

· Federal Home Loan Mortgage Corporation (“FHLMC”)

· Federal Farm Credit Bank (“FFCB”)

· Prime quality commercial paper

· Bank certificates of deposit (CDs)

· Bank deposit accounts

According to the direction of the City Council, the City shall ensure that financial institutions meeting the following criteria receive full consideration for cash management and investment decision making for bank certificates of deposit:

a. Institution is collateralized under the Pooling Method (see Safety above)

b. Institution demonstrates a pattern of community reinvestment aligned with City Council’s Strategic Plan

c. Institution has physical location(s) within the City of Asheville city limits

d. Institution provides employment within the city limits

Changes to the governing North Carolina General Statutes and/or the policies of the Local Government Commission will be considered automatically adopted by the City of Asheville as part of this Investment Policy. Any such changes will be included as revisions of or amendments to the policy; however, their implementation by the City is not predicated on inclusion in this document.

( Adopted Budget 2015-2016 ) ( 29 ) ( City of Asheville )

( Adopted Budget 2015-2016 ) ( 30 ) ( City of Asheville )

( BUDGET SUMMARY )

Operating Budget Summary Expenditures

Revenues Staffing

Analysis of Fund Balance

* The City contracted out operation of the Municipal Golf Course during FY 2012-13.

( OPERATING BUDGET SUMMARY: ALL FUNDS )

( Adopted Budget 2015-2016 ) ( 31 ) ( City of Asheville )

BUDGET SUMMARY BY FUND

( BUDGET SUMMARY: EXPENDITURES )

( Adopted Budget 2015-2016 ) ( 33 ) ( City of Asheville )

BUDGET HIGHLIGHTS

· Overall, the City’s FY 2015-16 adopted budget shows a 4.6% increase compared to the FY 2014-15 budget.

· The FY 2015-16 adopted budget for personnel costs (salaries & wages and fringe benefits) includes funding to implement the recommendations from the Segal Waters compensation study and provide all employees with a 1% salary increase on July 1. Citywide, the budget impact of these pay adjustments is approximately $2.0 million. The personnel budget is also impacted by positions that were added during the current fiscal year, and by positions that are being adopted as part of the FY 2015-16 budget. Also, the adopted budget includes funding to begin paying all temporary/seasonal staff a salary that meets the living wage guidelines for Buncombe County. Finally, the FY 2015-16 fringe benefit budget includes a

$200,000 increase in the City’s Other Post Employment Benefits (OPEB) contribution as part of the five- year step up plan to fully fund the City’s annual required contribution.

· Citywide operating costs show only a slight increase of 1.4% for FY 2015-16, which reflects departmental efforts during the budget process to hold the line or reduce operating costs where possible through managed savings. It also reflects the fact that the FY 2015-16 adopted budget is primarily a continuation budget with essentially no new services or program expansions.

· The City’s FY 2015-16 debt service budget totals $12.7 million, which is essentially flat compared to the current fiscal year.

· Capital outlay includes small capital purchases in departmental operating budgets as well as transfers to the City’s various capital project funds. For FY 2015-16, the capital outlay budget totals $16.8 million, which represents a $1.9 million increase over the current fiscal year. Much of this increase is in the Water Resources Fund where pay-as-you-go capital funding is increased from $10.1 million to $11.9 million. In addition, the Parking Services Fund includes a $300,000 increase for elevator rehabilitation in the three older garages and structural maintenance in the Civic Center Garage. The General Fund capital outlay budget is remaining essentially flat at $3.7 million.

CITY OF ASHEVILLE

FY 2015-16 EXPENDITURES BY SERVICE AREA NET TOTAL $154,365,775

Community Development 3.4%

Culture & Recreation 9.2%

General Government 8.8%

Environment & Transportation 43.9%

Public Safety 29.4%

Pay-Go Cap/Debt 5.6%

Budget-to-Budget Expenditure Comparison

Notes:

1) Debt service payments in the enterprise funds are included in the respective service areas. All other debt service is included under General Debt Service.

