Fort Smith Board to discuss 2025 budgets, financial strategies

The City of Fort Smith budget hearing is set for Friday (Nov. 22) and the city’s Board of Directors are going in with a goal to balance the needs of the city with the funds in the coffers and projected revenue streams.

According to the city’s budget document, the estimated 2025 budget for the four operating funds is $196.552 million, which includes $61.704 million in the general fund. The 2024 projected expenditures in the four operating funds is $206.375 million, including $74.558 million with the general fund.

“I want to make sure we are being responsible with our dollars,” said Director Neal Martin. “With increases to water rates and potential sewer rate increases, our citizens are feeling more pressure. Government needs to bear some of that burden as well. We need to look at all funds and work to reduce any proposed deficits.”

Director Lavon Morton has expressed concern about the decline in sales tax revenue this year, both year-over-year and compared to budget. The city’s share of the 1% Sebastian County tax between the January and September reports totaled $18.413 million, down 1.27% from the $18.65 million in the same period in 2023. Fort Smith’s 1% street tax – used for maintenance and new construction on streets, bridges and drainage – totaled $22.173 million in the first three quarters of 2024, down 1.98% compared to the $22.62 million reported in the same period in 2023.

“As I stated in a recent Board meeting when the CIP (capital improvement plan) budget was under discussion, my view is that each fund and department should approach 2025 spending cautiously. Sales tax revenue has leveled off so the collection increases above budget for all years since 2020 can’t be counted on to continue. My review of the budget so far indicates that, in general, departmental spending is reasonable and appropriate to complete ongoing projects and provide needed services. It is appropriate to move forward with expectations that revenue will be steady and spending can be based on this, however, the City and each department must be prepared to act quickly if adverse trends develop,” Morton said.

‘LEAN AND ALIGNED’
In order for the budget to best fit the needs of the city and its citizens, Director Jarred Rego said it is essential for the board to listen to and seriously consider requests of the professional department heads, because it’s vitally important that the needs of the city’s core quality services are funded.

“Also, we should be mindful of the continuing need to invest in our community in ways that build on the numerous positive developments of the recent past and set us up for additional successes in the future,” Rego said.

Director Christina Catsivis said in order to maintain fiscal responsibility, directors need to carefully assess the utility CIP, reduce inefficiencies, and prioritize spending that protects the city’s financial health.

“While the utility-related CIP passed last year is critical for addressing infrastructure needs, it’s important to ensure that the budget is lean and aligned with the city’s long-term financial strategy. The current CIP may include inflated or unnecessary costs that could strain our debt service coverage and threaten our bond rating,” she said.

Morton said city funds are in a strong financial position, except for utilities.

“Some progress has been made in improving Utilities financial position as a result of the July 11 water rate increase, so we are in a good place overall as we address the 2025 budget,” he said.

CONSENT DECREE SUPPORT
By making sure the budget is lean, the city could fund a new position in order to make certain the city is on track with what is needed for the consent decree. Catsavis said to ensure Fort Smith’s compliance with the federal consent decree and to effectively manage the associated CIP expenditures, the city should create a dedicated position — director of Consent Decree Oversight.

After decades 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 (EPA) and U.S. Department of Justice (DOJ) in late 2014, with the decree officially beginning Jan. 1, 2015. The consent decree, when initially enacted, required the city to make an estimated $480 million worth of sewer upgrades in 12 years.

“This individual will be responsible for ensuring full accountability, transparency, and timely execution of all projects tied to the Consent Decree and related CIP projects. I believe we can find room in the budget to fund this position,” Catsavis said.

The annual budget hearing, which provides the opportunity for the mayor and board of directors to review and discuss the Proposed 2025 Operating Budget with respective city departments, will begin at 9 a.m. Friday at the Blue Lion.