Fort Smith sales tax revenue trends higher in May report

Continued growth in Fort Smith and Sebastian County sales tax revenue may take some of the budget pressure off a Fort Smith Board of Directors that is struggling to find money for a pension shortfall and other needs.

The city has in the first five reporting months of 2015 collected $8.766 million on its 1% street tax program and the same amount on a 1% tax divided between bonds, Fire Department and the city’s Parks Department. The amount is up 7.15% compared to the same reporting period in 2014, and is 8.04% above the budget estimate.

The city’s 1% street tax program collected $1.677 million in the May report, up an impressive 11.66% compared to May 2014. The amount was up 12.78% over the budget estimate. (Because the state of Arkansas has a two-month delay in reporting collections back to the cities, the city of Fort Smith — for budgeting purposes — has historically reflected the collections on a one-month delay. Which is to say, the tax collections remitted to cities in June are from taxes collected in April and transferred by merchants to the state in May.)

Fort Smith Finance Director Kara Bushkuhl said the gain in year-to-date tax collections has delivered $652,763 in extra revenue compared to what was budgeted for the year.

GENERAL FUND SUPPORT
However, the key collection for the city is its portion of the 1% countywide sales tax. Revenue from that tax funds a majority of the city’s general fund budget, with much of that budget paying for police, fire and other essential city services.

The city’s portion of the countywide 1% sales tax generated $1.297 million in the May 2015 report, up 12.71% compared to May 2014, and up 13.22% over the budget estimate.

For the first five reporting months of the year, the city’s portion of the countywide tax revenue is $6.73 million, up 6% compared to the same period in 2014. The revenue for the first five months is also 6.34% above the budget estimate. Bushkuhl said revenue received above what was projected totals $401,175.

The extra revenue might help with budget problems, but more will be needed. The Board and city staff are working on ideas to address 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. The city needs $900,000 in this fiscal year to help cover pension fund obligations, and the annual deficit could grow to $3.1 million by 2026 if no remedy is found.

City Director and Vice Mayor Kevin Settle said the May report does suggest that the local economy “is picking back up.” However, he is waiting for a full six months of collections before getting too excited about the trend line.

“I’d like to see half a year. That gives you six months of trending before you start making some plans on it,” he said.

He did express concern that the heavy rains and flooding in May may have dampened consumer spending in that month. The city’s July tax report will show May collections. On the flip side, Settle said the July report may also reflect increased commerce resulting from the May 1-2 Steel Horse Rally that was held in downtown Fort Smith. The event was estimated to have been attended by 30,000 people.

TAX TRENDS, FRANCHISE AND PROPERTY TAX REVENUE
Countywide sales tax revenue to the city hit a record in 2008 with $16.61 million. It fell to $14.89 million in 2010, but has posted four consecutive years of gains since 2010, with the 2014 total reaching $15.625 million.

Collections during 2014 of the Fort Smith’s 1% sales tax for the street program topped $20 million for the first time since 2008. The 1% tax generated $20.099 million for the January-December reporting period, up 3.24% over 2013, and was above the budget estimate by 0.78%. However, collections for the past five years have been inconsistent. Revenue from the city’s street tax was down 0.87% in 2010, up 3.9% in 2011, up 1.36% in 2012, and down 0.69% in 2013.

The franchise fees received to date in 2015 total $1.824 million, down 5% compared to the same period in 2014. Year-to-date property tax revenue directed to the city’s general fund is $1.874 million, down 6.5% compared to the same period in 2014.

“The (franchise fee) revenues are basically the first quarter and it is difficult to determine if this trend will continue for 2015,” Bushkuhl said in a note to The City Wire.

She also said it is difficult to determine a trend with property tax collections because “there is no set history for the level of payments received from the county year to year.”

PREVIOUS ANNUAL COLLECTION INFO
Fort Smith 2% sales tax collection (1% for streets; 1% for water/sewer bonds)
2014: $40.198 million
2013: $38.938 million
2012: $39.210 million
2011: $38.683 million
2010: $37.229 million
2009: $37.554 million
2008: $41.226 million
2007: $37.858 million
2006: $36.840 million

Fort Smith portion of 1% countywide sales tax
2014: $15.625 million
2013: $15.353 million
2012: $15.279 million
2011: $15.15 million
2010: $14.89 million
2009: $15.04 million
2008: $16.61 million
2007: $15.15 million
2006: $14.71 million