The City of Fort Smith has already begun preparations of the fiscal year 2015 budget and members of the city's Board of Directors had their first public opportunity to weigh in on the process Tuesday (July 22) at the group's noon study session at the Fort Smith Public Library.
In a memo to the Board regarding the work underway for 2015's budget, City Administrator Ray Gosack told city directors that the city's financial situation appeared to be improving compared to the previous year.
"Our 2014-15 financial outlook has improved compared to our 2013 outlook," he wrote. "The local unemployment rate is currently at 6.3% compared to 7.8% at the same time last year (a 19% reduction). Inflation is approximately 2%. Revenues are meeting budget projections for the most part, and we've not had to consider service or spending cuts as we did last year. For 2015, we're projecting most major revenue sources to grow slightly or remain flat. These include sales tax, property tax, franchise fees, water and sewer sales, street operations revenues, and sanitation revenues as outlined below. No rate, tax, or fee increases are included in these assumptions."
The city's sales taxes (1% for streets and 1% combined for water and sewer projects and fire and parks and recreation) collected $3.005 million in the May report, 7.4% lower than budgeted.
Overall for the first five months of the year, revenues from the city's sales tax collections are 1.08% below last year's totals for the same period. Collections so far in the 2014 reporting period of the two taxes were $16.363 million, where the same period in 2013 saw collections of $16.542 million. The same period in 2012 saw $16.769 million.
POSSIBLE RATE INCREASES
Even though no rate increases were included in the assumptions outlined by Gosack, he did acknowledge that sewer rates increases "will likely be necessary in order to begin implementation of the consent decree requirements for wet weather sanitary sewer system improvements."
Sales taxes are projected to grow 1%, while property tax and franchise fees are expected to grow by 2%, he said. Sanitation is not expected to have any growth in revenue, while street maintenance is expected to show "normal growth of 0.7%."
The assumption, without taking into account possible rate increases, for water and sewer stands at "normal growth of 1.8%," Gosack wrote.
City Director Keith Lau asked whether the consent decree requirements would necessitate additional spending in the 2015 budget or whether it would hold off until 2016.
"I think we'll probably have to spend starting in 2015," Gosack replied. "It may not be at the beginning of the year, but sometime in 2015 we'll … I think right now, we'll begin implementation of those requirements because otherwise we'll fall behind."
Gosack added that the city was in the process of quantifying how much the city would have to spend to be in compliance with the consent decree and said another round of meetings with the U.S. Department of Justice and the Environmental Protection Agency in coming months as the city works to no longer be in violation of the Clean Water Act.
Work is already underway on two wastewater overflow storage tanks near Zero Street and Jenny Lind, as well as a pump station on Navy Road. The Jenny Lind project has cost taxpayers more than $18 million, while the Navy Road project cost nearly $13 million.
FUTURE PENSION LIABILITY COSTS
To be added to the budget later in the year are goals and items included in the city's update to the comprehensive plan, which City Planning Director Wally Bailey said would likely be complete and ready for adoption by the Board sometime in October.
Gosack said work on the budget could include just "generic information" tied to the comprehensive plan update until the final version of the plan is adopted by the Board. While not an immediate problem, one issue addressed during the budget discussions was the upcoming pension liabilities, which City Finance Director Kara Bushkuhl said would be in a deficit in approximately 2018.
"The impact to the city's budget will come when there are insufficient funds to make the required contributions for the police and fire," she said. "And we're projecting that to be after 2018. … That's when it will affect the budget, but as far as the financial statements, they will show a huge liability for those and they've always been reported."
Gosack said Fort Smith is not alone with the problem of unfunded pension liabilities. It is for that reason that Mayor Sandy Sanders said Fort Smith administration and elected officials were working with the Fort Smith delegation to the Arkansas General Assembly seeking a solution to the problem that will bubble over in 2018. Bushkuhl said the solution developed by the legislature could result in local tax increases to cover the liabilities.
"What has been discussed is either allowing individual cities to increase their millage. Another suggestion has been a specific sales tax for the police and fire pension. Just the legislature is going to have to give us a funding option to take care of this because like Ray said, it's not just Fort Smith."