Fort Smith Board reviews fee hikes, costs cuts to address budget issues

Franchise fee increases, fees for business licenses and budget cuts were just a few of the ideas thrown around during a Fort Smith Board of Directors brainstorming session Monday night (Oct. 27).

The meeting, held at the new fire station at Chaffee Crossing, came after reports of a budget shortfall in the police and fire pension contribution fund was made public. Emails from City Administrator Ray Gosack also revealed that pay raises discussed publicly for much of the last year were not financially feasible for the cash strapped city, which has seen sales tax revenues not keep pace with projections or needs. As a result, Gosack told the Board it was likely time for a "fundamental" review of how the city provides services, noting that staffing levels could be impacted.

City Director Mike Lorenz was first to speak during Monday's meeting and said the Board's priority was for a plan to be in place when budget meetings take place in November to deal with the shortfalls in the police and fire pension contribution fund. The fund is expected to go broke in 2019 with more than $1 million in deficits expected. It is expected to balloon to more than a $10 million deficit by 2022.

"We've got to address the LOPFI issue. I think there's been a long period of time that it's just been, 'Oh, it'll get taken care of.' And we're getting real close to a deadline and nothing's getting taken care of.”

He added that talk for much of the year of pay raises was "premature" considering the constraints on the city budget that were known by the city administration and finance departments. Gosack noted that the last time any sort of pay raises were given to employees was 2013, and 2010 before that.

City Director Pam Weber said there needed to be a discussion of how the general fund is allocated in order to provide for the city's financial obligations while also meeting the needs of the city's workforce.

In order to address the shortfalls in the retirement funding and the lack of resources available for pay raises, Gosack said the Board could increase franchise fees by a total of 0.25% to the state maximum of 4.25%, which would net the city an additional $400,000 in revenue each year.

He said budget cuts were also being implemented across all city departments, specifically noting that his administrative budget was being cut by $80,000 to $90,000 next year. Fleet replacements were also being delayed.

One area where the city has some wiggle room, he said, is the franchise fee imposed on cable television and home phone service, which he said could be raised to a total of 5% versus the 4.25% on other utilities mandated under state law.

"So there's (an additional) 1% available on cable TV. … If you did the additional three-quarters on cable TV, I don't know what that is, but the finance department is calculating that number.”

The city, Gosack revealed, is also 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 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.

City Director Keith Lau said he wanted to see Gosack bring options to the table on how the Board could close the gap at 100%, 75%, 50% and 25% of funding needed. But he said no matter what was proposed, it would have to be a mix of both cuts and revenue increases.

"So really the only way to solve all of our problems today would be a combination of staff reductions, tightening of the budget expenses, bumping up 0.25% the existing franchise utility fees and then adding 4% only water and sewer and sanitation," he said, noting that the latter is not imposed a franchise fee currently.

Lau further said the combination of revenue increases and spending decreases was necessary "or we're going to lose credibility with the citizens, from my perspective.”

Lorenz added, "At a minimum, it has to be equal.”

While it was not a solution to the problem to next year's budget woes, Mayor Sandy Sanders did note that the drop in sales tax revenue, he believed, could be traced to the rise in online sales and said he believed it was time for the city Board to pass a resolution supporting the federal Marketplace Fairness Act. The legislation is co-sponsored by U.S. Rep. Steve Womack, R-Rogers, and would force online retailers to collect local sales and use taxes for all sales made through the retailer which would then be remitted to the consumer's billing city.

"It costs us about $400,000 per year," the mayor added of the lost revenues due to online shopping.