Council Discusses Options For 1-Percent Sales Tax

FARMINGTON — With the city close to paying off a sewer bond issue with a local 1-percent sales tax, the Farmington City Council plans to ask voters to renew the tax but rededicate it for new uses.

City Council members met in a work session Monday night to discuss options available on when to call an election and how to use the money. Aldermen will continue the conversation at their regular meeting at 6 p.m. Monday, April 10.

Farmington collects two 1-percent sales taxes. One raises money for the general operating budget, while the other pays debt service on sewer bonds.

Mayor Ernie Penn said the city will pay off the sewer bond issue sooner than expected because of increasing revenues from the sales tax. The city collects about $688,000 from each tax. The sewer bond issue has about $685,000 outstanding in debt and the trustee has indicated the bond issue could be paid off in July, depending on sales tax collections coming up

The city wants to be able to continue collecting the 1 percent sales tax without a disruption in revenues, Penn said. To do that, voters will have to approve the tax before the bond issue is paid off.

“We have to make a decision fairly quickly,” Penn said. “When it’s paid off, that tax will go away.”

Penn offered three options for the 1-percent sales tax:

• Option 1: Dedicate the sales tax for new bonds for specific capital improvements, such as parks, streets, sewer, library.

• Option 2: Dedicate a portion of the sales tax for new bonds for specific capital improvements and dedicate a portion to the city operating budget for expan- sion of services.

• Option 3: Retain the full sales tax for city operations.

With revenues from the sales tax, Farmington would have the ability to acquire $8.5 million in new bonds with a 20-year payoff. This money could go to specific projects or city services.

Kevin Faught with Stephens Inc., in Fayetteville, said the election ballot must be specific in how the money will be used.

The first question, Faught said, would be to ask voters to approve a 1-percent sales tax. The next questions on the ballot would ask voters to vote yes or no on specific uses of the bond money.

For example, the city could ask voters to approve $2 million for parks, $2 million for streets and the rest for expanding city services. One example of expanding city services would be expanding the Fire Department to provide more coverage.

“The ballot is written in such a way that it will be pretty clear what you are voting on,” Faught said.

Another option, Penn said, would be to have an initial election asking voters to approve the sales tax so collections are not disrupted and then have a future special election to ask voters to approve issuing $8 million in bonds for special projects.

Penn acknowledged the city would technically be asking voters to approve a new sales tax — but it actually would be a “continuance of what we have now.”

He added, “We’re not increasing the tax base. We are rededicating it for a new purpose.”

He said the council will have to decide how to approach it, as far as whether to have one or two elections and how it wants to use the money.

If the city issues a new bond issue, the money will have to be allocated and spent within three years, Faught said.

City Council member Brenda Cunningham said she hopes voters will remember the city’s history with its ballpark sales tax. Voters approved a 1-percent sales tax to build a new sports complex with six fields. When the bonds were paid off, the sales tax was dropped off the books and the city did not turn around and ask for another sales tax.

Cunningham said at that time many people told her they expected the city to ask for another tax.

“That’s why I thought it was important not to do another one,” Cunningham said. “Hopefully, people will remember that.”

As far as a timeline, Faught said the City Council has to approve and publish an election ordinance 60 days before a special election. If the city wants to have a June 13 special election, the City Council must pass an ordinance no later April 13, Faught said.

Alderwoman Linda Bell asked Penn to make a recommendation on using the money and provide that to the City Council at its meeting Monday night. Penn replied that his ideas include allocating money to parks and to streets. Other possibilities, Penn said, are purchasing land and constructing a new Public Works building.

He asked council members to think about how to use the money and to email him with any questions or suggestions.

Most aldermen at the meeting agreed it would be best to go ahead and ask voters to approve the sales tax before it goes off the books and not have a gap in collections. They thought it would be easier to promote the tax and encourage people to vote for it, rather than having an election after the tax is off the books.