Fort Smith voters historically favor sales taxes

story by Luke Hobbs
[email protected]

On November 8, Fort Smith voters will decide whether to enact a 1% sales tax on prepared food, which would help to fund the Fort Smith Convention Center. If passed, the 1% would be added to the current 3.25% local sales tax rate. Here’s a look at Fort Smith’s local sales taxes: when they were enacted, what they fund, and when they’ll come up for a vote again.

Fort Smith voters have never rejected a sales tax in the three decades since the state legislature gave cities the authority to levy taxes. (However, in 2006 they rejected two of the four bonds associated with the two 0.5% sales taxes.)

The revenue from city sales taxes cannot be reapportioned by the Board of Directors unless it first obtains voter approval. The Board does, however, have authority to reassign revenue from the 1% county sales tax, because it is categorized as being for general purposes. A city ordinance sets parameters for how the Board may reassign revenue from the county sales tax.

If voters pass the 1% prepared food tax in November, it will be Fort Smith’s first new local sales tax since 2001. However, the prepared food tax will not be an across-the-board tax. It will only apply the sale of qualified prepared foods sold in restaurants, cafes, cafeterias, delicatessens, drive-in restaurants, carry-out restaurants, concession stands, convenience stores, or grocery store-restaurants.

TAX REVIEW
• 1% city tax for streets and drainage (1985-present)
Local sales tax is a fairly recent phenomenon in Arkansas, at least in the modern era. It dates from the early 1980s, when the General Assembly voted to give cities and counties the authority to levy taxes.

Fort Smith’s first 1% in local sales tax was enacted in 1985. In March of that year, there was a countywide special election for a 1% sales tax to fund streets and drainage improvements. The measure failed in Sebastian County as a whole, but received a majority of “For” votes in Fort Smith.

Six months later, the issue was back on the Fort Smith special election ballot — this time as a city tax instead of a county tax. The tax narrowly passed, with 51.4% voting yes.

The street sales tax — which sunsets every 10 years — was approved by voters again in 1995 (with 87.2% voting yes) and in 2005 (with 66.3% voting yes). It will appear on Fort Smith ballots again in fall 2015.

According to City Administrator Ray Gosack, Fort Smith spent about $300,000 a year on street upkeep prior to the street sales tax approval in 1985. The city now spends about $20 million a year on its streets. Gosack says the sales tax revenue has helped the city avoid traffic congestion and attract new businesses to Fort Smith, through building roads to service them.

In Tuesday’s (Oct. 4) regular meeting, city directors enacted a five-year program for implementing capital improvements of streets, bridges, and related drainage, using the revenue from this tax.

• 1% city tax for Lee Creek water (1988-93)
Fort Smith voters passed a second 1% sales tax in the 1988 general election, in order to fund $31.5 million in revenue bonds for the Lee Creek water system.

“The option was to either have a sales tax or to raise water rates,” Gosack says.

The sales tax passed with 71.6% of the vote. In what Gosack calls a rarity, the city paid off the bonds before construction at Lee Creek was completed. With the bonds retired, the 1% sales tax also ended in February 1993.

• 1% county tax for local needs (1993-present)
In 1993, another 1% countywide sales tax made it to the special election ballot. The tax was proposed in order to fund police and fire departments along with other needs among cities in the county. Just as in 1985, the measure passed in Fort Smith but failed in Sebastian County as a whole. Gosack attributes the failure to local officials in the rest of the county doing a poor job of communicating the tax’s benefits to voters.

The county brought the same sales tax to the ballot again in 1994. This time, it passed with 56.2% of the vote. County officials promised to bring the issue back to the ballot in 10 years, and they fulfilled that promise in 2003 when the tax passed again, this time with 63.5% of the vote.

Gosack says this countywide sales tax has funded a laundry list of local needs, including a new fire station, new firefighters and police officers, library operations, senior services, capital projects for local parks, and downtown development.

After voters passed the tax for the first time in 1994, the city received federal grants for its police and fire departments, meaning it was able to hire more safety personnel than originally promised under the sales tax.

The federal grant money, however, ran out in 2000, leaving the Board of Directors with a choice between laying off some of its police officers and firefighters, or reapportioning a part of the 1% county tax that originally funded sewer utilities and landfills. The Board held public meetings to allow the public to weigh in on the issue, and ultimately decided to reassign the necessary sales tax revenue to maintain city safety personnel levels.

This tax will appear on the ballot again in 2014.

• 1% city tax for wet weather wastewater improvements (1997-present)
Another 1% in current local sales tax was originally passed in two stages. In 1997, voters approved a half-cent sales tax to fund a combined $45.6 million in revenue bonds for the Fort Smith Convention Center (then the Fort Smith Civic Center), the library, and a new riverfront park.

Then, in 2001, voters passed another half-cent sales tax to fund a combined $80 million in bonds for the Lake Fort Smith Water Supply and for wet weather wastewater improvements.

Once the bonds for the convention center, library, and riverfront park were paid off, the tax revenue for those bonds was automatically redirected to the water supply and wastewater improvements, meaning that a full penny of sales tax revenue was now funding those areas.

In 2006, the city proposed using the combined 1% sales tax to cover new bonds for wastewater improvements, a riverfront sports complex, city hall improvements, and a public safety radio system. Voters rejected the sports complex and city hall bonds but approved the wastewater and public safety radio bonds.

The city paid off the public safety radio bond over the next few years, and in 2009 it brought the combined 1% tax back to the ballot so voters could approve using it exclusively for wastewater improvements. The ballot measure passed with nearly 90% of the vote.

This combined 1% sales tax is scheduled to return to the ballot in early 2012, though city directors have not yet decided what to ask voters to use it for. Options include more wet weather wastewater improvements, new water transmission lines, fire station improvements, and recreation improvements. Gosack says the special election will likely be held in March.

• 0.25% tax for UA-Fort Smith (2001-present)
Residents of Sebastian County also pay a quarter-cent sales tax for the University of Arkansas at Fort Smith. Voters approved the tax with 76.3% of the vote in a July 2001 special election.

According to Mark Horn, Vice Chancellor for University Relations at UAFS, this sales tax revenue goes into the university’s general fund but is primarily used for retiring old debt and funding new facilities.

State funding for Arkansas universities is steadily declining, making the local sales tax revenue more crucial. The tax sunsets in 2021, and Horn says the university will have to decide at that point whether to ask county residents to extend the tax, or to try to replace the revenue some other way.

Fortunately for the university, the decision is still a long way off.

“I’m glad we don’t have to take it to a vote right now,” Horn says. “There’s a lot of spotlight on taxes, and most of it is negative.”