Fort Smith’s sales tax revenue beats expectations again

FORT SMITH — August marks the third month in a row in which sales tax revenue for Fort Smith has exceeded expectations.

The city of Fort Smith released its August sales tax report, which reflects sales taking place in July, on Wednesday. The report demonstrates that, in a similar vein to revenue reported for June and July, August revenue for this year was greater than both the budgeted amount and what the city took in during August 2019.

This comes after April and May sales tax revenues failed to meet the amounts budgeted for their respective months, and in the midst of the ongoing coronavirus pandemic.

City Administrator Carl Geffken said via email that the city is “very fortunate” to have fared so well with sales tax revenue.

“As the city administrator, I work closely with our finance department to establish conservative sales tax projections in order to ensure we remain under budget,” Geffken said.

Fort Smith is both the second-largest city in the state and the economic hub of the region’s metropolitan statistical area, Geffken pointed out. In addition, residents still needed goods and services during the pandemic, as they would normally.

“Most businesses remained open while masking up and implementing social distancing rules,” Geffken said. “Our economy is still very strong, and we’ve seen a drop in unemployment. We also believe the supplemental unemployment stimulus funds helped many survive the pandemic and that, in turn, had a positive impact on the sales tax.”

Ward 3 City Director Lavon Morton said he was pleased to see that the trend of above-budget sales tax revenue that began in June has continued.

“… I am no longer concerned about falling short for the full year in achieving the budgeted revenue really in any category where sales tax are the component,” Morton said.

Initial estimates for the city, according to Geffken previously, were an 80% reduction in sales tax revenue in April and May, a 50% drop in June and July, and a return to normal in August. This would signify a reduction of 22% in sales tax revenue for 2020.

April’s sales tax report saw a revenue reduction of only about 7%. Geffken has estimated that the city had an overall decrease of about 2.5% in May.

Geffken said that while the city cannot predict what lies ahead, it remains “cautiously optimistic” in light of the fact that the extreme drop in the economy and subsequent slower recovery process it expected earlier this year has not come to pass.

“We need to keep our businesses open and our residents employed to continue this trend,” Geffken said. “There is no set of rules to follow or prior experiences on which to draw, so we will remain conservative in our revenue budgeting and our spending. Should the last quarter of the year be weak economically, the city will be prepared.”

Because of the positive figures from the past three months, Morton believes, from his perspective, that he will be less cautious in considering sales tax revenue estimates for next year during the 2021 city budget process than he would have been otherwise.

“It’s one of those things where, when you’re doing a budget, if you are really concerned about your revenue, you certainly have to budget less in expenditures,” Morton said. “And while we will be appropriately conservative in our budgeting, we won’t have to be, at least from my view, as conservative as we would have been had this not bounced back the way it has.”

Fort Smith’s current tax rate is 9.75%, 2% of which is for the city. Of that amount, 1% is dedicated to streets, drainage and bridges; 0.75% is for redemption of sales and use tax bond issues; and 0.25% is for Fire Department and parks operations, as well as capital projects, according to the city’s finance department.

Of the remainder, 6.5% goes to the state and 1.25% to Sebastian County. The latter is split between 1% for public safety, public library, parks capital maintenance, senior citizen programs, downtown development and projects, public transit and privilege license replacement; and 0.25% for the University of Arkansas at Fort Smith. Of the county’s 1%, Geffken said Fort Smith receives 70% to 75%.

The sales tax report for August states that the 1% sales tax brought in $2,000,275. This marks an increase of 10.33% over the amount budgeted for the month $1,813,000.

At the same time, the county sales tax took in 8.79% more than expected, $1,603,111 as opposed to $1,473,518. The city’s 0.75% and 0.25% taxes had similar success, garnering $1,500,207, 11.37% more than budget, and $500,069, 7.91% more, respectively.

Morton pointed out that the percentages by which the 1% sales tax and the 0.75% sales tax exceeded their budgeted revenue for August are even greater than the percentages by which they did so in the two preceding months. The report shows that the 1% tax surpassed budget by 7.41% in June and 8.80% in July, with the 0.75% tax reaching 8.36% and 9.66% during those same months.

Despite the shortcomings in April and May, these excesses in revenue, as well as those reported for prior months, have resulted in all of these sales taxes taking in more revenue than what the city budgeted year-to-date. Eight months, two- thirds of the year out of the way, have seen the 1% tax bring in $14,938,352, or 2.12% more than the total estimate for the same period of time.

Simultaneously, total county sales tax revenue was reported to be $11,998,741 for an overage of 3.12%, the 0.75% tax got 2.42% more with its sum of $11,203,763, and the 0.25% tax saw a 2.08% surplus with $3,734,588.