City Council weighs worker pay, 3-cent tax increase, capital projects for upcoming budget

Hendersonville is weighing employee pay and capital projects as it plans its next budget amid forecasts showing a dwindling fund balance.

In an initial budget workshop Jan. 26, Hendersonville City Council members and staff evaluated how to tweak the city's upcoming expenditures, including curtailing planned capital projects, using COVID-19 relief funds to foot some of that bill, how to boost employee pay and adjusting the tax rate with a property revaluation on the horizon.

The workshop usually precedes the council's March budget planning session, City Manager John Connet said.

This year, that council and staff retreat is set for March 11, with follow-up workshop meetings Feb. 23, March 23 and May 6 before the final budget is presented in June and approved by July, according to Budget Manager Adam Murr.

For that February meeting, the City Council hopes to learn from other communities like Holly Springs and Matthews, similar communities that Connet said are about 15 years ahead of Hendersonville in some similar issues.

"They've been there and done that, so we felt like it was a good opportunity," Connet said. They'll present what they've done and what they feel they could've done differently.

Assistant City Manager Brian Pahle started his review of the city's finances by highlighting "the extreme growth we saw from the census and FY22 projections," in terms of population, with expectations of up to more than 16,000 population by July, compared to 2020's estimate of 15,137.

The city pulled in a total of $4.6 million in sales tax in fiscal year 2020-21, an increase of more than $746,000 or 19.38% year-over-year, and by the end of the current fiscal year, he expects an increase over that by about 10.7%, to a total $5.09 million.

"Sales tax has been really, really strong," Pahle said. "The best we've ever done."

Property taxes were 0.85% over the budgeted $10.3 million, with total revenues up 6.1% over the budgeted $16.7 million, for a total $18.3 million, according to information presented at the meeting, and total expenditures, at $16.7 million, were down from the budgeted $18.3 million by just under 4%.

The city's general fund accounts for a planned $0.03 tax increase for fiscal year 2022-23 as a revaluation of city property is set to put new property values on the books at the start of fiscal year 2023-24.

Budget planners built in 5.37% in growth for the city due to increased development, and a 20% natural growth rate in the tax base thanks to the upcoming revaluation.

The city must hold 25% of its budget as per requirements from the Local Government Commission, Pahle explained, a mark it's not yet meeting in the current budget, but plans to in the upcoming fiscal year with 30.5%, a total of $5.9 million, about $1 million over the requirement.

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Strong revenue growth and conservative expenditures mean the city should increase its fund balance, he said, but in future years debt service for multiple capital projects is forecast to drop the city's fund balance to 20.6% in fiscal year 2023-24 and lower in following years.

The big points to consider, in terms of offsetting those capital costs, Pahle said, are the city's tax rate, the upcoming revaluation, pay and class changes, and American Rescue Plan funds.

He said pay and class is the big one.

Weighing the options

At its Jan. 6 meeting, City Council heard the findings of a commissioned pay study and were presented options to raise employee pay that could cost the city between $458,000-$2 million in new recurring costs.

The city has 36 different pay grades, with a difference of 52.2% between the minimum and maximum within those grades.

The discussion follows a 10% increase in pay for employees the city instituted in July 2021, meeting or exceeding what 50% of the city’s peers pay.

Evergreen Solutions, a Tallahassee, Florida-based firm that conducted the study for the city, looked at 25 peers for Hendersonville, including Asheville, Fletcher, Henderson County and Buncombe County.

The study found that on average, the city pays 3% more at the midpoint of its salary ranges but 3% less on the high end of the pay range, but in order to lead the market as the city hopes to, it fell short by anywhere from 2.5% to 11.2% compared with peers.

Pahle said annual costs were around $673,000 to bring employees to the 65th percentile and $1.1 million to reach the 75th.

“Overall it’s $1.1 million for the general fund at 75th percentile no matter how you cut it,” Pahle said. “And it puts us in the red.”

The council consensus Jan. 26 was to move forward with a 5.1% cost of living pay increase and bringing pay rates to the 65th percentile starting next month, with plans to move to the 75th percentile at the start of the next fiscal year in July.

Local governments across the region are having the same problem with getting salaries to living wages, Connet said, with information presented Jan. 26 showing the living wage in the city for a single adult household with no children at $16.88 an hour.

Even at the 75th percentile, the city would be paying $16.54 per hour at its minimum wage. At 65th percentile, that's $15.75.

Council member Jerry Smith said to him, the lowest pay scale needs to be compressed to $16.88, and the entire span of pay classifications doesn't necessarily have to be moved to the 75th to make sure that those employees get to that point.

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"For the bottom end, we have to get to $17 an hour," he said. "That means we'll have to eat some compression problems higher up, but it seems to me that that lower group has to be at a living wage."

Other council members showed some support, and Smith said the increase doesn't necessarily have to continue all the way up the scale even though it could create an issue and others said the city may as well just move to the 75th percentile all the way up the scale.

Connet said capital projects are the first to be cut when the city works to balance the budget, but putting off pay-as-you-go items like police cars or fire trucks will catch up with the city eventually. Another aspect of that are ARP funds that could pick up some capital funds, he said.

The second option that can be tweaked is employee pay, and the third is revenue, including the planned 3-cent tax increase and upcoming revaluation.

The council also floated focusing on priority improvements at the almost century-old city hall building, cutting $1 million off the expected total $3 million bill for planned renovations there and at the city operations building on Williams Street.

Pahle said the city could also seek grant funds for planned park improvements, though can't budget in funds that aren't guaranteed.

Derek Lacey covers environment, growth and development for the Asheville Citizen Times. Reach him at DLacey@gannett.com or 828-417-4842 and find him on Twitter @DerekAVL.

This article originally appeared on Hendersonville Times-News: Council balances employee pay & capital projects for upcoming budget