Fort Smith business leaders question need for business license fee

The Fort Smith business community may not be as open to reinstatement of a business license fee as some members of the Fort Smith Board of Directors might hope.

Putting the fee back in play is one of the ideas for addressing a looming shortfall in the city’s contribution for police and fire employee pensions. According to City Administrator Ray Gosack, the city’s LOPFI (police and fire pension) fund will be insolvent by 2021. And that insolvency was pushed from 2019 to 2021 by a recent Board vote to reduce benefits under the pension plan.

Fort Smith in 2004 implemented a higher 3.28 multiplier for the “LOPFI” pension plan, up from the base multiplier of 2.94. When the base multiplier was adopted, the city had an $11.863 million balance in its pension contribution fund and was adding $1.346 million annually to the plan. That was before the financial crisis of 2008, when the plan started withdrawing more money than the city was putting in, setting it up for the eventual insolvency projected for 2019.

“Our projections show that the city’s LOPFI Contribution Fund will be depleted in 2021. In 2015, we project that the city will spend $900,000 more than it receives in this fund. The annual deficit grows to an estimated $3.1 million by 2026,” Gosack noted in a recent memo to the Board.

As to a business license fee, the Board is looking at three options. The first option could generate $1.976 million. It would collect $20 per employee for businesses with employees from 1 to 500. The fee would be capped at $10,000.

The second option could raise at least $1.435 million with a plan that would charge a business $20 per employee from 26 to 500 employees with a cap at $10,000 a year. Businesses with 25 or fewer employees would not pay a fee.

The third option would charge a flat fee of $150 for all businesses and raise an estimated $761,550 a year. The cost to manage all three options is estimated to be $107,000 a year.

Fort Smith Director Tracy Pennartz said during a Tuesday night (June 23) Board study session that she has talked to a dozen business owners who didn’t like the idea of a business license fee, but would support it if necessary.

Greg Carman, president of Carman Inc., a Fort Smith-based regional trucking company, said he is not not fully up to speed on what will be needed to resolve the pension issue, but does think the Board and city staff should consider as many cuts as possible before coming to the community seeking new revenue.

The trucking firm employs 64, and would pay $1,280 a year under two of the three proposed business license options.

“You know, I’m not against paying more if it’s really needed, but I’d like to know more about what the city has done to cut any fat it may have in its budget. … And maybe they have done that, but they really need to communicate that to us, you know, really talk to us out here running our businesses and trying to keep people working,” Carman said.

Tim Allen, president of the Fort Smith Regional Chamber of Commerce and executive director of  the Fort Smith Regional Council, provided The City Wire a statement that leaned toward opposing a business license fee.

“The Chamber is open to all viable options that balance the city budget while concurrently addressing a long-term solution to the pension shortfall. It is our hope that any revenue increases are evaluated diligently and balanced with comparable spending cuts. As we always do, the Chamber supports a business-friendly environment that encourages both job retention and job growth. Any increases in the cost of doing business in Fort Smith would hamper the economic development momentum we have enjoyed in recent year,” Allen said in the statement.

Sam Sicard, president and CEO of First National Bank of Fort Smith, was more blunt, saying that reinstating the business fee is not a good idea.

“I applaud the city directors for their willingness to address the difficult task of covering the shortfall in the pension plan to ensure its long-term solvency for those who are here to serve and protect us. This is going to necessitate making hard choices that families and local businesses have had to make in the past when adversity has come their way,” Sicard noted in a statement sent to The City Wire. “However, I do not believe it is a wise decision to raise fees on our community’s small businesses that provide the jobs our community desperately needs more of. This IS NOT the message we need to be sending to our community’s employers right now after they have been told their sewer rates will be tripling over the next few years, nor is it the message we need to send to those employers we are diligently trying to recruit to our community.”

City staff was asked by the Board to present refined options – including a potential push for a 1/2 prepared food tax vote to raise $900,000 a year – during a July 14 study session. The Board could vote on other options to address the pension shortfall at a July 21 board meeting.