ASHEVILLE, N.C. (WLOS) — City leaders in Asheville are preparing for difficult budget decisions as finance staff projects a roughly $30 million gap in the city’s General Fund for the fiscal year that begins July 1, 2026.
Asheville Finance and Management Services Director Tony McDowell said the city council adopted a balanced budget last June and the current budget year is performing as expected. The challenge, he said, is that early projections for the next fiscal year show a larger-than-normal shortfall that will require a mix of spending reductions and potential new revenue.
“We typically have a budget gap every year when we start the process,” McDowell said. “This year was just a little bit larger than normal.”
The early estimate was presented during a January budget work session and reflects the difference between projected revenues and projected expenses for fiscal year 2027. City officials stress the figure is preliminary but acknowledge closing the gap will likely require a combination of tax or fee increases and spending reductions, which could translate into service impacts.
Finance staff said the projected shortfall is driven largely by one-time fixes used to balance the current budget that cannot be repeated next year, along with rising costs for employee health care, debt service tied to voter-approved bonds, transit contracts, public safety staffing and community center security.
McDowell is expected to address the issue during Tuesday’s Asheville City Council meeting, where the city is also scheduled to take early public comment as part of the FY2027 budget development process. City finance staff say the goal is to gather community input earlier than the state-required public hearing that happens later in the spring.
Among the non-recurring measures used this year: a disaster loan, a draw from fund balance and other temporary budget adjustments totaling more than $12 million.
McDowell said the city relied on one-time strategies to balance last year’s budget after Hurricane Helene impacted revenues, including a FEMA Community Disaster Loan and certain one-time reductions that cannot simply be repeated.
He also pointed to inflation-driven cost growth, particularly in employee health care.
“Our increase in health care is about 8 to 10% this year,” McDowell said. “We’re expecting another 8 to 10% next year. And so that’s going to add roughly $5 to $6 million to our budget.”
Additional pressures expected in fiscal 2027 include higher health insurance costs, increased retirement contributions mandated by the state, a potential jump in transit service expenses, and the need to formally budget police positions that were previously left unfilled due to vacancies. City staff also say a delayed property tax increase connected to general obligation bonds approved by voters is expected to take effect next year.
“Residents passed a bond in 2024, and ultimately we’ll have to increase taxes to pay for the debt service,” he said, estimating that portion at about $6.5 million.
McDowell said the city is evaluating options across the budget, including reductions, holding the line on some expenses and looking at revenue sources such as fees and charges.
Property taxes make up about half of the General Fund, he said, and the city may have to consider a property tax rate increase depending on how the budget develops.
Complicating the picture is Buncombe County’s upcoming property revaluation, which requires Asheville to publish a “revenue-neutral” tax rate before any potential increase is considered. Sales tax revenue is also described by city officials as difficult to forecast this early in the budget process.
“In a revaluation year it adds another layer of complexity,” he said. “We can say it’s going to cost X, but we can’t yet say definitively what that would mean in terms of a tax rate increase.”
McDowell said personnel costs account for roughly 60% of the General Fund when salaries and benefits are combined, but he said he does not anticipate layoffs.
“We may look at some of our vacant positions,” he said, adding that the city implemented a hiring freeze in recent weeks to hold some positions open while leaders evaluate staffing needs.
McDowell also addressed the city’s internal policy to maintain a fund balance, a reserve, generally between 15% and 20%. He said the city ended last fiscal year at about 14%, driven largely by Helene-related impacts on sales tax revenue.
“We did actually dip slightly below it,” he said. “If Helene had not happened, we would not have dipped below 15%.”
McDowell said the city’s AAA bond rating was not impacted, but he said officials are focused on keeping fund balance trends from continuing downward because rating agencies evaluate long-term stability.
Staff have warned there is “no low-hanging fruit” left in the budget, signaling that any significant cuts would likely be felt by residents.
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Tuesday’s meeting is the latest milestone in a budget timeline that includes multiple work sessions this spring, a proposed budget expected in May and final adoption scheduled for June. City budget materials list the next key dates as work sessions on March 10 and March 24, a planned vote on fees and charges on March 24, the city manager’s proposed budget on May 12, a public hearing on May 26 and budget adoption on June 9.
McDowell said the city is in the early stages of the process and will continue working with council and residents in the coming months.
“This is a challenging year,” he said. “There’s going to have to be some combination most likely of continued budget reductions along with potentially some revenue enhancements along the way.”
News 13 will sit down Monday with Tony McDowell, Asheville’s Finance and Management Services director, ahead of that meeting to discuss how the city reached this point, what options are on the table and what residents can expect moving forward.
Public input on the proposed budget is expected in the coming weeks as the council weighs how to close the projected gap.