Fort Smith sales tax revenue below budget estimates, storm damage repair could boost numbers

Fort Smith sales tax collections are trending in the wrong direction to begin 2016, with one Fort Smith Director saying the numbers are “a surprise” and could force the city’s Board of Directors to adjust the 2016 budget. However, an April storm may rescue the budget.

The city reported Monday (June 27) that revenue in the May report – which reflects April commerce – from the 1% street tax was $1.577 million, down 5.97% compared to the May 2015 report. Year-to-date revenue is $8.749 million, or 0.2% below the same period in 2015, and down 5.5% from the budget estimate.

Fort Smith’s share of the countywide 1% sales tax for the first five reporting months is $6.829 million, up 1.5% compared to the same period in 2015, but 1.3% below the budget estimate. Revenue in the May report totaled $1.22 million, down 5.95%.

May was the second consecutive month in the reporting year to post a decline. Revenue from the countywide tax funds a majority of the city’s general fund budget, with much of that paying for police, fire and other essential city services.

“The total revenue to date is $87,577 less than the original budget estimate. County sales tax 2016 is now trending below budget and forecasts year-to-date. Finance will continue to watch the sales tax trends throughout the second quarter,” Fort Smith Finance Director Jennifer Walker noted in the May report.

The countywide tax revenue generated $16.09 million in 2015, the first time above the $16 million mark since 2008 when collections were $16.61 million. The $465,284 in revenue above 2014 collections helped with city funding issues, especially in addressing what continues to be a estimated shortfall in the city’s contribution for police and fire employee pensions.

Tax revenue from the city’s 1% street tax program and 1% for water/sewer bonds and fire and parks totaled $40.198 million in 2015. It is the second consecutive year the revenue topped $40 million, but is below the record $41.226 million collected in 2008. (See tax collection history at the end of this report).

Fort Smith Director Keith Lau called the May decline “a surprise,” saying his impression of the regional economy is that it is improving – especially on the jobs front. The U.S. Bureau of Labor Statistics estimates that the Fort Smith metro had 116,639 jobs in April, up 1,943 jobs compared to April 2015. Lau said he hopes the next few monthly reports show gains from an improving economy and from events like the Steel Horse Rally which drew an estimated 25,000 motorcycles and more than 55,000 people to downtown Fort Smith.

“I’m very concerned. I’m worried that this is a trend, and if it is a trend then we’ll have to take another look at the budget. The budget is pretty tight as is,” Lau said.

The Steel Horse Rally was held April 29-30. Because state officials do not provide details on sales tax revenue, it is unclear if taxes paid on that weekend were filed with April or May remittances.

ROOF REPAIR RESCUE?
The April 29 hail storm that hit parts of Fort Smith could provide a needed bump to city tax revenue. The storm has resulted in much roof repair work, especially in the south part of the city. For example, in the most recent week the city issued permits (June 20-24), there were 284 permits for residential work valued at $2.366 million. Of that, 256 permits with a combined value of more than $2.13 million were categorized by the city as roof repair.

For the previous week (June 13-17) there were 402 permits for residential work valued at $4.196 million. While the city did not identify which of the permits were for roof repair, a majority of the permits were issued to roofing companies.

Also, the city’s permit report for May showed 658 residential repair permits were issued with a combined value of $5.317 million. The repair activity is up significantly from May 2015 when 67 residential repair permits were issued at a combined value of $369,193.

The April hail storm could create a bump in tax revenue like that seen in 2008 when wind and hail storms resulted in a brief but intense flurry of residential repair work. 2008 tax revenue was $41.226 million, the most ever collected by the city. It was not until 2014 that city tax revenue would even top $40 million ($40.198 million). Also, the city’s share of county tax revenue in 2008 was $16.61 million, which continues to stand as a record. Only in 2015 did the city’s portion of the county tax revenue ($16.09 million) come close to the 2008 tally.

Tax revenue from roof and other repair related to the April 29 storm may not appear until the July or August revenue reports.

PREVIOUS ANNUAL SALES TAX COLLECTION INFO
Fort Smith 2% sales tax collection (1% for streets; 1% for water/sewer bonds)
2015: $40.76 million
2014: $40.198 million
2013: $38.938 million
2012: $39.210 million
2011: $38.683 million
2010: $37.229 million
2009: $37.554 million
2008: $41.226 million
2007: $37.858 million
2006: $36.840 million

Fort Smith portion of 1% countywide sales tax
2015: $16.09 million
2014: $15.625 million
2013: $15.353 million
2012: $15.279 million
2011: $15.15 million
2010: $14.89 million
2009: $15.04 million
2008: $16.61 million
2007: $15.15 million
2006: $14.71 million