Fort Smith Director: Failed sales tax extension vote will result in higher sewer rates

If Fort Smith voters do not approve a proposed continuation of a 1% sales tax in the city, residents may see a 58% increase to their sewer bills to fund continued work required by a federal consent decree, according to city estimates.

On Feb. 22 the Fort Smith board of directors voted on two sales tax ordinances that city voters will consider Tuesday (May 24) in conjunction with the state’s primary election. The first tax request would renew a 0.25% sales tax that is evenly allocated between the city’s fire department and city’s parks and recreation department. Directors voted 5-2 to extend the tax for eight years, with collections from Sept. 30, 2022, to Sept. 20, 2030.

The second tax request would extend a 0.75% sales tax from Jan. 1, 2023, to Dec. 31, 2030, 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 police department.

Directors will have a special study session at 6 p.m. Monday (May 23) at the Blue Lion Downtown to present information regarding the potential renewal and continuation of the sales taxes. Director Lavon Morton contacted the City Clerk’s Office and requested the Board of Directors regularly scheduled study session set for May 24 be rescheduled to Monday and the agenda be the discussion, a notice from the clerk’s office said.

“The single most critical aspect of the tax is the 5/8 of the 3/4% that will go exclusively to consent decree work. We are out of money by late 2022 early 2023 to pay for consent decree required repairs,” Director Morton said in a recent Talk Business and Politics interview.

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 has 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. The $38.774 million that was still in the 2018 bond fund at the first of the year will run out by the first of 2023, Morton said. Of the funds, $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.

“Utility department revenue does bring in some extra money but that has to be used on unexpected maintenance and repairs,” he said.

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, which should generate around $15 million to $18 million per year, or increase sewer rates.

A vote for the sales tax on Tuesday will not increase sales taxes collected in the city; it will just continue the taxes for another eight years.

“This is a renewal of tax, you are already paying. You go to the grocery store or out to eat, and you will pay the same thing the day after the tax goes into effect as you did the day before. There will be absolutely no change in your bill,” Morton said.

However, if the tax fails, residents could see an increase in their water and sewer bills, Morton said. The utility department has estimated that in order to make up what the sales tax will bring in, it will require a 58% sewer rate increase to generate the revenue that would have been provided by the sales tax.

“This will not be phased in, it will have to go into effect immediately,” Morton said, noting that such a large rate increase will have a profound impact on the city’s lower income residents.

Since 2017, the city has avoided a sewer rate increase, but sewer rate increases in 2015, 2016 and 2017 equaled about a 160% increase, he added.

“We don’t want to put more of a burden on our citizens. We’ve made good progress, but there is more to do,” Morton said.

Directors passed an ordinance Feb. 22 that guarantees if the sales tax passes, there will be no sewer rate increase for three years and no more than 3.5% rate increase a year for five years after that. If rates are increased by more than that 3.5%, the sales tax will cease, according to the ordinance.

In addition to funding consent decree work, the sales taxes will fund the police and fire departments and the parks departments, all of which Morton said were important to allow Fort Smith to continue to grow and better.

“We are looking at a lot of growth to the city in the next few years. Fort Smith is a safe city right now. We have good fire and police protection. But we are going to need to be able to hire more firemen and get more equipment and hire more police officers and have what they need, so we have as safe a city in the future as we have now,” Morton said.