Sebastian County, Fort Smith retail sales see dramatic October decline

Residents in Fort Smith and Sebastian County locked up their wallets and checkbooks in October, sending Fort Smith’s portion of the countywide sales tax down 22.74% compared to October 2008.

Ray Gosack, Fort Smith’s deputy city administrator, said he was shocked by the decline. He was unsure if high unemployment, consumers saving up for Christmas shopping, a tax reporting anomaly or all of the above were causes for such a big decline.

The countywide tax collection is critical because the revenue is a little more than 40% of the city’s general budget. The revenue loss to the roughly $40 million general fund budget — which supports fire, police and other critical city functions — is $868,466 to date.

Collections from each of the city’s 1% sales tax ($1.409 million for each) decreased 16.44% in October compared to the same period in 2008, and were down 12.42% from budget estimates, according to a memo from City Finance Director Kara Bushkuhl. (Because the state of Arkansas has a two-month delay in reporting collections back to the cities, the city of Fort Smith — for budgeting purposes — has historically reflected the collections on a one-month delay. Which is to say, the tax collections remitted back to the cities in December are from taxes collected in October and transferred by merchants to the state in November.)

For the first 11 months of 2009, the city sales tax is down 8.59% compared to last year, and is down 5.96% from budget estimates. The actual revenue reduction for the street sales tax budget and for the sales and use tax bond budget is $1,098,800 each.

The city’s share of the county 1% sales tax ($1.219 million) decreased 22.74% compared to the receipts for the same period in 2008, and is down 18.93% from budget estimates. Year-to-date, the county sales tax is down 9.10% in collections, and is down 5.88% from budget estimates.

“The spike in unemployment could have impacted retail activity in October,” Gosack said. The October unemployment rate for the Fort Smith metro area was 7.8%, which ties with June as the highest metro jobless rate during 2009.

Regardless of the cause, Gosack said another month of poor collections could result in a review of the 2010 city budget. Gosack said city officials would first revise the 2010 revenue forecast and then “determine the 2010 spending plan adjustments, if any were necessary.”

The city’s 2010 revenue forecast is already flat. City officials assumed no revenue growth for the first six months of 2010, and just 1% growth for the remaining six months — effectively a 0.5% growth rate for the year.

The revenue forecast and tax collection from the past three months support a recent interim report by The Compass in which economist Jeff Collins predicted continued declines in local tax revenue well into 2010.

“Current year-on-year tax collections at the county level indicate eroding retail activity,” Collins noted in the interim report of The Compass. “What can be concluded from the changing rate of sales tax collections is local consumers are responding significantly to national and local economic news. Their response has had and will continue to have serious implications for the ability of local government to provide services.”

The Compass, funded and managed by The City Wire and presented by Benefit Bank, is the only comprehensive economic analysis of the Fort Smith metropolitan area.

PAST THREE MONTHS (with % comparison to 2008 period)
Countywide sales tax collection
October 2009: $1.048 million (-22.74%)
September 2009: $1.211 million (-14.55%)
August 2009: $1.269 million (-8.06%)

Fort Smith sales tax collection
October 2009: $1.409 million (-16.44%)
September 2009: $1.508 million (-12.1%)
August 2009: $1.584 million (-4.33%)

PREVIOUS ANNUAL COLLECTION INFO
2% sales tax collection (1% for streets; 1% for water/sewer bonds)
2008: $41.226 million
2007: $37.858 million
2006: $36.840 million

Fort Smith portion of 1% countywide sales tax
2008: $16.61 million
2007: $15.15 million
2006: $14.71 million