A tax increase for growth

Although the City Council will have the final say, it now seems likely that Chattanooga's property owners will see a property tax increase -- the first since Sept. 11, 2001 -- this summer, Mayor Ron Littlefield said Monday. The reason is pretty basic. The city is facing increasing demands for services due to growth, he said, and city government has also accumulated a backlog of deferred needs in the nine years since the last tax increase.

Mayor Littlefield cited the need for a tax increase in a meeting with this newspaper's editors as he moved from a discussion on storm water utility rates to an overview of the city's needs and fiscal status. He said belt-tightening moves over the past few years have left positions unfilled and reduced personnel in the fire, police and recreation departments, and that revenue is lagging the general costs of keeping up with growth.

The mayor said city government had tolerated the strains of personnel reductions and hiring and salary freeze to avoid a tax increase during the recession. But as the economy pulls out of the recession -- more so locally than in some other regions of the state and country -- the time has come, he said, to relieve strains on city services and catch up with growth trends.

In particular, Mr. Littlefield said he would like to see at least one new police training class, and possibly two. The goal is to add 40 new policemen and bring the department closer to its goal of 500 officers. The mayor also wants to add an additional 29 fire department personnel, and restore some parks-and-recreation employees.

There are other strains, as well. Both the city and county governments are obligated to fund $20 million each in infrastructure costs for the Volkswagen plant. City government set aside $13.1 million in general funds to pay for its VW commitments as they arise, and has just issued $6.9 million in bonds to fund the balance. There are other ongoing capital improvement needs to be considered, such as a new firehall in Tiftonia.

Though the mayor didn't mention it, the city used reserve funds each of the past two years to balance the budget and avoid a tax increase. That cannot be continued. The city's general operating budget should be balanced by recurring revenue. Raiding reserves is not sustainable, and would soon lead to a lower credit rating as it diminished reserves.

Mayor Littlefield reasonably painted a brighter picture for Chattanooga. He pointed out that the city's economy is improving and, due to fiscal stewardship and new and pending plant and job growth, presently enjoys an AA+ credit rating. The city, he said, has the chance to match county government's AAA rating as growth continues.

He correctly pointed out, moreover, that the city has gone an unusually long time since the last tax increase. In fact, county government has raised the countywide property tax rate 26-cents twice -- in 2005 and 2007 -- while the city has gone without a tax increase. The common political wisdom used to be that both the city and county would raise taxes at the beginning of a four-year term.

Though that custom seems to have evaporated, there is some logic to a periodic tax increase. The chief reason is that state law prevents tax creep through a reform in the property reappraisal system. Countywide reappraisals are required every four years, and statutory law requires a subsequent resetting of municipal and county property tax rates to achieve a revenue-neutral result on existing property.

Hence the city tax rate was reduced from $2.2020 per $100 dollars of assessed valuation to $1.9386 after the last reappraisal. County government's property tax rate was similarly reduced from $3.1540 to $2.7652. Though some individual property owners may see their actual tax bills rise under the new revenue-neutral rate, enough others experience relative devaluation of their property that the overall result is revenue-neutral.

Residential and commercial growth, however, is always laden with upfront infrastructure (i.e., classrooms, firehalls, sewers, police, roads) costs that have to be amortized over long periods of time. So like it or not, Chattanooga cannot achieve the job growth that most people say they want without the municipal and county governments incurring larger upfront costs -- and periodically higher taxes to pay for inflation in goods, services and wages.

After nine years without a tax increase, and a wave of pending growth to finance, a city property tax increase may well be unavoidable. But certainly it's better than a stagnant economy, and declining opportunity.