CITY OF ASHEVILLE

FY 2015-16 EXPENDITURES BY CATEGORY NET TOTAL $154,365,775

Capital Outlay, 10.9%

Debt Service, 8.3%

Salaries & Wages, 37.8%

Operating Costs, 27.7%

Fringe Benefits, 15.4%

Budget-to-Budget Expenditure Comparison

BUDGET HIGHLIGHTS

· The property tax is the single largest source of revenue for the City. Based on projections received from the Buncombe County Tax Office, staff is assuming a 1.8% increase in the City’s property tax base in FY 2015-16. The adopted FY 2015-16 budget also includes a 1.5 cent increase in the City’s property tax rate to offset the loss of revenue from the business privilege license fees which were eliminated by state legislation. The City’s tax rate for FY 2015-16 will be 47.5 cents per $100 of assessed valuation.

· Most of the revenue in the charges for services category, approximately $35.3 million, comes from water utility charges. In April, City Council approved minor rate adjustments for the 2015-16 fiscal year based on the Raftelis financial model. These rate adjustments are expected to generate approximately

$465,000 in additional revenue in the Water Fund. The FY 2015-16 charges for services budget also includes $1.1 million in additional revenue from the $3.50 increase in the City’s monthly solid waste fee.

· Based on statewide projections from the North Carolina League of Municipalities and local trend data, staff is projecting a 7.5% increase in sales tax revenue in FY 2014-15 and a 4.0% increase in FY 2015- 16.

· Intergovernmental revenue, which includes state-shared utility taxes as well as Powell Bill funding, is budgeted to increase 6.0% in FY 2015-16 mostly as a result of an increase in utility tax revenue due to changes in the distribution method for the electricity sales tax. It should be noted that intergovernmental revenue is negatively impacted by the expiration of the COPs grant in the General Fund.

· Revenue from licenses and permits shows a 10.3% decrease in FY 2015-16 due to the loss in revenue from business privilege licenses. Part of the loss in this category is offset by continued strong performance from development services (DSD) permit revenue. Based on current year trends, DSD revenue shows a budget-to-budget increase of 35% or approximately $900,000.

· Revenue from parking fees is budgeted to increase by approximately $300,000 or 7.4%, which reflects collection trends in the current fiscal year.

· The other financing sources budget includes items such as interfund transfers and fund balance appropriations. The FY 2015-16 adopted General Fund budget includes no appropriation from fund balance. The Water Resources and Parking Services adopted budgets include fund balance appropriations for capital expenditures, which are consistent with the City’s fund balance policies and multi-year forecasts for both funds.

( BUDGET SUMMARY: REVENUES )

( Adopted Budget 2015-2016 ) ( 37 ) ( City of Asheville )

CITY OF ASHEVILLE

FY 2015-16 REVENUES BY SOURCE NET TOTAL $154,365,775

Other Fin. Sources, 3.8%

Misc.,

Licenses & Permits, 3.1%

Sales Tax, 12.4%

1.0%

Charges For Service, 33.6%

Intergovernmental, 9.4%

Parking Fees, 2.7%

Investment Earnings, 0.2%

Property Tax, 33.8%

Budget-to-Budget Revenue Comparison

BUDGET HIGHLIGHTS

· The FTE position count shows an increase of 36.12 between the adopted FY 2014-15 budget and the adopted FY 2015-16 budget. This increase includes all positions that have been added during FY 2014- 15 as well as new positions adopted for FY 2015-16.

· The adopted Stormwater Fund budget includes funding for an additional crew of 6 FTE to enhance the stormwater maintenance program. The crew will be utilized to perform additional preventative maintenance services including performing ditching activities and replacing failed drainage systems. In addition to the new crew, there were several other position changes in the Stormwater Fund during FY 2014-15 including the addition of a utility locater position, a project manager, and a customer service representative. Half of the salary of an engineering technician position formerly charged to the General Fund is now also being charged to Stormwater

· The Police Department adopted budget includes funding to begin implementation of the Strategic Operating Plan & Organizational Assessment including the addition of a Deputy Chief, an Administrative Services Manager, a Financial Analyst, and Property & Evidence Technicians. A portion of the cost of these enhancements will be offset through the reallocation and freezing of existing vacant positions along with some reductions in the overtime budget. The net impact is the addition of 3 FTE.

· The Fire Department budget includes funding to add 3 FTE to enhance the fire inspection program. The cost of the three positions will be fully offset by additional revenue from the inspections that they perform.

· It should be noted that 5 of the additional FTE positions represent the conversion of contract or temporary positions to permanent City employees. These conversions will little to no net financial impact on the budget.

