Fort Smith Board mulls reallocation of street tax revenue

As the Fort Smith Board of Directors continues searching for a solution to its budgetary woes, more ideas continue to come from the group and the latest could have voters deciding on a reallocation of an existing sales tax.

During Tuesday's (Oct. 28) study session held at the University of Arkansas at Fort Smith's Latture Conference Center, City Director Mike Lorenz proposed asking Fort Smith voters to reallocate up to 10% of sales tax proceeds from the city's 1% street tax to fund the police and fire contribution fund.

The total fund balance is expected to only be $287,792 when fiscal year 2019 begins and continue going into the negatives at growing levels for the foreseeable future, culminating in a projected negative fund balance of $10.621 million by Dec. 31, 2022.

The funding of contributions to the plan comes from a variety of city sources, according to city of Fort Smith Finance Director Kara Bushkuhl, adding that the state of Arkansas mandates all cities to contribute to retirement plans for its fire responders. Two revenue sources include millage rates of one mil each charged for the police and fire retirements, as well as funneling 10% of district court fines to the pension contribution fund. The millage rates of one mil for each retirement fund bring in about $1.378 million each, or $2.757 million combined each year. The fines contribute about $137,000 per year to the fund.

Other funding comes from a portion of the eighth-cent sales tax for the new fire station at Chaffee Crossing, with about $500,000 in sales tax proceeds contributing to retirement contributions for firefighters stationed to the new firehouse.

Police officers and firefighters are also required to contribute to their retirements. Fort Smith fire responders previously paid 6% of their salaries to retirement funds, but that changed to 8.5% in 2011.

Shortly after making the proposal, Lorenz said it would not stop the city from proceeding with the 2015 budget in a conservative manner which includes budget cuts and increasing contributions to the pension fund in order to address the coming shortfall in funding.

"It essentially cures our deficit issue," he said, adding that it was not a band aid but a real solution to the problem.

City Administrator Ray Gosack said the street sales tax brings in a little more than $20 million per year to the city. Already in 2014, the street sales tax collected $15.043 million, according to figures Bushkuhl provided to the Board Tuesday afternoon.

By allocating 10% of the sales tax to the pension fund, Gosack said the city would direct about $2 million per year at the problem that has been festering since the financial crisis of 2008 began. That year as the financial market was in a free fall, the city withdrew more from the fund to pay state-mandated pension obligations to the state retirement system for police and firefighters than it paid in. The withdrawal of funds has accelerated at an increasing rate since then, with the city expecting it to culminate in a negative fund balance in 2019.

At Monday's (Oct. 27) brainstorming session held at the new fire station at Chaffee Crossing, Gosack told the Board that the finance department had identified several different funding options to close not only the funding crisis for the pension plan, but the overall budget crisis which Gosack has said in emails to directors could mean layoffs and other cuts in city services.

Among the options he presented were raising the franchise fee on utilities by 0.25% to 4.25% total, though cable television and land line phones could be raised 1% to a 5% total fee. Just the quarter percent increase could raise as much as $400,000, he said.

Gosack also said Monday that the city is not collecting a fee on business licenses. He said that was because the city had promised voters 20 years ago when the county sales tax was initially passed that the city would stop collecting the fee. If the city were to reverse the decision and collect allowable fees on business licenses to operate within the Fort Smith city limits, he said it would net the city an estimated $1.8 million, which could solve the retirement funding issue and possibly allow for limited pay raises.

Vice Mayor Kevin Settle said even though it was possible that the Board could vote as early as January to hold a special election in the spring 2015 on the sales tax renewal which could include additional funding for the pension fund, he said the Board and the city must proceed as though the money will not come through next year.

"If we plan the budget without it and go with the plan to the voters, then it changes what we do," he said.