Ad hoc group begins process to tackle thorny convention center funding issue

An 8-member ad hoc committee recently appointed to consider and recommend funding and/or operations options for the Fort Smith Convention Center will meet for the first time Friday to handle what is an unenviable task of plugging up a potential loss of more than $1 million to the city budget as early as 2011.

Members of this new committee are:
Tom Caldarera, restaurant owner
George McGill, businessman/insurance
Kevin Moran, Sparks Health System
Lavon Morton, ABF Freight System
George Moschner, Baldor Electric Co.
Craig Rivaldo, Arvest Bank
Ben Shipley, attorney
Steve Williams, University of Arkansas at Fort Smith

The committee was formed by the Fort Smith board of directors after it spent more than 18 months trying to come up with a solution. The board is asking the ad hoc committee to report back with ideas in 6 weeks. (Visit The City Wire Friday afternoon for the story on the committee’s first meeting.)

More than 13 years ago city voters approved a $55 million package — through a half-cent sales tax — to build a modern convention center, modern library facilities and to build the first phase of a master riverfront plan. One of the selling tools was that the state would funnel about $1.8 million a year in turnback funds to the newly expanded center through 2010 to pay off bond debt and support operations.

The turnback funds end in June, with the city receiving only $888,723 in 2010.

Between 2003 and 2009, more than $3.98 million in FSCC revenue has been used for non-tourism, non-FSCC operations, with an estimated $700,000 expected to be similarly diverted in 2010. The diverted money has been used to support the Fort Smith Public Library ($1.275 million), city Parks programs and projects ($1.241 million), Sebastian Retired Citizen’s Association ($91,824), Area Agency on Aging ($540,000), and Project Compassion ($13,700).

A partial solution to the issue is to merge the management of the convention center and the Fort Smith Advertising and Promotions Commission. That process is underway with both parties tentatively agreeing to the merger.

The cities in Arkansas that have successfully merged tourism and convention center operations have done so with revenue from a prepared foods tax — aka, hamburger tax. Fort Smith has in place a 3% tax on hotels with which the A&P collected $803,591 in 2008. That amount is not near enough to cover A&P and convention center operations. A 1% tax on prepared foods in Fort Smith would generate between $1.5 million and $2 million annually. Fort Smith is the only large tourism city in Arkansas without a hospitality tax on restaurants and other prepared-food providers.

Other options that have been considered include instituting a business license fee that could collect up to $1.9 million annually, and asking voters to readjust the 1% street tax so that a certain percentage goes to the convention center and quality of place projects. The street tax collects between $17 million and $20 million a year.

Members of the ad hoc committee declined to answer the following questions from The City Wire, saying they wanted to first meet and gather information more information about the funding history and future options.

1. Knowing that the turnback funding for the Fort Smith Convention Center is to expire June 2010, was there any consideration during the recent budgeting process to discontinue the practice of directing FSCC revenues away from the center and into other city operations?

2. Between 2003 and 2009, more than $3.98 million in FSCC revenue has been used for non-tourism, non-FSCC operations, with an estimated $700,000 expected to be similarly diverted in 2010. Do you think it a mistake to not have treated the FSCC as an enterprise fund, essentially keeping the turnback funds and revenues in one account?

3. Between 2003 and 2010, the average annual deficit that would have been experienced without the turnback funds is a little more than $1 million. Do you think this a reasonable deficit considering the economic impact the center has on the area hospitality sector? Please explain your answer.

The same questions were directed to the seven members of the Fort Smith board of directors. Directors Gary Campbell and Kevin Settle responded.

Settle said the board should have maintained the convention center as a separate, enterprise fund. However, he said the city would eventually have to face a funding shortfall after the end of turnback funding.

“Yes, the original decision by the board of directors should have been to keep it was an enterprise fund, but the turnback funding would still have stopped this year and the decision of funding would still have to be made in the future,” Settle explained. “By continuing the practice, we have only sped up the timing of that decision from 4 years in the future to now.”

Settle also said using the funds for library, parks and senior citizens programs was not necessarily a bad thing.

“That decision by the previous board has allowed for the city to continue providing great city services for our citizens. If that decision was not made, we might have a different level of service for our citizens,” Settle said.

Campbell also agreed an enterprise fund approach should have been followed. But he suggests another problem should have been resolved.

“In hindsight, that is a logical conclusion, but the unanswered question is why the business model was not adjusted or changed when it became evident that the revenues were continuing to fall short of expenses for various reasons including low utilization of the facility,” Campbell said.

What happened in the past does not change the future problem in Campbell’s view.

“Regardless of the historical assessment, the pressing need is to make a business decision now to deal with the deficit going forward. I will not support implementing a ‘hamburger’ tax by Board vote. The voters must have the final say on any taxing decision,” Campbell said.

As to the reasonable deficit inquiry, Settle and Campbell said the convention center is a moneymaker for the regional hospitality sector, but that doesn’t address the city’s budget problem related to convention center shortfalls.

“As in most cities, the Convention Center is used to bring in tourism and events to the city. The economic impact does not only affect the FSCC, but also hotels and restaurants and our local economic. Going forward, we will need a different game plan that will bring in more events, while decreasing the FSCC deficit, and use existing funds for FSCC,” Settle said in a note to The City Wire.

Campbell noted: “Unfortunately in the Fort Smith case, none of the hospitality sector revenue flows to the City General Fund to offset the FSCC deficit. Our current laws would require the city taxpayers to shoulder the FSCC deficit without the offsetting benefit of hospitality revenue to help fund the FSCC deficit operation. This presents a conundrum.”