· The chart on the following page shows the changes in FTE positions by service area and department for each of the last four fiscal years.

( BUDGET SUMMARY: STAFFING )

( Adopted Budget 2015-2016 ) ( 39 ) ( City of Asheville )

CITY OF ASHEVILLE

FY 2015-16 FTE POSITIONS BY SERVICE AREA TOTAL: 1,187.55

Community Development, 5.6%

General Government, 11.6%

Environment & Transportation, 28.0%

Culture & Recreation, 9.0%

Public Safety, 45.8%

Budget-to-Budget Staffing Comparison

*Amended budget as of the 3rd quarter FY 2014-15 financial report.

One measure of a city’s financial strength is the level of its unassigned fund balances. In general, fund balance is excess or surplus money. At the end of a fiscal year, unassigned fund balance is the amount of fund balance that is remaining after reserves of fund balance for inventories, prepaid expenses, employee paid health benefits, and state statute reserve have been made. Reserves of fund balance are amounts required by state statute, or governmental accounting standards that are legally not available for spending. Fund balance that is unappropriated after budget adoption serves as a general operating reserve for the city. This operating reserve is identified as unassigned fund balance in the chart above.

According to the Local Government Commission, cities in North Carolina should have a minimum fund balance of at least 8%. The “industry average” of fund balance, however, is between 10-20% and is preferable. What are the implications when the fund balance falls below the industry average and the state’s recommendation? The most costly implication is a decrease in the bond rating which characterizes the risk of the City’s bonds. As the bond rating goes down, interest rates on those bonds increase and the faith and trust of the financial position of the City decreases.

If the fund balance drops to 8% or below, the State will issue a letter of warning giving the government a time frame to bring the fund balance back up. Should the government not comply; the State can step in and assume financial management.

When determining the appropriate level of fund balance for an organization, the following factors, in addition to state minimums or industry averages should be considered:

· The predictability of revenues and volatility of expenditures - a higher level of unreserved funds may be needed if significant revenue sources are subject to unpredictable fluctuations.

( ANALYSIS OF FUND BALANCE )

( Adopted Budget 2015-2016 ) ( 42 ) ( City of Asheville )

· The availability of resources in other funds as well as the potential drain upon general fund resources from other funds may require a higher level of unreserved fund balance.

· Designations by management to compensate for any portion of the fund balance already designated for a specific purpose.

· Liquidity - a disparity between when financial resources actually become available to make payments and the average maturity of the related liabilities may require a higher level of resources be maintained.

The City of Asheville Financial Management Policy recommends that the City maintain a fund balance in the General Fund equal to 15% of expenditures. The City ended FY 2013-14 with $17.0 million in unassigned fund balance. The adopted FY 2014-15 budget included a $2.0 million fund balance appropriation, which brought that total down to $15.0 million. The amended FY 2014-15 budget included an additional $218,518 fund balance appropriation. Based on the positive revenue and expenditure trends observed through the first three quarters, staff is projecting that instead of decreasing, fund balance will actually increase slightly at the end of FY 2014-15. Current revenue and expenditure projections for FY 2014-15 indicate that unassigned fund balance at June 30, 2015 will be $17.7 million or 18.0% of estimated expenditures. As noted earlier, the FY 2015-16 General Fund budget does not include any appropriation from fund balance. Therefore, based on the adopted budget total of $103 million, unassigned fund balance at the end of the FY 2015-16 is estimated to be 17.2%.

Enterprise Funds

The other funds in the City’s adopted budget are all enterprise funds. For these funds, the City calculates fund balance by taking cash and investments and subtracting out all certain current liabilities and encumbrances. The projected June 30, 2015 fund balance equivalent for the Water Resources Fund and the other Non-Major Enterprise Funds is shown below.

( Adopted Budget 2015-2016 ) ( 44 ) ( City of Asheville )

( FUND SUMMARY )

Expenditure Summary General Fund Enterprise Funds

FY 2015-16 EXPENDITURES BY FUND TOTAL: $154,365,755

13%

23%

64%

General Fund Water Resources Fund Non-Major Enterprise Funds

( FUND SUMMARY )

( Adopted Budget 2015-2016 ) ( 45 ) ( City of Asheville )

( GENERAL FUND SUMMARY )

( Adopted Budget 2015-2016 ) ( 46 ) ( City of Asheville )

BUDGET HIGHLIGHTS

· The FY 2015-16 adopted budget includes General Fund expenditures that are 3.6% more than the FY 2014-15 adopted budget.

