Fort Smith Board approves consent decree sales tax plan, sewer fee increase

The May 13 election will include for Fort Smith residents a ballot item to change the city’s sales tax uses to pay for $385 million in bonds to meet a federal mandate that require the city to fix and maintain the city’s sewer system.

Fort Smith Board of Directors on Friday (Feb. 21) voted to send a tax package to voters. The plan approved by board to be sent to the voters includes:
• Reauthorizing a 0.75% sales tax first approved by voters in 2022 to pay for consent decree work and to pay bonds, with 0.125% used for the Fort Smith Police Department; and,
• Renewing the 1% street tax but reallocating 0.625% for streets, bridges and drainage work, with the remainder of the tax to fund consent decree work and bonds.

The board rejected the option to not change the 1% street tax and instead asked voters for a new 0.375% sales tax to be used solely for consent decree work and to pay bonds.

If approved by voters, taxes would be in place until 2059. The proposed tax changes do not raise the existing tax rate in the city.

“This is anticipated to be a 30-year obligation of the associated sales and use taxes,” Fort Smith Chief Financial Officer Andy Richards noted in a memo on the plan. “Recognizing that the city would not be able to issue all $360 million up front — there are 3-year spend down requirements and we couldn’t spend all $360 million that fast — it will likely be issued in two or three different series in two-year increments, and the sales tax authorization will need to recognize that the tax needs to last until 30 years after the final issue of bonds.”

After decades of failing to maintain water and sewer infrastructure to federal standards, the city entered into a consent decree with the EPA and DOJ in late 2014. The consent decree, which began in January 2015, required the city to make an estimated $480 million worth of sewer upgrades in 12 years. That amount is now estimated to be as high as $800 million. The city has asked for more time, citing a variety of factors.

The board also approved an ordinance to raise the sewer rate 3.5% starting June 1, 2025, and then Jan. 1 of each subsequent year through 2030. The base residential sewer rate will increase from $4.50 to $4.66 per month. The sewer residential volume charge of 1 CCF will increase from $8.45 to $8.75 on June 1, 2025, and then to $9.05 on Jan. 1, 2026, and 3.5% thereafter until 2030. 1 CCF equals 748 Gallons. Revenue from the rate increase will be used to meet consent decree requirements. The board voted 6-1 to approve the rate change, with Director George Catsavis voting against it.

Before voting on the tax plan to be presented to voters, board members debated the history of the consent decree, including some members wishing the city would have pushed back against the EPA and DOJ in 2014 and pursued legal action instead of agreeing to the consent decree.

The debate also included the pros and cons of reallocating the 1% street tax for partial use to pay for consent decree bonds. The 1% sales tax used for streets, bridges and associated drainage has been popular with voters. The tax sunsets every 10 years which requires voter approval to renew. A 1% tax in Fort Smith now generates between $28 million and $30 million annually.

There also was discussion among board members about the EPA and DOJ under the Trump administration being open to reconsidering terms of the consent decree. Director Jarred Rego encouraged city administration to make contact with the White House Office of Intergovernmental Affairs to present its case for relief.