In the first of five scheduled sales tax information and discussion meetings held by Fort Smith City Directors Thursday night (Jan. 20) concerning a possible election to continue two sales taxes in the city, directors laid out the need for the sales tax and possible scenarios if the taxes were to end.
The Fort Smith Board on Nov. 16 voted to approve two sales tax extensions. The first would extend a 0.25% city sales tax from Sept. 20, 2022 to Sept. 20, 2042, to support the fire department and the parks department. That tax generated $5.7 million in 2020. The second would extend a 0.75% sales tax from Jan. 1, 2023, to Dec. 31, 2033, with 83.3% of the revenue going to federal consent decree work on the city’s water and sewer system, and 16.7% directed to the city’s police department. The tax generated $16.99 million in 2020. They set a Feb. 8 election for those two issues.
The board voted Dec. 21 to stop that election with directors saying they needed to step back and better educate voters and get voter input. They did so after a Dec. 14 Citizens Against Unfair Taxes press conference, at which Fort Smith attorney Joey McCutchen urged the board to delay the Feb. 8 special election.
One aspect of the taxes that concerns the Citizens Against Unfair Taxes is the length of the taxes.The way the original ordinances were written, 0.25% sales tax would be collected for 20 years and the 0.75% would be collected for 10 years. McCutchen also said the city has an appeal in place concerning the consent decree, is owed FEMA money from the historic flooding of the Arkansas River in 2019 and the COVID-19 pandemic that can go towards consent decree work, and is looking at possible grants.
CONSENT DECREE NECESSITIES
Director Lavon Morton said Thursday that directors have not discussed the sales tax issue since the Dec. 21 meeting, but agreement had been voiced during meetings that both taxes should be for 10 years. Directors attending the town hall meeting agreed they would all be in favor of including a stipulation in the tax wording that the portion of the tax earmarked for consent decree work would sunset if consent decree work was paid for prior to the end of the 10 years.
The only director not attending Thursday’s meeting was George Catsavis, who has said he will be at other meetings.
After years of failing to maintain water and sewer infrastructure to federal standards, the city entered into a federal consent decree with the U.S. Environmental Protection Agency and the federal Department of Justice in late 2014. The consent decree required the city to make an estimated $480 million worth of sewer upgrades over the course of 12 years. Because of inflation and the state of the city’s sewer system, that number is estimated to be closer to $650 million.
Since 2015, when the consent decree went into effect, the city has spent $96.929 million on consent decree-related repairs and improvements, Morton said. He also said $36.338 million is budgeted for consent decree work in 2022. Director Robyn Dawson said $192.1 million was spent before 2012. Those funds were spent on storage tanks and equalization basins to reduce wet weather sanitary sewer overflows, the basis for the consent decree requirements, spent prior to the consent decree, City Administrator Carl Geffken has said.
Without the sales tax, there will be little funding for consent decree work after this year, Morton said. He said there is $38.774 million in the 2018 bond fund. Of that, $27.16 million is committed to work already contracted, leaving $11.615 million in available bond funds. There is $10 million in available funds on hand, which leaves $21.615 million, which is already budgeted in the $36.338 million consent decree work in the 2022 budget. Morton also said the average annual utility department revenue once department expenditures for salaries, repairs and costs are subtracted only leaves about $7.5 million a year.
“There is some money from revenue, but it is not adequate to pay for what has to be done,” Morton said.
SEWER RATE DISCUSSION
Because the city does not meet financial ratios needed to issue new bonds, the only alternatives for funding the work are to continue the existing three-fourths cent sales tax that should generate around $15 million to $18 million per year or increase sewer rates.
“This will not increase the sales tax rate,” Morton said.
In order to cover the cost of the required work through revenue, sewer rates would have to be raised 58% just to cover the loss of the sales tax revenue, Morton said.
“If we raise sewer rates, we all pay it. We pay it 100%. Nobody else. Nobody else coming from Van Buren to have dinner pays it. Nobody coming from Fayetteville or Greenwood pays it. We pay it. If it’s a sales tax, people from Greenwood pay it. People from Van Buren pay it. People from Oklahoma pay it. We still pay it, yeah. But everybody else gets in on it. So they are using our streets, they are using our sewers, they’re using our water. They are going to get to pay it too. So that lessens the burden on us,” said Director Neal Martin. “In this scenario, sales tax is the best way to go because I don’t want to have to pay more for sewer.”
Morton said the board had said in the original ordinance that if the sales tax passed, they would not raise sewer rates for two years. He then said he was personally going to work to go longer than that, noting he wants the board to commit to a rate freeze for much longer.
McCutchen said at the meeting the board needed to commit to a five-year freeze on water and sewer rates. Mayor George McGill said that was a good idea and one the board would need to consider.
City administration has indicated that the vote for the sales tax needs to be held by May in order for there to be a seamless continuation of the sales tax. Morton said in December he hopes an election can be held with the Arkansas primary election set for May 24. In order for that election to happen, an ordinance for the election would need to be filed with the Sebastian County Clerk’s office by March 1, 70 days before the election, said Sherri Gard, Fort Smith City Clerk. The last scheduled board meeting prior to that date is Feb. 15. Though the election would be held at the same time as the Arkansas primary election, it would be a special election.
There are four more sales tax information and discussion meetings scheduled: Jan. 27 at the Smith-Pendergraft Campus Center at the University of Arkansas at Fort Smith (in conjunction with the Ward 1 neighborhood meeting); Feb. 3 at the Arkansas Colleges of Health Education; Feb. 10 at the Elm Grove Community Center; and Feb. 17 at East Side Baptist Church. All meetings are at 6 p.m.
None of the meetings are scheduled to be live-streamed. Thursday’s meeting was not available through the city’s usual livestream channel. Directors asked Geffken at Tuesday’s board meeting if any of the meetings could be streamed because they had received several requests for it. Geffken said the city would try to do so.