· Public Safety is the largest General Fund service area, accounting for 45% of all General Fund expenditures. Public Safety expenditures show a $1.0 million increase in FY 2015-16. A portion of this increase is the result of the salary adjustments discussed early in the budget document. In addition, the Police Department adopted budget includes funding to begin implementation of the Strategic Operating Plan & Organizational Assessment. Specific items funded in the budget include the addition of a Deputy Chief, an Administrative Services Manager, a Financial Analyst, and Property & Evidence Technicians, along with additional funding for management training and development. A portion of the cost of these enhancements will be offset through the reallocation and freezing of existing vacant positions along with some reductions in the overtime budget. The new impact of the changes is approximately $157,000. The Fire Department budget includes funding to add three positions to enhance the fire inspection program. The cost of the three positions will be fully offset by additional revenue from the inspections that they perform.

· Environment & Transportation represents 15% of the FY 2015-16 General Fund budget. This service area shows an increase of approximately $354,000, which is primarily the result of the salary adjustments discussed early in the budget document, as well as the addition of one greenway position in the Transportation Department and the shifting of the mowing program from the Parks and Recreation Department to the Public Works Department.

· The increase in General Government expenses is due to several factors including: 1) a $538,000 increase in economic incentive payments; 2) the inclusion in the budget of every-other-year City Council election costs and; 3) mid-year FY 2014-15 staffing additions in the Human Resources Department and the Communication & Public Engagement Division.

· The budgetary change most directly impacting the Culture & Recreation service area is the proposal to begin paying all temporary/seasonal staff a salary that meets the living wage guidelines for Buncombe County. This change has the biggest effect in Parks & Recreation and at the US Cellular Center, which are both large users of non-benefitted labor. In Parks & Recreation, the estimated impact is $150,000 and at the US Cellular Center it is $90,000.

· The slight increase in the Community Development service area is primarily the result of the addition of 2 FTE positions to help meet increased workload in the Development Services Department.

( GENERAL FUND EXPENDITURES )

( Adopted Budget 2015-2016 ) ( 47 ) ( City of Asheville )

GENERAL FUND EXPENDITURES BY EXPENSE CATEGORY

BUDGET HIGHLIGHTS

· Personnel costs, including both salaries and wages and fringe benefits, make up 65% of the adopted FY 2015-16 General Fund budget. As noted earlier in the budget document, the personnel budget includes funding to implement the recommendations from the Segal Waters compensation study and provide all employees with a 1% salary increase on July 1, which has a budget impact of approximately $1.6 million in the General Fund. The personnel budget in the General Fund is also impacted by staffing additions and the inclusion of funding to pay all temporary/seasonal staff a living wage. The living wage adjustment has the biggest budgetary impact in the Parks & Recreation Department, where it is estimated to increase personnel costs by approximately $150,000.

· Operating costs in the General Fund are budgeted to remain essentially flat in FY 2015-16.

· Interfund transfers to the Transit Services Fund and the US Cellular Center Fund are budgeted to increase by approximately $100,000, primarily due to an increase in the Transit transfer to fund a full year of Sunday bus service.

· In accordance with the City’s multi-year debt service and capital improvement financial model, the General Fund debt service budget is maintained at the FY 2014-15 budget level.

· The FY 2015-16 capital outlay budget reflects the transfer of the full $3.3 million from the FY 2013-14 tax rate increase into the City’s debt service and capital improvement program, along with additional pay-go capital maintenance funding and departmental capital outlay.

CITY OF ASHEVILLE

FY 2015-16 GENERAL FUND EXPENDITURES BY SERVICE AREA TOTAL $103,148,627

Culture & Recreation 10.6%

Community Development 5.3%

Environment & Transportation 14.8%

Capital Pay-Go/Debt 8.8%

General Government 15.3%

Public Safety

45.1%

Budget-to-Budget Expenditure Comparison

CITY OF ASHEVILLE

FY 2015-16 GENERAL FUND EXPENDITURES BY CATEGORY TOTAL $103,148,627

( GENERAL FUND EXPENDITURES )

( Adopted Budget 2015-2016 ) ( 50 ) ( City of Asheville )

