Fort Smith sales tax revenue continues positive trend, but director says caution still needed

Fort Smith’s portion of the Sebastian County 1% tax has generated $13.532 million for the city during the first nine reporting months of 2020, up 4.8% from 2019, and up 3.52% from the budget estimate, according to the city’s September sales tax report.

Year-to-date revenue from the 1% city street tax totaled $16.839 million through September, up 3.3% compared with the same period in 2019 and 3.28% — $701,087 — above the budget estimate for the first eight months of the year.

The September report, which measures July transactions, shows the city collected $1.534 million from its portion of the countywide tax, up 4.76% from the budget estimate and 4.93% compared with revenue from the same time frame in 2019. Revenue from the tax supports the city’s general fund, which includes fire, police and other critical services.

The September report shows the 1% street tax revenue at $1.9 million, up 15.06% from the budget estimate and up 3.63% compared with the same period in 2019.

The city’s better-than-expected sales tax receipts have been surprise for many of the city’s leaders considering predictions made earlier in the year. In April, City Administrator Carl Geffken told city directors that sales tax revenues for April and May were expected to be 20% of what the city would normally collect due to the COVID-19 pandemic and ensuing state-regulated closures of restaurants, bars and other business. Collections in June and July were 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.

“It has been a surprisingly good year for the city. We have continued to navigate through the pandemic really well,” said Director Neal Martin. “With each sales tax report, I’ve thought that maybe we would see a decline the next month. But the Fort Smith economy continues to show its strength. The stimulus helped us, but this shows our economy is strong. We still need to be cautious as the weather turns colder, but we are in a good position as of now.”

However higher than expected sales tax numbers do not tell the entire story, and Director Lavon Morton continues to have concerns over the budget. He notes that while the September was higher than expected, the comparison to 2019’s number is not as strong as it needs to be.

“While the city continues to do well compared to budget, I am concerned that the 2020 actual to budget comparison may be somewhat misleading based on what happened in September. The comparison to 2019 collections shows that the dollar increase in sales tax collection from 2019 to 2020 was much smaller in September than each of the months June through August,” Morton said.

He said it is not possible to tell without more research what caused the significant decline in the year over year sales tax gain.

“However, the decline in the year over year gains may be largely or partially attributable to the expiration of the extra weekly unemployment benefits and other stimulus amounts paid earlier in 2020,” Morton said.

Because the benefits have not yet been renewed by Congress and there is no certainty they will be, there could be an effect on consumer spending and sales tax collections through the end of the year, Morton said.

“If there is in fact a decline in consumer spending that continues, October through December sales tax collections may be less, perhaps significantly less, than we might have expected based on the June through September trend,” Morton said.

Fort Smith’s sales tax took the biggest hit in March, according to sales tax reports. Pandemic-related closings began in mid-March and continued through April, with openings beginning in May. The April report, which reflects revenues from February, showed a 1.55% decrease in the city’s share of the 1% Sebastian County sales tax from April 2019 and a 3.4% decrease in the 1% city street tax from April 2019.

April numbers, while down, also were better than experts predicted. The city’s share of the countywide tax in the May report, which showed tax revenues from March, was $1.38 million, down 1.67% from May 2019. Revenue for the 1% street tax in the May report was $1.693 million, down 4.3% from the May 2019 report. The June, July and August reports, which showed sales tax revenue from April, May and June, reported revenues from the city’s portion of the countywide sales tax and the 1% street tax for both months was higher than the same time frames in 2019.

Director Kevin Settle said September’s sales tax report shows that Fort Smith has a good economy helped by the city’s manufacturing base, and he expects Fort Smith to continue to do well for the year.

“As far as the budget, I don’t know. We’ll have to see what the proposal is from the city administrator and the department heads and go from there. But this is positive, and I think it means we are in a good position and will not have to look at doing anything drastic as we move into next year,” Settle said, noting there will be no need for layoffs or that type of drastic measure.

He said the city could probably end hiring freezes, so any departments with open positions could start filling them. Geffken relaxed the hiring freeze the city had instituted in the early months of the pandemic in September after a positive August sales tax report, and approved hiring in the parks and streets departments. He said at the Board of Directors meeting Tuesday (Oct. 22) that both departments have started filling positions.

Morton said he believes the city needs its conservative approach to the budget through the end of the year.

“While it is likely that 2020 sales tax collections will be at least the budgeted amount and likely somewhat greater, I believe that conservative budgeting will be necessary until the economy is further alone in a recovery,” he said.

In 2019, Fort Smith’s share of the 1% Sebastian County sales tax was $17.265 million, up 2.1% over 2018, and up 5.66% over the city’s budget estimate. The 2019 total was $397,183 more than city officials budgeted to spend within the general fund budget. The 1% street tax generated $21.73 million in 2019, up 1.4% over 2018, and up 6.5% over the budget estimate. The 2019 total was $579,260 more than city officials budgeted to spend on the street tax program.

PREVIOUS ANNUAL COLLECTION INFO
Fort Smith 1% sales tax collection for streets
2019: $21.73 million
2018: $21.503 million
2017: $21.204 million
2016: $21.156 million
2015: $20.308 million

Fort Smith portion of 1% countywide sales tax
2019: $17.265 million
2018: $17.043 million
2017: $16.691 million
2016: $16.58 million
2015: $16.09 million