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City Chief Operating Officer Maura Sullivan, left, and City Finance Officer Daisy Madison review the fiscal 2018 budget proposal with the Chattanooga City Council.
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Chattanooga may shave 3 cents off the property tax rate it has had on the books for seven years, but property tax bills are still expected to go up.

That's because Chattanooga property values have increased by an average of 10.9 percent after the recent Hamilton County reappraisal.

On Tuesday, the city's top financial officers presented the fiscal 2018 budget proposal — which includes the property tax rate — to the Chattanooga City Council.

"This budget represents a lot of hard work, long hours and difficult discussions," Maura Sullivan, chief operating officer, said.

2018 Chattanooga budget highlights

* $100,000 to being a three-phase replacement plan for second set of turnout gear for city firefighters

* 14 new positions for the police department’s gun crime unit

* Create a workforce development office

* Modernizing the East Lake Youth and Family Development Center

* Investing in Chattanooga Zoo expansion with new Africa exhibit

* Supporting Step Up for summer internships for high school students

* Increased budgets for paving and street improvements

* Removing blighted debris from Lupton City

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Highlights of proposed city budget 2017-18

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Proposed Chattanooga budget 2017-18

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The 2018 operations budget calls for $253 million in revenue to meet its expenses, compared to the 2017 operating budget of $230 million, she said. About $16.4 million of the $23 million increase over last year's budget has to be put toward mandatory services. Sullivan underscored those additional dollars were needed even without service expansions, new programs or more positions.

City Finance Officer Daisy Madison said the city faces a number of challenges, including increases to police and fire pensions, general pensions, post-employment benefits and medical costs.

Those expenses alone require an additional $11.1 million over last year, with fire and police pensions requiring $5.1 million more — about a 38 percent increase. Medical costs rank second on the list at a $3.2 million, or 21 percent, increase. General pension and post-employment benefits will take an additional $1.7 million and $1.1 million, respectively; those increases represent 15 percent and 20 percent bumps for the two needs.

Mayor Andy Berke recently addressed Chattanooga's challenge to meet recommended funding levels for its retirement plans by 2020. A recent assessment of the city's police and firefighter pension plans, completed in January 2016, indicated the city was about $150 million short of the money it needs to pay for future obligations.

After the meeting, Council Chairman Jerry Mitchell said he would need an opportunity to thoroughly review the budget before making any comprehensive judgments.

Offhand, the city ought to take a look at its employee benefit costs, he said.

"Shouldn't we take a look at what we can do — if not this year, [then] in the coming years — to try to get a better handle on controlling those costs?" Mitchell asked. "I think the taxpayer expects that from us. If we're going to ask them to do this, we better be prepared to drink the castor oil."

On top of additional costs, the city also faces drops in revenue streams, Sullivan said, citing a 1 percent cut to the sales tax on food and the phaseout of the Hall income tax. For fiscal 2018, Chattanooga will lose $1.2 million in Hall tax revenues. Over the next three years, Chattanooga is looking at a $5.3 million reduction to its general fund.

The city does have the choice of rolling back its certified property tax rate to ensure it will maintain the same overall level of revenues, although individual tax bills still could vary somewhat compared to last year. The state recommended dropping the existing rate of $2.3090 per $100 of a home's assessed value to $2.0573 per $100 of assessed value to keep the revenue total the same. The city is going with $2.277.

Madison said that if a home's value did not increase after the reappraisal, the owner would actually owe less in city taxes than last year.

If a Chattanooga home was previously appraised at $100,000, but its value increased to $110,000 after the recent reappraisal, the owner will pay $49 more in city property taxes. Multiply the assessed value, which is 25 percent of the appraised value, times the tax rate to get the tax bill total: $577 for the $100,000 home value at the old rate; $626 for the $110,000 home value at the proposed rate.

Should the Chattanooga City Council actually vote to roll the property tax rate back to $2.0573, the city tax bill would actually be $566 for the $110,000 home — about a $60 difference compared to what is proposed.

"We have seen that our investments are leading to progress in our city with the lowest unemployment rate in years," Berke said in an emailed statement after the presentation. "This budget makes key investments in safety, families, neighborhoods, and our economy, which will continue to move Chattanooga forward."

Earlier in the day, Berke announced he would push for the city to adopt the state's senior tax freeze program, which caps the amount of property tax qualifying seniors pay on their homes if their annual income does not exceed $38,720. The program does not reduce the amount of taxes program participants now pay.

"The goal is to make sure that more seniors can stay in their homes and make sure that more people can live the life that they want here in our city," Berke said to a crowd of seniors at the Eastgate Senior Center.

Council Vice Chairman Ken Smith, who has championed the senior tax freeze plan, praised its inclusion in the budget.

"I started the conversation about the senior tax freeze a month ago," Smith said. "I had a number of meetings with the administration and I just want to say that I am thrilled to see them take it to the next level and include it as part of the budget process."

Smith said a few more numbers need crunching to determine the effect of the freeze on revenue, but he "absolutely" supported it at this point.

"This is something I would introduce separate if I needed to," he said.

Councilman Chip Henderson, who is chairman of the council's Budget and Finance Committee, announced the council would review the budget in special work sessions on the remaining Tuesdays in August. The city council is scheduled to vote on the 2018 budget proposal on Sept. 5.

Contact staff writer Paul Leach at 423-757-6481 or pleach@timesfreepress.com. Follow him on Twitter @pleach_tfp.

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This story was updated Aug. 2 at 12 a.m. with more information.

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