Interfund Transfers 2.8%

Debt Service 5.2%

Capital Outlay 3.6%

Operating Costs 23.4%

Salaries & Wages 46.5%

Fringe Benefits 18.5%

Budget-to-Budget Expenditure Comparison

*Revenue was reclassified for reporting purposes

( GENERAL FUND REVENUES )

( Adopted Budget 2015-2016 ) ( 51 ) ( City of Asheville )

CITY OF ASHEVILLE

FY 2015-16 GENERAL FUND REVENUES BY SOURCE TOTAL $103,148,627

Licenses & Permits 4.4%

Charges for Service 9.7%

Investment Earnings

0.1%

Sales/Other Tax 19.5%

Intergovernmental 11.7%

Miscellaneous 1.4%

Property Tax 53.2%

Budget-to-Budget Revenue Comparison

PROPERTY TAXES

( 43.84 45.25 46.22 46.54 46.89 52.10 52.05 54.83 )60

50

( Millions ($) )40

30

20

10

0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

The Property or Ad Valorem Tax is the largest funding source for general government services, providing 53% of the City’s total FY 2015-16 general fund revenue. The property tax is levied each year on the value of real, certain personal, and public service property that is listed as of January 1 of that year. Real property, which consists of residential, commercial, and industrial properties, is typically revalued every four years, while personal and utility values are adjusted annually. The most recent revaluation was completed in 2012, and the new values became effective in FY 2013-14. This was the first revaluation since 2005. Real property makes up approximately 86% of the City’s total tax base.

The property tax rate for FY 2015-16 will be 47.5 cents per $100 of assessed valuation, which represents a

1.5 cent increase over the FY 2014-15 rate.

Between FY 2000 and FY 2010, property values in the City grew annually an average rate of 3.1%. Growth in real estate property values in Asheville slowed substantially as a result of the economic recession. Over the last five fiscal years, property values have grown at an annual average rate of less than 1%. Based on projections provided by the County Tax Office, staff is assuming a 1.8% increase in the City’s property tax base in FY 2015-16. In a positive sign for future growth, permit values for new construction have increased significantly over the last three years. With the typical lag time between the issuance of a building permit and the addition of that property value to the City’s tax base being two years or longer, the current data indicate that the City will begin see a rebound in its property tax base growth in the near future.

ASSESSED VALUATION HISTORY

( FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14* FY 2014-15 $5,530,052 $9,634,718 $9,696,841 $9,653,303 $9,640,391 0.2% 1.26% 0.64% -0.44% -0.13% $699,285 $673,731 $688,439 $731,028 $742,083 -1.2% -3.65% 2.18% 6.19% 1.51% $186,956 $191,230 $190,235 $185,757 $181,201 -3.3% 2.29% -0.52% -2.35% -2.45% $480,112 $513,711 $551,327 $597,911 $591,817 -7.8% 7.00% 7.32% 8.45% -1.02% $10,880,726 $11,013,390 $11,126,842 $11,167,999 $11,155,492 0.70% 1.22% 1.03% 0.37% -0.11% )Major Property Categories

($ in thousands)

Real Property

Percent Change

Personal

Percent Change

Public Service Companies

Percent Change

Motor Vehicles

Percent Change

TOTAL TAX BASE

Percent Change

*Revaluation Year

CITY OF ASHEVILLE FY 2014-15 TAX BASE

Personal, 7% Public Service,

2% Motor Vehicle,

5%

Real Property, 86%

( GENERAL FUND REVENUES )

( Adopted Budget 2015-2016 ) ( 56 ) ( City of Asheville )

CITY OF ASHEVILLE PROPERTY TAX RATE HISTORY

( 0.53 0.475 0.46 0.46 0.42 0.42 0.42 0.42 0.42 0.42 0.4238 )0.65

( Dollars per $100 of Assessed Value )0.60

0.55

0.50

0.45

0.40

FY 06 FY 07* FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14* FY 15 FY 16

*Revaluation Years

FY 2015-16 SAMPLE TAX BILL

( ASSESSED VALUE $713 $1,425 $2,138 $906 $225 $1,812 $2,718 $450 $675 $300,000 $150,000 $450,000 )$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

$1,844 $3,687 $5,531

( CITY COUNTY CITY SCHOOL ) TOTAL TAX BILL

Notes: City tax rate: 47.5 cents per $100 of assessed valuation County tax rate: 60.4 cents per $100 of assessed valuation

City School tax rate: 15 cents per $100 of assessed valuation. Not all City of Asheville residents pay the City School tax.

