The City’s general fund Operational Budget was $150 million in fiscal year (FY) 2005.  The budget increased to $170 million in FY 2009.  Three weeks ago, the proposed operational budget for FY 2013 was $209 million.  On Tuesday, City Council will vote to determine if the amount should be increased again to $210 million.  (Figures are rounded.)  Ultimately, city spending has increased $60 million in seven years, despite the worst economic recession than many of us have ever experienced.

Some might argue that increasing the overall size of the budget is not a bad idea, especially since some revenues have increased this year. So, what would be the harm of spending an additional $8 million next year? There are several reasons why I advocate a conservative approach.

1.     Increased city spending is outstripping gains in the property tax base.  The most reliable source of our municipality’s revenues IS property taxes. No matter what happens on Wall Street, property taxes are due every year. Property taxes are reliable.  Despite media reports of new construction, property tax collections are modestly projected to increase $600,000 next year. This does not compensate for an $8 million dollar overall budget increase.

2.       The proposed budget relies heavily on projected increases in state and local sales tax collections.  In 2010, state and local sales tax collections yielded revenues totaling $36 million.  In 2013, the proposed revenues for these same items are $52 million.  While we would hope these revenue increases are achievable, the economy remains in a state of flux and sales tax collections are always subject to variables beyond local control.

3.       New proposed projects and programs are causing the city’s expenses to go higher. While the new half million dollar “Gang Task Force Initiative” will not impact the city’s debt service, $6 million approved a few months ago to replace street lights and the remaining $18 million lighting phases will. While no city can maintain its responsibilities without incurring debt, City Council (past and present) rarely sees a project that can’t find 5 votes.

4.       The recently approved Aetna Mountain TIF project will be a long term drag on future city expenses.   The Tax Incremental Financing (TIF) plan has the city financing the building of a road up Aetna Mountain. Long ago the state court declared the dirt road up the mountain a state road.  City services will be required for the new properties.  Meanwhile the incremental taxes received from new development of private property will be diverted to a special fund which will reimburse the traditional developer’s expense to build the road. Normally developers are required to build access to their own developments. Normally any increase in property taxes for improvements would go into the general fund along with the property taxes of current residents, but this TIF is different.            

5.       Gross debt is increasing and most of that expense is paid directly or indirectly by residents and commercial property owners.  Net direct debt should not be allowed to climb for unnecessary reasons. Chattanooga’s GROSS debt for FY 2012 was $423 million and is estimated to climb to $439 million in 2013.  [Net Direct Debt $156.9 million + Self-Supporting Debt $282.5 million = GROSS Chattanooga Debt of $439.4 million].  When we borrow more, the cost of doing the city’s business goes up.  According to the PROPOSED 2013 Operational Budget (released May 8, 2012); $22 million will be allocated to fund the debt service. Seventeen million will come from the general fund. The interest payment is $7.3 million.      

6.       According to financial documents released along with Mayor Littlefield’s proposed Operational Budget; Capital Budget; and Five-Year Capital Budget Plan 2013- 2017:  “Net Debt has increased by 280% since 2000 and 64% since 2008.”  That increases our annual expenditures.  Annual debt service requirements will increase next year. That can negatively influence our city’s bond rating.  That in turn can increase the rates lenders charge by to finance municipal projects. Higher interest rates mean more expense. “According to September 2011, Moody’s publication, the median value of a general fund balance as a % of revenue for AA rating is 21%.” Chattanooga currently has a AA bond rating and it’s % of revenue was 17% in 2012.  Our percentage has been under 21% since 2007.

7.       Net Debt and Overlapping Debt for Chattanoogans, based on per person income, was higher in 2012 and will likely increase in 2013.  While “Net Debt” is the obligation of city taxpayers for city expenses, “Overlapping Debt” takes into consideration the additional burden of paying county property taxes. Unfortunately, the pleasure of living simultaneously in a city and in Hamilton County is a financial burden. 

8.       While the city’s expenses go up, population numbers for City residents are relatively stagnant.   The 2000 U.S. Chattanooga Census population count was 155,000.  Due to a city challenge of the Census in 2006, and the population figures were adjusted up 168,000. Oddly, the 2010 U.S. Census resulted in a population count of 167,000.  Meanwhile some areas outside of Chattanooga are adding to both their population and real estate tax base. If the residential population is stagnant or moving away from the city what might that mean to our tax base?
 
