Fort Smith Board again debates budget cuts, new revenue sources

Thunderous applause from city employees in attendance at Tuesday's (September 22) study session of the Fort Smith Board of Directors hinted at a potentially contentious budget fight to come.

The mostly "non-sworn" staff packed into the meeting room were applauding the desire of City Director George Catsavis, who said he thought city staff "deserved something" in way of employer contributions to their 401(a) retirement plans. Those contributions could be partially on the chopping block when the Board passes its 2016 budget in December.

While Catsavis wasn't ready to reduce the city's 10% contribution to the 401 plan, City Directors Keith Lau and Mike Lorenz seemed more open to it, especially if the Board is to consider a 1/2% prepared food tax increase for the 2016 general election ballot.

Lau said the Board couldn't ask Fort Smith taxpayers to pay more "in order to provide benefits to city employees that most of them don't have." When Catsavis seemed hesitant to discuss cuts to the contribution fund, Lau asked, "So you'd be willing to raise taxes on your constituents to pay for benefits they don't have?"

"I'm not raising a damn thing," Catsavis shot back, adding that most employees in the private sector get something and city staff should, too.

That's when Lorenz jumped in to point out that many private sector employees aren't getting the level of benefits afforded to Fort Smith employees. Two somewhat recent reports endorse Lau and Lorenz's perspective. A 2014 piece from BloombergBusiness reported that "Corporate tinkering with 401(k)s accelerated in the wake of the 2008 financial crisis."

“About 18 percent of 334 companies surveyed by consultant Towers Watson (TW) suspended or reduced contributions to conserve cash,” noted Carol Hymowitz and Margaret Collins for the business site. “Yet when the liquidity crisis subsequently eased, 23 percent of companies that reinstated matches offered less generous contributions than before the recession."

Furthermore, the 401kHelpCenter reports that in 2015 average company contributions to 401k plans are at 2.7% of pay.

“Numerous formulas are used to determine company contributions. The most common type of fixed match, reported by 40% of employers, is $.50 per $1.00 up to a specified percentage of pay (commonly 6%)," the Center noted.

Total costs to the city's general fund for non-sworn retirement contributions are approximately $864,000. Each 1% reduction to this fund will allow for $86,400 in the General Fund. Therefore, a change from 10% funding to 8% funding would allow for an additional $173,000 to the General Fund.

PREPARED FOOD TAX
One item the Board may reconsider is the aforementioned increase to the city’s prepared food tax. In 2011, a proposed 1% increase to this tax failed with an overwhelming majority (63%) saying no. Mayor Sandy Sanders was mindful of this defeat at the study session, informing Board members that, while it is within their right to increase the tax without voter support, he would “strongly recommend leaving it up to voters.”

The Board agreed that if a 1/2% increase were to pass, they would have to do a better job of communicating the purpose behind the tax, which would in part help to address the $2.1 million needed annually to keep the city’s police and fire (LOPFI) contribution fund solvent beyond 2030.

The proposed increase would generate an additional estimated revenue of $940,000 a year and, along with retirement contribution reductions and increases to franchise and business license fees, help solve the crisis.

Still, Lau believed that before asking for this increase, the public would need to see the Board “cut expenses to the bone.” City Director Tracy Pennartz agreed, stating she would want to focus on balancing the budget before taking up this cause. 

BUSINESS LICENSE, FRANCHISE FEES
Another two items the Board is considering to make up for the LOPFI shortfall are reinstatement of business license fees and an increase to what the city is charging for franchise fees.

The business license fee reinstatement has been kicked around in meetings for the last 12 months. Revised potential revenue for this is in the $1.5 million to $1.9 million range, depending on whether excise fees are waived for smaller employers.

Tim Allen, president and CEO of the Fort Smith Regional Chamber of Commerce, said he did not wish to tell the Board what to do on the business license issue, but pointed out that cities “are competing for many of the same projects from the same companies, and this is the sort of thing they would use to their advantage” in an effort to out-compete the city for new business.

As for franchise fees, assessments are at 4% for electric, gas, cable and phone/video. It is possible to increase the franchise fee to 5% for cable and 4.25% for electric, gas, and phone/video. This would result in additional revenue of approximately $554,000 annually.

HUMAN RESOURCE CHANGE
Also Tuesday, The City Wire tried following up on a previous story that reported the resignation of Richard Jones, the city’s Human Resources director, who declared that Oct. 2, 2015, would be his last day.

Jones is reportedly leaving for another position, but Acting City Administrator Jeff Dingman was not aware of what that position was, and Jones was not in attendance at Tuesday’s study session to discuss it.

An email sent to his office immediately following the session was not returned at the time of publication. Jones is the fourth of key city personnel to step down in the last few months. He was preceded by City Administrator Ray Gosack, who resigned suddenly on July 10 with no reason given for his departure; Fire Chief Mike Richards, who picked Oct. 30 for his retirement date; and City Finance Director Kara Bushkuhl, retiring Oct. 6.

Bushkuhl has been with the city for 35 years, and of the four, is the only one that announced her plans to step down before the budget and other conflicts became public. The city has already planned for her transition, with Deputy Finance Director Jennifer Walker next in line for the job.