The Fort Smith Board of Directors met for a study session Tuesday (Aug. 11) to discuss goals, changes to policies and revenue stream. Directors agreed that the biggest priority for 2021 was a balanced budget.
“Last year you set as a goal the employee salary survey. You approved it, and we were able to implement it,” said City Administrator Carl Geffken. “Having your goals is very helpful information when we are doing the budget process. The budget (for 2021) is due for all the departments Friday (Aug. 15).”
Because of the COVID-19 pandemic, many thought the city would face a large shortfall in the 2020 budget. In April, Geffken told city directors 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.
To prepare for the reductions, city departments were asked to trim 10% from each of their budgets. Those departments continue to work on that 10% reduction, Geffken said Tuesday night.
But according to Andy Richards, finance director for the City of Fort Smith, sales tax for the first six months of the year is $30.5 million, just 1.3% below what was budgeted. He noted that utilities revenue started the year “sluggish compared to what was budgeted monthly.” The city has received $23.2 million in utilities revenue, which is 14.7% lower than what was budgeted through June 30, Richards said.
“They seem to be gaining ground probably because of the dryer summer months,” he said.
State turn back revenues, which are mostly used to fund streets though some does go to the general fund, were budgeted at $3.7 million for the first six months of the year. Actual is $3.5 million, 5.4% lower than what was budgeted, he said.
“It was behind some at the beginning of the year. We have seen increases exceeding the amount of revenues at the same time period last year,” Richards said, noting the city is maintaining relative stable revenues.
Franchise fees revenues are down roughly $100,000 from the budgeted $1.8 million to $1.7 million through June 30, he said.
Because of the uncertainty of the pandemic and the economic effect it will have on the city, Richards said the city is approaching the 2021 budget conservatively.
“With the COVID pandemic that we are dealing with, at this point and time, we are just going to take it day by day. But we consider that to this point our revenues have been relatively steady, particularly in sales tax. Utilities have been down some. But they have been coming on recently. We are seeing a huge impact so far from COVID pandemic. We will continue to watch that. We are still talking to an economist down in Little Rock who will help us take economic information and project it. We will be conservative on the revenue side and just be cautions,” Richards said, an approach with which all the directors agreed.
Geffken said indicators show the city will have a good 2021 revenue-wise, but that prediction “frightens” him because of possible big dips in the economy. Vice Mayor and City Director Kevin Settle said he thought the city was taking the correct approach, noting that with Fort Smith primarily being a manufacturing town, it seemed to be weathering the pandemic better than many.
“Fort Smith is driving good business, doing a lot of things here for elsewhere in the country. I like what you are doing. I think it’s a great way to plan and to budget. I also see that we did survive the first shutdown, and we actually exceeded expectations. Unless it’s something very dire, I’m hoping we at least maintain where we are at and go flat from this time forward,” he said.
As far as what to do with the city’s money, spending priorities included critical equipment for the police department; additional Local Police and Fire Retirement System (LOPFI) contributions to reduce the outstanding pension liabilities; incorporating the implementation of the Future Fort Smith Comprehensive Plan and vision statement into the city’s operating and capital; additional recreation through use of parks capital improvement funds for improvements to all city parks; economic growth strategies to increase the job market with higher paying jobs as well as supporting the construction of Interstate 49, regional intermodal freight facilities and improvements/maintenance of the Arkansas River navigation system; support riverfront development, restoration and the revitalization of downtown; improve the downtown traffic flow; and continue compliance with the federal consent decree for wet weather sanitary sewer system improvements.
More time was spent on the city’s budgeting policies. Settle proposed that the city’s reserve policies be updated to include more going into the reserves. The policies state, if the contingency reserve balance falls below the 20% level for a current year budget, there is a special study session or budget workshop. Settle asked that be raised to 25%.
“This is somewhere I really think we should spend some time at. We’ve got a good healthy fund balance here, but we don’t know the impact of what COVID will be to the city,” Settle said, noting that a 25% reserve balance will give the city “a bigger buffer to weather those issues that could arise in the future.”
Reserve policy states that if the contingency reserve balance exceeds 25%, the city may consider utilizing the funds above this amount for one-time capital projects or other non-recurring expenditures that support city goals or Comprehensive Plan policies. Settle asked for that to be increased from 25% to 30%. He also asked for a new item.
“I suggest … if the fund balance exceeds 50% for two years in a row, that the board will take action and reduce fees back to the citizens on that said fund balance,” Settle said.
Doing so would ensure future boards would have a “good firm policy” to keep the city in good shape but not allow them to “keep money just to keep money.”
“If you are going to get it, let’s spend it on capital projects for the citizens, and if we aren’t going to use it, give it back to the citizens,” Settle said.