During a special study session Monday (Feb. 21), the Fort Smith Board of Directors developed a list of modifications to proposed sales taxes ordinances that could adjust terms of the tax, form a sales tax committee, extend a sewer rate freeze and set a maximum rate increase for the duration of the sales tax.
The Board also called a special meeting at 6 p.m. Tuesday (Feb. 22) at the Blue Lion, 101 N. Second St., to consider ordinances related to the two potential sales and use taxes. In order for the ordinances to go before the voters in a May election, the board would have to approve ordinances setting the election date before March 1. The regularly scheduled study session for Tuesday will convene immediately following the special meeting.
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. At the time, the board 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.
TAX TIME PERIOD OPTIONS
After listening to voter input over the course of several sales tax information and discussion sessions, directors discussed ideas and suggestions during Monday’s study session. At the end of that study session, the general consensus was that the length of the sales tax needed to be seriously considered.
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 has said he personally “will not actively oppose it” if the board develops a “reasonable” plan for the tax extensions. McCutchen said in December he hoped the board asks for five-year extensions instead of a 10-year plan, but said he is flexible.
Directors Neal Martin and George Catsavis said Monday night they were in favor of a shorter period of time for the tax. They did agree with other board members that an even number of years made more sense than an odd number so that future boards wanting to take the issue of a renewal before the voters would be able to attach those elections to gubernatorial or presidential elections and thus avoid the cost of special elections. Both said they were four asking for an eight-year extension.
“That is a good compromise I think,” Catsavis said. “The main thing is to get (the tax) passed.”
The majority of the board members felt that 10 years was the option for the tax duration.
“I don’t think the question is the length of time,” Director and Vice Mayor Jarred Rego said. “I think the issue is a lack of trust of government, and we need to point to what we have done the past 10 years and that we have done what we said we would do with the money.”
TAX ADVISORY COMMITTEE
In order to keep full transparency on the sales tax and what is being done with the money, Director Kevin Settle suggested the city form a sales tax advisory committee made up of Fort Smith citizens who would review sales tax revenues and the city’s spending of those funds. That committee could meet monthly or quarterly or however often they set and would report to the board and in essence to the public on exactly how the money is being spent. The board all agreed that was a good idea.
Settle also suggested that instead of a two-year freeze on sewer rates, that the original proposal had set if the 0.75% sales tax were passed, that the wording state that sewer rates would be frozen for at least three years and that if future boards opted to raise sewer rates any more than 3.5% after that three years, the sales tax would cease. Directors were in agreement with that suggestion as well, though they asked City Administrator Carl Geffken to make certain that doing so would be legal and not “tying the hands of future boards.”
“That’s another reason why I think 10 years would be a good term for this tax. It would guarantee a cap on sewer rate increases for 10 years,” Director Lavon Morton said.
All directors also agreed that citizens need to be adequately informed how the city will have to raise funds for needed consent decree work if the sales tax is not passed.
CONSENT DECREE HISTORY
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 during sales tax discussion town hall meetings. 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, Geffken has said.
Without the sales tax, there will be little funding for consent decree work after this year, Morton has 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.
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.
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.