Fort Smith administrator estimates a 22% hit to sales tax from COVID-19 disruption

Sales tax revenues for the city of Fort Smith are expected to drop significantly over the next few months, but City Administrator Carl Geffken said the city is prepared thanks to its fund balance and department budget cuts.

Earlier this month the February sales tax report showed the city’s share of the 1% Sebastian County sales tax up by more than 7% and the 1% street tax for the city up more than 7.5%. The city’s share of the Sebastian County sales tax totaled $1.371 million in the February report, up 7.85% compared to February 2019, and 7.3% above the budget estimate. The money from the city’s share of the countywide tax goes to the city’s general fund budget to among other things, pay for police, fire and other essential city services.

Fort Smith’s 1% street tax – used for maintenance and new construction on streets, bridges and drainage – generated $1.709 million in the February report, up 7.55% from $ 1.589 million in February 2019 and 7.95% below the budget estimate.

Geffken told city directors at the regular board meeting Tuesday (April 7) that sales tax revenues for April and May are expected to be 20% of what the city would normally collect. Collections in June and July are expected to be 50% of what the city would normally collect, he said. In total, Geffken estimated a 22% reduction in city sales tax revenue because of the COVID-19 pandemic.

“That’s probably a bit extreme, but it’s very conservative,” Geffken said. “It’s an estimate. The problem is no one can give a good projection on where we’ll be. We could be totally offset with online purchases, purchasing at Walmart and all our major stores and our restaurants doing curbside and delivery.”

He said the city will not know the actual impact until the numbers are reported. March sales tax data will be reported in May, and April in June.

But the city is taking precautions now, Geffken said, noting he asked each department to cut 10% of their budgets. He said each department has “ponied up” what they can, and said there will be no cuts in personnel and there will be no furloughs. The budget cuts will make sure the city can get through the remainder of the year even with diminished sales tax revenues.

“We have taken the fund balance into account because this is a rainy day and hopefully this is a short sharp shock that we can come back from,” Geffken said. “Hopefully we are taking (out) more money than is necessary and will be able to restore part of it if it is needed. At this point in time, it is better to be conservative.”

Director Kevin Settle applauded city department heads, the board, the previous board and mayor for working to build a fund balance that will keep the city working through these next few months.

“It would be remiss not to mention that at one point we were at 9% fund balance in the general fund. I want to thank department heads these past years (and others) … who set the ground so we have a good fund balance so we’re not scrambling figuring out how to make major cuts,” Settle said.