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Mayor Andy Berke proposed on Tuesday a Chattanooga city budget with more than $8 million in cuts, a hiring freeze and other precautions to help the city weather the still unknown economic impacts of the COVID-19 pandemic.

In the proposed $255 million fiscal year 2021 operating budget, the mayor's office introduces no new taxes, fees or layoffs, and plans hiring and pay freezes to brace the city for the impact — and the uncertainty of federal funding —for both the virus and the EF3 tornado that ripped through the city last month.

"Our finances have been challenged and will be challenged," Berke said, noting that hard times for the city reflect hard times for citizens. "At the same time, our demand for our services is increasing."

Berke told the Times Free Press that his approach to budgeting in the midst of the pandemic — which will cause a projected $8.4 million of lost revenue for the city between sales tax, hotel-motel tax and other funding tied to economic activity — was based on three principals.

"One is that we would try to provide the highest level of service that we could to our constituents. No. 2 is that we would do everything that we could not to lay off employees. And No. 3 is that we would put a priority on the things that would help us come out of the COVID crisis in the best possible position," Berke said.

To cut costs, the budget calls for "essentially no improvement work," aside from an $8.4 road improvement budget, and fewer social initiatives than the administration had hoped to incorporate in 2021, according to Berke.

 

No new costs

Despite the challenges posed in this year's budget, Berke says he wanted to avoid any new taxes or cost burdens to citizens who were struggling.

"One of the things that we work really hard to do is not have any increases in fees," Berke said. "People are hurting badly. I know you've seen other places where substantial tax increases have been proposed. We have chosen not to do that."

The mayor says this is possible because of the city's significant reserve fund and conservative budgeting of a 1% operating increase in FY 2020.

"Our city is in an extremely strong financial position. Back in 2008 as the recession was hitting, we had roughly $40 million in our reserves. As we began this budget year, we had $72 million in reserves," he said. "We have over the last seven years tried to build up our financial position, so that we could make sure that that the city would be in position to continue its growth for the next several decades."

 

Hiring, pay freeze

A key cost-cutting measure will be a continuation of the city's hiring freeze, which began in March.

According to the mayor's office, 221 of the city's roughly 2,900 authorized full-time positions are vacant, and will stay that way through the year, resulting in about $5 million in savings.

While defunding positions to save money is not a new phenomenon in city budgeting, Chief Financial Officer Daisy Madison said this will be the most significant hiring freeze in Chattanooga since the last recession.

"There are some positions, at times, where we just won't find them, and it's just the same as a hiring freeze as well," Madison explained. "But no, this is definitely not the first time that we've done it, but it's definitely the first time in the recent past that we've done it to this degree."

To take the savings a step further, all city employees will also be frozen at their current pay rate.

"No matter what your position is, you are going to be frozen in your pay," Berke said. "Lots of things fell off the radar. One that you have heard about in the past is that we were in the middle of a salary study that was looking at the compensation for our employees. It was something that we had spent a lot of time on thinking through how we could make adjustments to ensure that we're paying employees market rate. You know that in a time of a pay freeze you can't do that."

While workloads may increase due to vacancies and pay will be frozen, Berke said that Chattanooga has no planned layoffs of employees and that the city will absorb the roughly $3 million in additional pension and insurance costs so that no city employee is at a "net negative" for compensation in FY 2021 over FY 2020.

 

Reimbursements uncertain

As the city prepares to grapple with up to $11 million in costs associated with the tornado, millions in lost revenue and other expenses from the virus, it's unclear what if any federal aid will be provided.

In the first round of direct municipal funding for COVID-19 relief, provided in the U.S. Senate's CARES Act, only cities with populations above 500,000 (which does not include Chattanooga) could rely on receiving funds.

Now Berke is advocating for the HEROES Act, similar proposed legislation that, if passed by Congress, would provide $500 billion to cities and counties.

"One of the arguments against the HEROES Act is that it that it rewards fiscally irresponsible cities with free federal dollars. Chattanooga is a AAA bonded city, we put forth a balanced budget every year, we pay our pension obligations," he said. "We need that federal assistance, so do cities all around the country like Chattanooga, and I sincerely believe that Congress should enact the HEROES Act or something like it."

Meanwhile, the city is seeking Federal Emergency Management Agency funding to cover some of the millions spent or expected to be spent out of the city's reserve for tornado damage, but does not yet know what percent of the money spent will be reimbursed or in which fiscal year.

The mayor's budget went before city council on Tuesday and will be voted on in June.

Contact Sarah Grace Taylor at staylor@timesfreepress.com or 423-757-6416. Follow her on Twitter @_sarahgtaylor.

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