Fort Smith Board approves $5 million incentive package for unknown retail project

Fort Smith Board of Directors voted Tuesday (March 21) to give an incentive allowing roughly $5 million in sales tax abatement to bring a retail company to Fort Smith, even though it was advised the city cannot legally issue incentives to retail companies under Arkansas law.

The item, brought before the board at its regular board meeting Tuesday but had no accompanying information in the board packet, will give incentives in the form of abatement of sales tax and ad valorem tax paid by the business for 10 years. The incentive will mean an estimated $4.925 million in sales tax reimbursements will be paid to Project X if the company brought its retail business to the city.

City Administrator Carl Geffken said estimates are that it will be about $250,000 net out of pocket expense by the city a year for the next 10 years.

Fort Smith businessman Bennie Westphal is the owner of the property at 6201 Rogers Ave. that fronts Interstate 540 where the former Best Buy Building and a former insurance office building are located. Westphal said the insurance office would be demolished while the former Best Buy building would be used. Project X would also build an expansion on the property. (Westphal is an owner of Talk Business & Politics.)

It was not disclosed what Project X is, but Westphal said it is a large retail business with a tourist attraction component. According to information given to the board, the business will employ 93 full-time employees with an average annual salary of $53,000. Westphal said the company will invest $12 million on the site and has estimated $28 million in sales per year. He also said more than 100 cities were considered for locations by the company, and Fort Smith is one of 12 final locations considered.

While most of the directors said Project X would be great for Fort Smith, Director Lavon Morton expressed concern over the incentives because it was not a typical tax back program, reduction on property taxes, or investment in infrastructure as most of the city’s incentive programs are.

Infrastructure improvements ultimately help more than the single company originally helped by the city. Also, the tax back programs the city typically participates in are funded by the state and are on sales tax on construction costs, not retail sales. While the city might be out some money for those incentive programs, it is minimal.

The money the city would “reimburse” Project X will be money that goes into the city’s general fund. That money will come from the city’s share of the 1% Sebastian County sales tax and from the city’s budget rather than from pass-through reimbursements. None of the sales tax money earmarked for streets, parks, fire, police or consent decree work could be used for the reimbursement.

At the meeting Morton said he was in favor of the project coming to Fort Smith, but against “writing checks for $5 million.” He also said he was leery of the precedent incentivizing a national retail business would set. He also mentioned that it was not fair to the locally owned retail businesses who do not get these types of incentives.

City Attorney Jerry Canfield said under the the Arkansas Constitution the city cannot legally issue incentives to a retail industry. Though there is some thought legislation could be passed in this session that could allow incentives for retail businesses, there is no way of guaranteeing that. In response to questions from the board, Canfield said a taxpayer could file suit for illegal exaction, which could result in an injunction or more.

Director Kevin Settle said the property being empty now produces nothing for the city’s economy and bringing in the project could be a game changer for the city.

“Sometimes you have to challenge the norm to prove you’re right,”  he said.

The Board voted six to one to approve the Memorandum of Agreement to offer the incentives to Project X. Morton voted against the incentives.

“I’m going to support the project 100%,” Morton said Wednesday. “I believe that once the board speaks and approves a project, we need to all get behind it with a positive view.”