Tax Dollars Move North to Bentonville

Within the misty realms of a crystal ball, prophets, seers and sages seek glimpses of the future.
Thankfully, when it comes to predicting a city’s financial needs for the next year, there’s no need for superstition. But sleepless nights are never far off, especially when the expected numbers are askew.
Sales tax revenues for Fayetteville and Springdale aren’t where they need to be so far in 2007.
Fayetteville projected a collection increase of 3.5 percent, but is down $646,596, or 2.7 percent, year-over-year for the first four months of the 2007 budget (the most recent numbers available).
Springdale is about $1 million shy, or 5 percent to 6 percent below the 4 percent increase city officials predicted for the year.
Farther north, the numbers are more favorable. Collections in Rogers are up 14 percent over the same period a year ago, and Bentonville has seen a 3.4 percent increase.
But these figures weren’t unexpected surprises; they’re in line with the cities’ budget plans.
“We are in slightly better shape than we thought we’d be,” said Denise Land, financial services director for Bentonville. So far, the city has collected $2.4 million, or 33 percent of the anticipated sales tax revenue, and is on course to get the rest, Land said.
City sales tax collections in Rogers were expected to increase by 11 percent.
“We’re running right on the nose,” said Rogers treasurer Jerry Hudlow. The city is at $4.7 million, or 42 percent of collections, which is on target.

Retail Rise
The primary factor in Rogers’ expanding sales tax base is the recent retail boom.
For the first time, Fayetteville has retail competition, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas’ Watlon College of Business.
Benton County residents are no longer forced to come to Fayetteville to shop at a mall or boutique clothing store. And as of September 2006, shoppers seeking bulk bargains can drop by Sam’s Club in Bentonville.
There is little doubt the new stores have prompted some shoppers to head north. In the long run, the extent to which people will drive from Fayetteville or Springdale depends on how different the options are, Deck said.
New outside retail developments aren’t the only cause of lagging sales tax collection in Washington County. High gas prices are to blame as well, Deck said.
When consumers are spending more at the pump, they typically have less discretionary money to spend elsewhere.
Another factor is the flattening, and in some cases declining, real estate market. For the past several years, the worth of homes in Northwest Arkansas has risen. When home values increased for so long, many felt, and actually were, wealthier, Deck said.
They thought of their houses as savings accounts — or often as ATMs, with home equity loans — and spent money they might have otherwise paid on the principle. With values leveling off, consumers are spending less.

Tunnel’s End
There is a two-month lag between when vendors report tax revenue to the state and when it is redistributed to the cities. For instance, sales tax figures for October 2006, the month of Fayetteville’s most recent drop, weren’t available until late December. This contributed to the city’s sales tax gap because by the time the numbers were in, the budget — including the projected increase — was already far into the approval process, said Paul Becker, Fayetteville’s city finance director.
To make budget projections, city finance directors look at past trends and analyze data as it becomes available. The projected growth of 3.5 percent for 2007 was considered somewhat conservative, Becker said.
Although the city is behind, there are some bright spots on the horizon for Fayetteville. A new movie theater on Joyce Boulevard is scheduled to open Aug. 1, and a Sam’s Club will open this fall on Arkansas Highway 112.
“These will be helpful for us,” Becker said of the openings.
They won’t be as helpful for Springdale, though. The Sam’s Club on South Thompson Street will close when the Fayetteville store opens. It won’t be a total wash, Springdale will still receive county sales taxes from the new location.
City officials are hoping the new store will have higher overall sales than the old one, said Wyman Morgan, director of administration and financial services for Springdale.
The decline in residential construction has been a major factor in Springdale’s budget gap. The city has been fortunate in that its many building supply stores have provided a substantial amount of construction materials for the region. Morgan estimated business has at times accounted for as much as 15 percent of the city’s sales tax revenue. Slowing construction means less money for the city.
There are developments coming down the pipe that might ease the pain. The minor league baseball stadium in Springdale is scheduled to open in time for the 2008 season.
Also, several new hotels and restaurants in the two cities have recently opened, or will by fall. That season is typically a boon for city coffers, as thousands flock to the region, filling restaurants and hotels for UA football games and festivals such as Bikes, Blues & BBQ.
Fayetteville has a 2 percent hotel-motel tax and 1 percent restaurant tax, and Springdale collects 1.5 percent on lodging.

Great Expectations
But tax money from fall festivities will likely have only a mitigating effect on budget gaps in Springdale unless there is an unprecedented surge in attendance.
There is enough money in Springdale’s general fund to cover any sales tax gap if one remains at year’s end. If that money has to be used, it will weaken the City’s cash position, Morgan said.
The council has indicated that if the downward trend continues, they might take action, such as hiring freezes.
Morgan said everything will pan out in the end, with the city breaking even, less the 4 percent increase they’d hoped for.
Fayetteville won’t dip into the general fund until planners see how it all comes out at the end of the year, Becker said. There is $9 million in the general fund, and a minimum of $5 million must remain for emergencies, according to city policy.
Becker expects collections to level off, and begin improving with new projects being completed, but said this is contingent on the economy as a whole.
“We’re reflecting conditions happening at a national level right now,” Becker said.
Hudlow expects Rogers to finish right at, or slightly above its anticipated sales tax revenue.
So far, the numbers don’t indicate that high gas prices or the softening real estate market have affected sales tax collections there, he said.