Fort Smith officials reduce debt by $1.605 million (Clarification)

While they are fighting in Washington D.C. about how to reduce debt, officials are reducing debt in Fort Smith.

The city announced Thursday that it has ended $1.605 million in annual debt payments, with $505,000 of that expected to reduce financial pressure on the city’s general fund budget.

“For the first time since 1993 (18 years), the city’s sanitation fund is free of long-term debt obligations. The 2002 solid waste bonds were redeemed June 1, 2011. As a result, the sanitation fund has no long-term debt outstanding,” noted the city statement.

Fort Smith City Administrator Ray Gosack said the $1.1 million annual debt payment made by the sanitation department was money coming from rate collections and had financed landfill expansions. However, city officials decided more than 10 years ago to fund landfill expansions with available cash. Not only does that reduce the cost of expansions by eliminating interest payments, but it may help reduce the need for sanitation rate increases, Gosack said.

“That will benefit the sanitation budget beginning in 2012,” Gosack said about not having the annual debt payment.

The city emphasized in the statement that the “sanitation fund is an enterprise fund, which operates using only revenues derived from service rates to residential and commercial customers, and fees paid to the sanitary landfill.” That means the $1.1 million in reduced expense will not benefit the city’s general fund budget.

The city’s general fund budget, roughly $40 million, has been under pressure in recent years as tax collections have declined. A majority of the general fund budget general supports fire, police and other critical city functions. Although tax collections during recent months have improved, the city’s recent tax report shows a possible $220,000 decrease in estimated revenue for the 2011 general fund budget.

The city made more than $1.43 million in budget cuts in 2010 to respond to revenue shortfalls. The biggest cut was a $717,000 reduction in payments to the city’s health & wellness fund. The cuts in 2010 and pushed forward into 2011 also include a decrease of about 28 full-time positions, and a $790,000 proposed cut to payments into the health & wellness fund.

In addition to the sanitation fund debt reduction, the city made its final $505,000 annual payment on debt issued in 2006 to pay for a phone system, portions of work at the Elm Grove Community Center at Martin Luther King, Jr. Park, and downtown improvements, including streetscape and the downtown entry greenspace at Grand Avenue between 10th & 11th Streets.

Of the $2.29 million financed in 2006, roughly $590,000 was for the telephone system, $1.2 million for the Garrison and Grand Avenue streetscape work, $450,000 to help pay for the $1.1 million Elm Grove Community Center facility, and $50,000 paid for the cost of issuing the debt.

Gosack said the $505,000 “definitely” helps relieve financial pressure on the general fund budget. He said the money could be used to help support convention center operations in the event a 1% prepared food tax is not approved, or to finally provide pay increases to city employees.

“We’ve had some employees who have gone four years now without salary adjustments,” Gosack said.

Clarification: Most of the $505,000 is revenue from the 1% countywide sales tax. When the tax was approved, the Fort Smith Board of Directors agreed to spend 5.5% on city parks and downtown improvements. Although the money is now free from payments on the 2006 note, most of it is still obligated — based on stipulations made prior voter re-approval of the 1% countywide tax in 2004 — to support city parks and downtown Fort Smith.