LOCAL OPTION SALES TAX

( 14.17 14.64 15.04 15.75 16.57 17.25 18.35 19.68 )$20

$15

( Millions )$10

$5

$0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

Local option sales tax revenue is collected by the State of North Carolina and distributed back to counties and municipalities on a monthly basis.

Net proceeds from Article 39 and Article 42 are returned to the county in which the tax was collected. Under this point of delivery distribution method, the City’s revenue from this one and one-half-cent (1 ½) sales tax is dependent only on retail sales activity in Buncombe County. Proceeds from the Article 40 half-cent sales tax is placed in a statewide pool and allocated among all one hundred counties on a per capita basis. Article 40 sales tax revenue is thus dependent on retail sales activity statewide and on Buncombe County’s population relative to other counties in the State. During its 2001 session, the State Legislature gave local governments the authority to levy an additional half-cent sales tax – Article 44. Revenue from Article 44 replaced local government reimbursement payments that were discontinued by the state. In 2007, the state eliminated Article 44 and replaced it with a hold harmless payment.

Buncombe County’s sales tax revenue is divided between the county and the local municipalities based on each entity’s share of the total county ad valorem tax levy. Based on this distribution formula, the City currently receives 19.82% of the sales tax revenue distributed to Buncombe County. The state recalculates this percentage each year to account for tax rate changes, annexations, revaluation, and natural growth in the tax base.

No revenue was more impacted by the recession than sales taxes. Between FY 2006-07 and FY 2009-10, the City saw its sales tax revenue decline by $3.1 million or 18%. Sales tax revenue finally began growing again in FY 2010-11. Based on statewide projections from the North Carolina League of Municipalities and local trend data, staff is projecting a 7.5% increase in sales tax revenue in FY 2014-15 and a 4.0% increase in FY 2015-16.

LICENSES & PERMITS

( 4.55 4.14 4.71 5.08 5.18 5.38 5.84 5.50 )6

5

( Millions ($) )4

3

2

1

0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

License & permit fees are generally used to offset the cost of regulating certain activities within the City. Some license and permit rates are set by the state, while others are set by City Council. Revenue from licenses & permits is influenced by local population growth, economic conditions, trends in development and re-development activity, and Council-approved fee changes.

Development Services (DSD) Fees: After declining during the recession and remaining flat in FY 2010-11, revenue from development services fees began growing again in FY 2011-12.

Development activity increased dramatically in FY 2013-14, and revenue from permits and inspections increased 21% compared to FY 2012-13. This trend toward increased development activity continued in FY 2014-15 with preliminary year-end revenue estimates of $3.2 million. Staff is expecting this trend of increased development activity to continue in FY 2015-16.

Business Privilege Licenses: The N.C. General Assembly passed legislation that eliminated the City’s ability to assess the privilege license fee after FY 2014-15.

Motor Vehicle Licenses: The City levies an annual registration fee of $10 on all motor vehicles owned by City residents. Half of this revenue is recorded in the general fund, and the other is recorded in the transit services fund where it is used to support the operational and capital needs of the City’s transit system. FY 2013-14 actuals were higher than normal due to a shift in collections from the local to the state level which accelerated the collection calendar. FY 2014-15 revenue is expected to come in on budget, and revenue is expected to remain flat in FY 2015-16.

( GENERAL FUND REVENUES )

( Adopted Budget 2015-2016 ) ( 57 ) ( City of Asheville )

INTERGOVERNMENTAL REVENUE

( 11.01 10.80 10.86 11.22 11.17 11.48 11.86 12.10 )15

12

( Millions ($) )9

6

3

0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

Intergovernmental revenue includes grants, shared revenues, and reimbursements received by the City of Asheville from other governmental units.

State Utility Taxes: The state levies the following utility taxes: a franchise tax on electricity, a sales tax on telecommunications and video services, and an excise tax on piped natural gas. The state then shares a portion of these revenues with municipalities based on sales and consumption within each city. Growth in the electric and natural gas revenues is highly sensitive to weather conditions; cool summers and mild winters can lead to a year with little or no growth. Significant changes in the total amount of electricity used within a municipality, such as the loss of a factory, also will lower the revenue from the tax on electricity. The state changed the distribution formula for utility taxes in FY 2014-15, which resulted in a 13% increase in revenue from this source. Based on these trends and projections from the N.C. League of Municipalities, staff has budgeted a 12% increase for FY 2015-16.

