City pauses alcohol tax increase

FORT SMITH — The Board of Directors voted to pause a tax increase impacting private clubs in the city.

The board voted to adopt the city operating budget for fiscal 2021 Tuesday. It also approved amending the 2021 operating budget for new requests made by city departments.

Also on the agenda was a proposal increasing a city supplemental alcohol tax from 5% to 10%. However, despite the increase being estimated to generate about $500,000 each year for the city’s general fund, the board decided to adopt the proposal after approving an amendment that it not go into effect until Dec. 1, 2021.

City Administrator Carl Geffken said the tax applies to customers who order alcoholic beverages at bars and restaurants.

In a memo to Geffken, City Finance Director Andrew Richards wrote 10% is the maximum fee allowed for such a tax by Arkansas law. City Clerk Sherri Gard said Wednesday the city established the 5% rate in 1969.

At the meeting, Talicia Richardson, executive director of 64.6 Downtown, a nonprofit organization focusing on revitalization projects for downtown, spoke against increasing the tax with the pandemic ongoing. She said certain small businesses have closed during the pandemic, with others trying to sustain themselves relying “heavily” on the state with supplemental benefits for their employees to get them through it, as well as commitments from their banks.

Bars and restaurants, Richardson argued, were hit heavily by the pandemic, being the first businesses to close.

“They were without being open for 74 days,” Richardson said. “That’s a long time for a small business. Now they’re operating still at limited capacities. None of the bars within our community or our state are able to operate at 100%, and anyone who has had a business, or knows anyone who’s in business, knows when you’re operating with limited capacity, there is a financial impact.

“You do have to still pay mortgage, you do still have to pay rent, you still have utilities that need to be paid. They’re not based on your capacity. They’re based on your operations.”

Richardson said bars and restaurants will be continually impacted due to not operating at capacity. In addition, despite the creation of a vaccine, it is still uncertain when the pandemic may end.

Kevin Settle, city at-large position 6 director, made a motion to amend the ordinance so it would go into effect July 1. Lavon Morton. Ward 3 director, mentioned the motion wouldn’t preclude directors from extending the effective date if the pandemic didn’t improve before July 1.

Neal Martin, at-large position 7 director, voiced opposition to the increase even with a delay. He said the board approved the city’s operating budget for 2020 at Tuesday’s meeting, which showed an estimated surplus of more than $4.7 million across the city’s four operating funds, and said he thought the city was “doing well financially.”

“Is a half million dollars really that big of a deal for us?” Martin asked. “I don’t know, I think we could probably continue to live within our means and not impact our bars, our restaurants and our citizens by offering up another tax. Just because we’ve got the ability to raise a tax doesn’t mean we have to.”

Settle’s motion was defeated with three directors voting for it and four against it. Andre’ Good, Ward 2 director, made the motion to change the effective date to Dec. 1, 2021, which passed with five yes votes. The no votes were from Martin and Ward 4 Director George Catsavis.

Geffken said he would ask the issue to be on the agenda for an October directors study session for review.

With the new needs requests that were approved as a result of the ordinance amending the 2021 operating budget on Tuesday, the city is left with a projected deficit of $3.1 million across four operating funds, with more than $1.2 million being in the general fund, according to the amendment. However, this does not take other changes directors approved, such as establishing the effective date for the tax increase, into account.

Geffken said he understood why the board voted to delay the tax increase’s effective date.

“They’re doing it in order to try to make sure that our local businesses do not have to struggle with anything more,” Geffken said. “We will make do.”