Fort Smith Board revises budget expectations, collects less than expected in business license fees

The Fort Smith Board of Directors on Tuesday (June 19) voted to lower budget expectations for 2018 to address lower-than-expected revenues.

Through the first four months of 2018, the city has collected just over $500,000 less than expected in sales taxes — $440,588 from the 2% city sales tax and $104,159 from the city’s share of county sales tax. This has resulted in the need for 2% to 3% in revenue reductions. The city also has experienced a shortfall in estimated business license fees for the first year of collection.

The Board, acting on recommendations from the city’s Finance Department, will cut revenue expectations by $330,000 (1.93%) from the county side and $1.286 million (3%) from estimated city sales tax receipts.

“It is important to note that most adjustments are one-time vacancy adjustments and not repeatable year over year,” Fort Smith Finance Director Jennifer Walker told the Board ahead of the 7-0 vote in favor of the recommended adjustments. Walker said sales tax revenues “will need to continue to be monitored and planned for during budget cycles for 2019.”

An additional $100,000 revenue adjustment will be made to collections on the first year of business license fees, which are running approximately $125,000 below budget. Walker said she does not expect “to recoup more than $25,000” from that particular revenue stream.

The Board approved the controversial $100 annual fee on the city’s close to 5,000 businesses at a Dec. 19, 2017 meeting. It was expected to raise $425,000 annually to the city’s General Fund, 70% of which goes toward funding the city’s police and fire departments. However, Walker told Talk Business & Politics, most of the revenue was collected in March and it fell short.

“We estimated that we were going to bring in $425,000 for the year, and we’ve only brought in $300,000. We renew business licenses all at once in March, so we already know. Everyone who hasn’t paid their business license fees yet is past due. So we’ve collected 95% of what we’re going to collect.”

In explaining the lower than expected total, Walker said there were “a lot of changes, a lot of questions around what constitutes a business license and what doesn’t.”

“It’s a learning curve. When you start charging for something, all of the sudden, people want a lot more clarity around whether they actually need one or not, and that reduces the number. Plus, we didn’t budget any money for enforcement. We did estimate that we wouldn’t collect 100% of what was out there, hence $425,000 instead of $500,000, but it was far less than what we estimated.”

As for franchise fees (paid quarterly), April was the first month of reporting, and it was a pretty rough opening with $1.094 million, collected mostly ($940,000) from OG&E — a performance 51% below budget.

Walker explained, “Some gas payments were not posted as of the end of April. We expect this to rebound shortly.”

At the same Dec. 19 meeting where the business license fee was approved, the Board also voted to raise franchise fee rates to the maximum allowed by law, a move expected to pull in an additional $554,000 annually to the General Fund.