Fort Smith Board reviewing budget allocations between departments

The Fort Smith Board of Directors is hoping a better evaluation of allocations will help take some of the stress off the utility department as well as other city departments.

Directors looking for ways to cut the utility department budget in order to make certain the city meets its debt coverage in 2024 broached the subject of moving allocations during the day-long budget hearing on Nov. 22.

Director Kevin Settle suggested that all of the mayor’s, city administrator’s and board of director’s expenses come out of the general fund instead of funds for various departments

“I’ve talked with other cities and that’s how they do it. We could even go back and change it for 2024. It’s a quick easy solution and our bond covenant is covered,” Settle said.

The city is required to bring in 110% of its approximate $180 million in debt in order to meet its debt covenants. The latest audited numbers the city has are through the end of FY2023, said Deputy City Administrator Jeff Dingman.

“Our debt coverage ratio as determined by the audit for 2023 was 108%,” Dingman said.

The Board of Directors approved a water rate increase that began Aug. 1 to help the city meet its debt covenant requirements. Because the rate increase did not start earlier in the year, the increase is not enough to allow the city to make enough in revenue.

“The city will not meet debt coverage in 2024. We will be closer, much closer I think, but we will be shy,” said Finance Director Andy Richards.

The general fund is the primary operating fund that accounts for all revenues and activities that are not required to be accounted for by another fund. It is supported by a variety of revenue sources, including taxes, license fees, permit fees, charges for services, fines, forfeitures, investment earnings, and rental income. The city’s general fund proposed budget for 2024 is $74.558 million.

Different funds, along with the general fund, allocate money to operating funds for various reasons, said Josh Buchfink, the city’s public relations manager. The rationale is the various funds allocated to the operating funds to help pay for positions that work for multiple departments. This keeps each department from having to have its own public relations, IT and other positions.

In the proposed 2025 budget, water and sewer fund will pay $62,604 of the mayor’s $184,130 budget; $770,000 of the city administrator’s $1.638 million budget; $163,296 of the board of director’s $441,340 budget; and $273,363 of the internal auditor’s $607,474 budget for a total of $1.269 million of the budget for the policy and administration fund.

The water and sewer operating fund also pays $7.504 million toward the $18.024 million management services budget and $367,269 toward the $6.083 million development services budget.

“These allocations cover a range of purposes, including support and administrative services such as IT, HR, and Communications,” Buchfink said.

Utilities Director Lance McAvoy said he had heard the board loud and clear on wanting the department to tighten its belt.

“We have tightened the belt to the point we can’t breathe,” McAvoy said.

In the utility department, without including the debt service coverage expense, only 42% of the $7.339 million in the department’s proposed 2025 budget is set for salaries, McAvoy said. The remaining 58% is for operating costs.

City Administrator Carl Geffken said Richards is looking at reallocating costs from the departments and should have a new percentage of what each department should pay in allocations in the first quarter of 2025. He said the board could still discuss and if desired pass the budget, which would include what is now set for utilities in allocations, at the Dec. 3 board meeting and then amend the budget when the new allocations percentages are ready.

Directors Neal Martin and Settle said they would like to see less coming from other funds and more coming from the general fund in those reallocations.