KINGSPORT, Tenn. (WJHL) — With the city facing staffing shortages on top of inflation and rising fuel costs, the Kingsport Board of Mayor and Aldermen moved forward with a budget that includes the city’s first property tax increase since 2014 plus increases to water and sewer rates.

The board passed the budget on first reading Tuesday night but will have to pass it on second reading during its next meeting to make it final.

The proposed spending plan includes a 12-cent property tax hike that would bring the rate to $1.99 per $100 of assessed value. That would be a 6.4% increase.

The owner of a home valued at $292,000 would pay $7.31 more per month.

City Manager Chris McCartt told News Channel 11 last month that the city’s revenue growth has been counteracted by inflation. The city is also working to close a pay gap in order to remain competitive in the job market. He fears the city could “reach critical failures” as a result of staffing shortages unless a “substantial jump” in employee pay is made.

Vacancies are impacting several city departments, from police to public works.

McCartt said city employee turnover was at an all-time high and cited pay as the top reason why employees were leaving.

“A lot of adjustments have been made over the course of this fiscal year to allow us to remain competitive,” McCartt said. “I cannot stress that enough. When you are a service-based organization, you rely on people to perform the various tasks that make up the city, and so we’ve got to continue to remain competitive within the market in order to attract those employees.”

The budget includes a 5% cost of living adjustment and a step increase for city workers.

“As we stated in May, we anticipated the market of Northeast Tennessee and Southwest Virginia being in the 5% range for cost of living adjustments as well as a step increase and that’s what we are seeing play out…5%, 7%,” McCartt said. “As cities and counties are passing their budget, that’s what they are focusing on.”

The city manager is tasked with presenting a balanced budget to the BMA. McCartt said the proposed budget keeps operating budgets largely flat for most city departments and noted that operational cuts have been made without impacting services. Most of the growth in expenses is in salaries and wages, utilities, and fleet expenses.

Rising fuel costs are also impacting city government. McCartt said the city is spending roughly $42,250 per week, or $165,000 per month, on fuel.

“When we look at the impact that fuel prices have had on our budget, it is significant and it continues to be an area that we are watching going into next fiscal year,” McCartt said.

Water & Sewer Rates

In addition to the property tax hike, the proposed budget also includes a 7.5% water rate increase and a 13.5% sewer rate increase. The increased rates would take effect July 1. The water rate would then increase 3.75% and sewer rate 4.25% annually in subsequent years.

Deputy City Manager Ryan McReynolds cited flat revenue over the past decade as the main reason behind the water rate hike.

“Consumption has gone down, the cost of utility provision continues to increase, and as consumption goes down even with rate increases then we have seen that gap between what we bring in and what we spent flip,” McReynolds said.

Just like the rest of the country, the city’s water service is also feeling the pinch of inflation. McReynolds said materials costs have increased 113% over the past two years.

There’s also the city’s aging water infrastructure, which McReynolds said was the biggest cost.

The city has also been directed by the state comptroller to fix its water rates so that revenues exceed expenses.

“Really, with the comptroller’s directive to us, there has to be a correction on our revenue side to get back above expenses,” McReynolds said.

Even with the increases, customers’ water and sewer bills will remain below the national average and comparable to what Johnson City customers pay, according to McReynolds.

“We feel like we’re still providing a very good value even with these changes,” McReynolds said.

The BMA will hold a work session on Monday, June 20 followed by its regular business meeting on Tuesday, June 21.