Fort Smith officials get feedback on plan to raise alcohol permit fees

There have emerged two problems with an effort by the city of Fort Smith to raise $89,000 through hikes in alcohol permits and fees as part of a plan to help offset $1.425 million in city employee raises. The first is that the plan may raise less than expected. A second problem is the active opposition from an alcohol distributing company.

The Fort Smith Board of Directors is scheduled to discuss the alcohol permit fee changes during a Jan. 20 meeting.

A Jan. 7 memo from Jennifer Humphrey, Fort Smith’s deputy director of finance, to the Board and city staff, suggests that the city collects $44,920 in fees from retailers, clubs, wholesalers and other establishments selling alcohol. The proposed city fee increases would raise revenue to $103,475 – an increase of $58,555.

Humphrey said the city’s information on existing license holders may not be complete.

“Also, please note that the License Holders listing only shows current holders. As new fees are being proposed for wine and other circumstances, some future license holders and associated revenue may not be included on the list. The ABC is providing a listing of all ABC license holders in order to fully assess missing and/or new licenses that may need to be issued,” Humphrey wrote in the memo. (Link here for a PDF of the memo.)

Eric Pendergrass, vice president and general counsel for Fort Smith-based Burford Distributing Inc., said the fee hikes are the city’s “attempts to improperly assert its taxing authority on locally owned and operated businesses.” In an e-mail response to City Director Mike Lorenz about Humphrey’s Jan. 7 memo, Pendergrass blasted the effort to raise revenue through businesses that sell alcohol.

“… Ms. Humphrey’s memo continues to fail at appropriately applying the City’s taxing authority to Alcoholic Beverage Permits. She misapplies the state issued permit classifications to the various retailers listed on her schedules. The ‘ABC License Type’ is at least partially misstated and does not properly correlate with the “License Code” included in her list of taxpayers. This bureaucratic inconsistency shows a complete lack of understanding of our industry, how it operates and the precise impact and scope of the City’s authority,” Pendergrass said in his e-mail to Lorenz.

Continuing, Pendergrass wrote: “The rational behind the proposed Alcoholic Beverage Permit Fee, or lack thereof, and the inconsistencies in the City’s proposed application of that tax negate the memo’s credibility. At this point, I do not want to call into question the City Staff’s personal motivation for pushing and proposing this tax. Hopefully their attempts to improperly impose this antiquated fee can be chalked up to a lack of knowledge and understanding.” (See Pendergrass’ full response at the end of this story.)

Deputy City Administrator Jeff Dingman said the city stands by Humphrey’s memo and noted that information provided by city staff is meant to help the Board “with scope and context” about what is involved in changing the fee structure.

“What the Board might do with the information Ms. Humphrey provided is up to their discretion as they weigh budget considerations with the feedback they are receiving from local stakeholders, like Mr. Pendergrass, who would be affected by a change in the local fee,” Dingman said.

Dingman provided the following response when asked if Pendergrass was mistaken in his assessment of the city’s proposal: “I do not profess that Mr. Pendergrass has misstated anything. His correspondence to Director Lorenz certainly shows that Mr. Pendergrass has an acute awareness of the regulatory issues affecting his business, as well as some philosophical objections to how the state’s laws apply to the industry. It was not our intent to enter into that realm of discussion. Our need to identify additional revenue sources for the city’s General Fund for the Board’s consideration, and the fact that there is an apparent gap in what our municipal fees currently are and what state law would allow them to be, was our only motivation in suggesting increasing alcohol permit fees as a potential source for additional revenue.”

LORENZ AND PENDERGRASS E-MAIL EXCHANGE
Eric,
I received this today from the finance department. Please review and I will give you a call in the next couple of days to discuss your thoughts on this. In reading it, I think this addresses your concern, but want to make sure!
Mike

Dear Director Lorenz,
Thank you for providing the City of Fort Smith’s memo on the proposed Alcoholic Beverage Permit Fee. My conversations with other City Directors has afforded me a more clear understanding of the City’s need for revenue, but my opposition to this proposal continues, as it is an inadequate solution to a more deeply rooted problem.  Ms. Humphrey’s 1/7/2015 memo does not even begin to address my concerns over the imposition of what is essentially an additional tax and continues the City’s attempts to improperly assert its taxing authority on locally owned and operated businesses.

The City’s ability to impose a tax of this nature is tied to a law passed shortly after the repeal of prohibition. Our social issues have come a long way over the last 80+ years. I will spare the history lesson, but this tax will have a negative impact on the people and business that strive to improve the “quality of place” here in Fort Smith. Not only do we supply jobs and add to the City’s tax revenue, but we also make Fort Smith a better place to live, work and play by supporting local charities, fundraisers, events, civic groups and entertainment options, often with little direct return on investment. Almost without exception, the persons and business holding Alcoholic Beverage Permits contribute to these efforts. Now, the City is trying to impose a tax that was initially designed to discourage these people from operating within its limits. Just because the City can, does not mean it should.

At this stage it is difficult to quantify the impact that the proposed tax would have on Fort Smith’s businesses and community, but it is certain to be negative. I cannot speak for everyone that holds one of these permits, but know that, as a relatively close-knit industry, our revenues are generally flat. We are all faced with the challenge of rising wages, healthcare costs and a struggling local economy. Business may shift from one operator to another, but the pie is not getting any larger. Unlike the City, we are generally unable to raise revenue through taxes or price increases due to supplier pressures and the effect of competition.

The challenge for our business will be how we choose to meet the call of this tax. My company will have to reallocate funds from other areas that may include overtime wages for our employees or charitable contributions. I do not know how other permit holders plan to fund their payment of the proposed tax, but would expect them to look in the same categories.

Beyond the negative social and economic impact, Ms. Humphrey’s memo continues to fail at appropriately applying the City’s taxing authority to Alcoholic Beverage Permits. She misapplies the state issued permit classifications to the various retailers listed on her schedules. The “ABC License Type” is at least partially misstated and does not properly correlate with the “License Code” included in her list of taxpayers. This bureaucratic inconsistency shows a complete lack of understanding of our industry, how it operates and the precise impact and scope of the City’s authority.

The rational behind the proposed Alcoholic Beverage Permit Fee, or lack thereof, and the inconsistencies in the City’s proposed application of that tax negate the memo’s credibility. At this point, I do not want to call into question the City Staff’s personal motivation for pushing and proposing this tax. Hopefully their attempts to improperly impose this antiquated fee can be chalked up to a lack of knowledge and understanding. Personally, I would appreciate your support in opposing any ordinance that attempts to impose or increase any such a fee.

I will make myself available, at your convenience, to discuss this matter further.

Also, please note that Mr. Tilley from The City Wire is copied on this email. He called asking for a comment and I was more comfortable sharing my written word than offering a quote. I did not want to provide him with our emails in some covert manner.