Dip in tax revenue likely to require Fort Smith budget review

November retail sales in Fort Smith and Sebastian County improved compared to October, but were down as much as 13% compared to November 2008. And that continued decline has Fort Smith officials facing an up to $800,000 budget shortfall early in the 2010 fiscal year.

Each of the city’s 1% sales taxes generated $1.446 million in November, down 12.4% compared to collections in the same period of 2009. For the year, each of the 1% taxes generated $18.777 million, or 8.9% less than in 2008 and 0.8% lower than 2007 collections. (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 to cities in January are from taxes collected in November and transferred by merchants to the state in December. However, the city records the January payment of taxes collected in November on its December report.)

The city’s portion of the 1% countywide sales tax in November was $1.156 million, down 13% compared to the same period in 2008. For the year, the countywide tax collected $15.046 million, down 9.4% compared to 2008 and 0.7% less than 2007 collections.

In a memo about the collections, Fort Smith Finance Director made the following observations about budget losses in 2009:
• “The actual revenue reduction for the street sales tax budget and for the sales and use tax bond budget was $1,312,991 each during 2009.”

• “The actual revenue loss to the General Fund budget was $1,563,936 for the year.  The revised budget revenue for the county sales tax was $15,433,259 and the actual revenue received totaled $15,046,777 for a difference of $386,482.”

Losses to the general fund budget — which result of reduced countywide tax receipts —  is significant because a majority of the about $40 million budget supports fire, police and other critical city functions. The city’s portion of the countywide sales tax collections funds about a little more than 40% of the general budget.

“I think there will have to be (a budget review), because what the numbers show is that the beginning balance (of the fiscal year) is between $700,000 and $800,000 less than what we expected when we prepared the 2010 budget,” said Ray Gosack, Fort Smith deputy city administrator.

Some budget changes would be minor — leaving vacant positions unfilled, cut supply and travel budgets, etc. — that the staff could implement without formal board approval but with board notification. Large budget cuts that alter the board’s 2010 budget allocations would obviously require board discussion and approval, Gosack said.

• PAST THREE MONTHS (with % comparison to 2008 period)
Countywide sales tax collection
November 2009: $1.156 million (-13%)
October 2009: $1.048 million (-22.74%)
September 2009: $1.211 million (-14.55%)

Fort Smith sales tax collection
November 2009: $1.446 million (-12.4%)
October 2009: $1.409 million (-16.44%)
September 2009: $1.508 million (-12.1%)

PREVIOUS ANNUAL COLLECTION INFO
2% sales tax collection (1% for streets; 1% for water/sewer bonds)
2009: $37.554 million
2008: $41.226 million
2007: $37.858 million
2006: $36.840 million

Fort Smith portion of 1% countywide sales tax
2009: $15.04 million
2008: $16.61 million
2007: $15.15 million
2006: $14.71 million