Fort Smith Board may again discuss prepared food tax to help with pension issue

The Fort Smith Board of Directors may on Tuesday (Jan. 26) revisit the hot topic of pushing a prepared food tax to help shift a city budget expense that could then be used to partially relieve a police and fire pension payment problem.

At issue is the $777,000 a year budget expense to support operations of the Fort Smith Convention Center, and the need by the city to address a looming shortfall for payments into the police and fire (LOPFI) pension fund. The LOPFI fund requires approximately $2 million per year in order to remain solvent for the foreseeable future, and it was a source of debate during budget deliberations for 2016.

The Fort Smith Board made several adjustments in the 2016 budget which, on the ledger, moved from an estimated $3.4 million shortfall to a $700,000 surplus. Even with the more than $4 million swing to approve a $47.005 million operating budget, the city will likely face problems with the pension funding in coming years.

In an attempt to get ahead of the issue, city officials have proposed a 1/2 cent prepared food tax that would raise $917,609 a year and free up the $777,000 for pension payments.

“The discussion around implementation of such a tax in the current environment would be centered on the fact that the tax would replace the General Fund’s subsidy of the convention center and allow the city a significant source of general funds to apply to its liability for the police & fire pension programs,” Acting City Administrator Jeff Dingman noted in a memo to the Board.

However, a new 1/2 cent tax could be a hard sell for Fort Smith voters if previous efforts are any indication. In November 2011, a special election was held for a 1% prepared food tax, and 62.7% of voters rejected it.

The city now collects only a 3% hotel tax. A majority of Arkansas cities with a tourism program have a hotel tax and a prepared food tax. For example, of the 17 cities measured as part of the Talk Business & Politics’ Arkansas Tourism Ticker, 11 have a hotel tax and a prepared food tax.

Convention center funding and the prepared food tax were most recently revisited during a somewhat contentious Jan. 12 Board study session.

Claude Legris, executive director of the Fort Smith Convention & Visitors Bureau, said his role in the debate “is just to answer questions.” He said the city’s Advertising and Promotion Commission has not taken a stand on the issue, and therefore his role is to provide information about the convention center. Legris did say the situation has changed from 2011 when voters rejected a prepared food tax.

“(It’s) a completely different set of circumstances in that the result would be to try and make some major progress toward” the pension issue, Legris said. “I don’t know how that will be taken by the citizenry, … to free up funding for another financial situation that the city has.”

He said if the Board discusses the issue during Tuesday’s study session, his intent is to speak about the impact of the convention center on the community, and he plans to have “a truer picture of the costs associated with the building.” He said it is important for the Board and citizens to know that legal fees, water and sewer, information technology support, sanitation and human resources support have not been billed to the convention center “but treated as other city departments have been treated.”

“At this point, I am functioning as primarily an information source for people who want to discuss this issue,” Legris said.

City Director Keith Lau, who along with Director Tracy Pennartz were the more vocal advocates for budget changes, told Talk Business & Politics he is not yet ready to support a prepared food tax.

“I am not for any prepared food tax, or any increase in fees until we’ve gone through this budget, and looked at every department … and we’re not there yet,” Lau said.

He said it would have to be clear to him that essential city services were being jeopardized before he would consider new taxes or raising fees.

“We did a lot of that (budget cuts) with this (2016) budget, but I’m still learning about other things … other departments in the city that have areas we can look at. It may come to that (prepared food tax), but I think we have a ways to go,” Lau added.

In his note, Dingman suggested further budget cuts would not be enough to resolve the pension problem.

“The collaborative efforts of the Board and staff to reduce the operating budgets as much as possible while mitigating impacts on service levels will continue, but those efforts will not provide the required amount of funding needed to address the LOPFI issue,” he noted.

Legris is not surprised the Board continues to discuss a prepared food tax.

“It is a financial consideration for them … and they are trying to look at everything they can,” he said.