Local Utility Franchise Tax: This category includes revenue from Asheville’s local agreements with Duke Power and PSNC. It should be noted that the drop in revenue in FY 2013-14 was due to the timing of when the revenue was received. Based on the terms of the agreements, this revenue source is expected to decrease slightly in FY 2015-16.

State Beer & Wine Tax: The state shares a portion of the proceeds from beer and wine tax receipts with all local governments in which beer and wine is legally sold. The distribution is based on population. Based on collection trends in FY 2014-15 and projections from the N.C. League of Municipalities, staff has budgeted an 11% increase for FY 2015-16.

Powell Bill: North Carolina municipalities receive a portion of the proceeds from the state gasoline tax and the Highway Trust Fund. The money is distributed to municipalities based 75% on population and 25% on local street mileage. Powell Bill funds can only be expended to maintain, repair, or construct local streets. Based on actual revenue received in FY 2014-15 and growth projections from the N.C. League of Municipalities, this revenue is expected to remain flat in FY 2015-16.

CHARGES FOR SERVICE

( 3.46 )12

( 10.45 )10

( 9.99 ) ( Millions ($) )8

( 8.48 ) ( 8.67 ) ( 8.59 )6

( 4.52 ) ( 4.59 )4

2

0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

Charges for services are revenues derived from charges for the use of specific general fund services, such as Parks & Recreation programs and curbside recycling. By Council policy, many of these services are partially or fully funded through user charges.

Parks & Recreation Fees: The FY 2015-16 budget for Parks and Recreation fee revenue shows an increase due to Council-approved fee changes at the WNC Nature Center.

Recycling/Solid Waste Charges: In March 2013, City Council replaced the $3.50 per month household recycling fee with a $7.00 per month solid waste fee. In FY 2015-16, the solid waste fee is being increased to $10.50 per month. This fee increase is expected to generate approximately $1.1 million in additional revenue.

Fire Protection: The Town of Biltmore Forest cancelled its fire protection contract with the City of Asheville at the end of the first quarter in FY 2013-14, which resulted in an annual revenue loss to the City of approximately $750,000. For FY 2015-16, this revenue source is expected to remain flat.

Cost Allocation Charges: The general fund charges enterprise funds for the cost of internal services such as human resources, information technology services, finance, etc. The City contracts with a private firm to update its cost allocation plan on an annual basis. Based on the latest plan update, this revenue source shows a decrease in FY 2015-16. It should also be noted that prior to FY 2013-14, cost allocation charges were accounted for as other financing sources, not charges for services.

( GENERAL FUN D REVENUES )

( Adopted Budget 2015-2016 ) ( 59 ) ( City of Asheville )

( 31.44 31.62 33.11 33.95 33.81 34.36 34.66 37.43 )45

36

( Millions ($) )27

18

9

0

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Actual Actual Actual Actual Actual Actual Budget Adopted

Trends & Assumptions

Water revenue is derived from fees and service charges assessed to residential and commercial customers of the regional water system. Water revenue is influenced by fee changes, population growth, water consumption patterns, local economic conditions, and weather.

Utility Charges: The FY 2015-16 Water Resources budget includes the following rate changes:

· Single Family, Multi-Family, Small Commercial/Manufacturer: 1.5% increase

· Large Commercial/Manufacturer (>1,000 CCF/month): 3.5% increase

· Wholesale & Irrigation: 5.0% increase

· Capital Improvement Fee: 1.5% increase for each meter size.

These rate adjustments are expected to generate approximately $465,000 in additional revenue.

Capital Maintenance Fee: The purpose of this fee is to provide funding for major capital improvements such as water line replacements and water treatment source improvements. It is a charge based on the size of the meter. As noted, this fee was increased by 1.5% in FY 2015-16.

Other Revenue: The other operating revenue category includes development fees, tap and connection fees, fire line charges, reconnection and delinquency fees and other miscellaneous revenue. This revenue category is adjusted upward based on recent collection trends. Investment earnings reflect earnings on cash fund balances.

( ENTERPRISE FUND REVENUES )