Governments around the country at all levels are still being hammered by the recession’s lingering drag on property and sales tax revenue. Despite brightening prospects for a wave of new jobs in the near future spawned by Volkswagen’s arrival, Chattanooga and Hamilton County governments are caught in the same economic vise. Tax revenue remains down, and city officials have put fee hikes into motion and are considering a property tax increase.
Mayor Ron Littlefield and City Council members are in an unavoidable dilemma. The city is anticipating a $1.5 million shortfall in revenue in the new budget year, and that figure does not reflect the full picture of the city’s financial woes. The city used reserves the past two years to make its budget. Going deeper into reserves to meet recurring operating costs is simply not sustainable budgeting.
City officials’ options are to cut personnel and services, or to raise revenue by increasing fees and taxes. Neither would be popular, but both may well be necessary.
Cutting employees and the services they provide is problematic. City leaders cut staff through attrition last year, and departments that provide the most vital range of services already run pretty lean. Cutting the ranks of police officers and sanitation workers from already low levels, for example, would do more harm than a modest increase in taxes.
That’s not to say that some departments would not be able to do with fewer personnel, but fine-tooth culling of specific positions is not likely to produce adequate savings.
Cutting employees, as economists have warned lately, has gotten to the point that it is now aggravating the larger economic climate. On the broad scale, employee cutbacks beyond a critical point often decrease economic efficiency at both the macro and micro levels, rather than improve it.
For companies and some governmental units, cutting employees beyond an optimal can decrease productivity and efficiency rather than improve those indices. In the larger view, it clearly aggravates the downward spiral of the economy — and contributes to the domino effect of destabilizing other jobs — because it adds more workers to unemployment and jobless-benefits rolls, and further decreases vital consumer spending for goods and services of all sorts.
With consumer spending accounting for 70 percent of the economy and related tax revenue, aggravating unemployment has become an economic killer. The goal of all employers — since they all ultimately depend directly or indirectly on consumer spending — should be to maintain employment levels. Rotating furloughs and modest pay or benefit cuts are far preferable to increasing unemployment and its heavy drag on the economy, at both the local and national level.
That construct argues, as well, for modest tax increases to maintain the public employment base, for much the same reason that private companies also must raise prices for consumer goods and staples in a down economy if their volume of sales does not produce enough income to keep a business going at a sustainable level.
Both Chattanooga and Hamilton County governments also should explain forthrightly the ongoing cost of their investments to make good on their promises to Volkswagen and other new businesses here. In the case of the automaker, city and county govenments committed to huge infrastructure investments on the front end. These have soaked up their capacity for bonds and other discretionary investments, and raised their interest costs on debt. That’s why the county announced that no new school bonds will be issued — and no new schools will be built — for four years.
This community certainly welcomes VW, Alstom and other new companies, but we also must recognize that growth isn’t free, and the initial costs, though an investment, also require some sacrifice. Modest increases in fees and the property tax may be difficult at the moment, but in the long run, they are better than the alternative.