9.       If the $9 million dollar increase in the 2013 Operational Budget passes, the revenue challenge next year (without a property tax increase) could be more intense. Sales tax revenues were $25 million in FY 2010 and are projected to $37 million for end of FY 2012.  Sales tax collections increases to $40 million are estimated for 2013.  While we hope that would happen, no one knows what will happen. Certainly the economy served up lower sales tax 2008-2010.  When some European countries are teetering on the brink of financial disaster, who can predict how our local economy might perform?    If the local economy falters, we could find ourselves hearing another call for a tax increase. We traveled that miserable road not long ago.  The key to avoiding tax increases is unnecessary routine expenses and delaying new project obligations. Both Operational and Capital Budgets should incur some restraint.        

10.   Wage increases, a natural eventual phenomenon in government, impact pension costs. Due to the economy and the investment results from the two separate managing Boards, both of the civilian and non-civilian plans are now underfunded. The civilian plan is in better health than the Fire and Police Pension Plan.  According to Section 9 (b) of the proposed 2013 Operational Budget, the City Finance Officer is authorized to match the total salaries of all participants in the Fire and Police Pension Fund with a contribution from the General Fund not to exceed (31.8%). Section 9 (c) states the city finance officer is authorized to contribute to the General Pension Plan and amount equal to (13.65 percent). Future negative swings in the economy could  worsen pension problems.

11.   Over the next 12 months residential and commercial owners will likely encounter higher rates for water from Tennessee American Water and Chattanooga’s Sewer System. These two entities impact not all, but a majority of our residents and businesses. While no tax increase is proposed in the 2013 budget, the capacity to absorb another tax increase in 2014 is a daunting thought. 

Summary:   The $210 million is bigger than it should be. Some of the appropriations are not justifiable. The city has birthed some programs that should be privatized. The city funds some programs that duplicate services. While my City Council colleagues know about my budget reticence, I am told some citizens do not fully understand why I voted no last week and will vote on the second reading.  Perhaps this will help explain my lack of enthusiasm for the 2013 operational budget. 

Deborah Scott
City Council Representative, District One
1000 Lindsay St.
Chattanooga

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Bravo, Deborah Scott, you are my hero.  

Too bad you are a voice in the wilderness. 

You hit the nail on the head with each of your points and I compliment you for your candor.  

Unfortunately I do not live in your district, I live in the free spending Carol Berz district.  

It is so refreshing to hear a politician use good ole common sense and defend the taxpayers instead of  voting with the special interest groups and continuing to spend more and more each year.  

Why must city government continue to increase spending every year while the citizen/taxpayers are forced to live on less and less?  I for one am sick of it. 

The mayor and the majority of our pathetic city council will keep on spending.  In my opinion they should be horse whipped in the public square. 

Ronnie Land

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Thank you, Deborah Scott, for having the courage to stand to up to government over spending. We have become tax slaves to a system of tax and spend. Chattanooga needs to stick to it's charter and provide essential services only.  

Government salaries and benefits are unmanageable. The average property owner hasn't had a raise in years and local government continues to increase the cost of owning property. We never own our property anymore. The advantages of home ownership is diminishing with every property tax increase. The majority of the City Council represents special interest groups (Art, Real Estate) that they are a member of or have connections to. 

I don't live in Chattanooga proper but I do live in Hamilton County and as we all know, they are connected at the hip. I do own several pieces of property in Chattanooga.  The 40 percent assessment on commercial property kills future investment in Chattanooga. I make more on my property in North Georgia because of the high property taxes in Chattanooga.  

Chattanooga bends over backwards to get large corporations to move here with tax incentives, while charging the small investor more, to make up for lost revenue. If large companies need a break (VW, Amazon) small investors need a break too. 

Chuck Davis
Lookout Mountain, Tenn.

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If Chattanooga really wanted to be on the road to fiscal greatness, you would elect a sane, honest, person like Deborah Scott to the top of your political pyramid. Everything she explains in the article about voting no on the budget is not questionable, on any front, period.  

Do you know how hard it is to find a person with the big picture in front of them and the whole communities best interest at the same time? You need to appreciate her wisdom, I do, and I don't even live there.

Joe Blevins
Guild, Tn.