Van Buren may raise franchise tax on AOG, expects ‘six-figure overhead’ with new jail

Van Buren Mayor Bob Freeman urged city council members to revisit the franchise tax the city charges to the Arkansas Oklahoma Gas Corp. (AOG) from the current flat rate of $49,500 per year for use of the city’s right of way.

While no action occurred at the Monday night (Aug. 22) meeting, Freeman said council members should take up the issue at either the September or October meetings in order to switch to a percentage of revenue system with AOG by January 2017.

According to numbers Freeman presented Monday night, AOG’s 2015 sales within the city totaled $6.156 million. From that number, Van Buren only saw the $49,500 flat rate established by a resolution that has not changed since 1979. State law allows the franchise tax to be set at a maximum percentage of 4.25%. All of the city’s other franchise agreements work on this percentage of revenue basis, Freeman said.

Using the 2015 sales figure, a 1% rate would have resulted in $61,566 to the city (an increase of $12,066 from the flat rate). A 2% rate would have meant $123,132 (a $73,632 increase); a 3% rate, $184,697 (a $135,197 increase); and 4.25%, $261,655 (a $212,155 increase).

“A couple of things to consider,” Freeman said. “One is the price of gas is low right now, so revenues have been low. Also, we have had rather mild winters the last couple of years, so again, revenues are lower.”

Freeman suggested city council members increase the franchise tax rate to the full 4.25% on AOG effective Jan. 1, 2017, in order to help with upcoming costs for housing inmates at the new Crawford County Jail, tentatively set to open in November.

Freeman told Talk Business & Politics following Monday’s meeting that the Van Buren Police Department estimates a “six-figure overhead” it doesn’t have once the jail opens because it will utilize the jail more for individuals with delinquent fines. To date, the county hasn’t had room to house such inmates, so many fines have gone unpaid because of an ineffective “honor system” that has grown out of the lack of space. Fixing the franchise tax rate with AOG could offset this upcoming overhead, Freeman noted.

Also Monday, the council voted unanimously to give the Van Buren Municipal Utilities Commission the go-ahead for the refunding of the city’s Series 2007 Waterworks and Sewer Revenue Capital Improvement Bonds. The city originally sold around $11 million in bonds for work on its south treatment plant. Improved interest rates have put the city in a position to reap $420,000 in interest savings by refunding the bonds at $8 million and will not borrow any new monies to do so. The decision will allow the city to place approximately $40,000 extra per year toward its capital improvement fund for water and sewer work over an 11-year period.

In other business, the council appointed Phyllis Thomas the new city clerk-treasurer to replace Barbie Curtis, who will retire from the position Aug. 31. Thomas will take over Sept. 1 and finish Curtis’ term, which ends on Dec. 31, 2018.