As the year ends, Little Rock administrators are studying how best to trim spending on infrastructure projects in the event sales tax collections continue to fall below forecasts.
When voters approved a 1 percent sales tax in 2011, officials budgeted millions of dollars for city operations and capital improvements on the basis of the projection that revenue would steadily increase year over year.
But three years later, revenue growth hasn't met half of what was projected, and city officials must decide how to move forward.
City Manager Bruce Moore said that if cuts must be made, he wants to cut funding across the board with the idea that scheduled projects could return to full funding levels if revenue picks up. He will give a presentation to the Little Rock Board of Directors by the middle of next year to update them on revenue collections and how remaining projects -- promised to citizens after they passed the tax increase -- might be funded.
"The first thing would be you take the projects that are left to be completed and treat them all equally," he said. "You don't begin to say, 'Let's do this project or that project,' but you radically reduce each of them. Instead of each project getting 100 percent funding, maybe it's 95 percent.
"If we make that decision now, the good part of it is that if things do pick up -- and I think they are -- then you can always go back and fill that gap."
When the new sales tax went into effect in 2012, the city's Finance Department predicted that revenue would grow by 2 percent each year. With that assumption, officials estimated that the tax would raise $196 million for capital projects over a decade and by 2015 would be generating $31.6 million every year for operations such as public safety.
Yet revenue was up just 0.76 percent in 2013 to $46.8 million from 2012's $46.4 million.
And 2014 receipts -- which have only been reported from January to July -- are up just 0.4 percent from the same period last year.
"While we all remain hopeful that our local economy will improve ... it is understood that adjustments will need to be made," said Sybil Jordan Hampton, co-chairman of the city's Citizens Evaluation of New Tax committee. "This is the third year of a 10-year process, and we are committed to ensuring [that] the city honors many of the top priorities."
OPTIONS PROPOSED
The 1 percent sales tax has two parts -- five-eighths for operational expenses and three-eighths for capital upgrades. The capital portion will end after 10 years -- at the end of 2021 -- unless Little Rock residents vote to extend it.
Several options have been discussed on how to keep faith with voters in the face of revenue shortfalls.
Some city directors have mentioned cutting promised funding across the board, so each project gets the same percentage cut. Others say priority should be given to infrastructure needs in areas of town with the poorest conditions. Another option would be to keep the level of funding promised and just extend the timeline -- meaning the tax would have to be extended past the 10 years to fund those projects.
Moore said that at this point all options have to be considered, although he "really would not be leaning toward" a recommendation to remove any projects from the list, adding that the city committed to completing the projects and should stick to that commitment.
While Moore will make a recommendation on how to move forward, the Board of Directors will make the final decision.
When the tax was approved, the city listed several projects that it would fund over a decade, including numerous large-scale capital improvements.
The allotted amount for each project is supposed to accumulate over the 10 years, so a project promised $1 million accrues $100,000 each year.
The Board of Directors approved the use of short-term financing to complete some of the larger capital projects early, however. Those include the new 12th Street Police Station, more Fire Department vehicles and information technology upgrades.
DOWNSIZING POSSIBLE
Projects already completed with short-term financing are immune from potential cuts.
To date, $45,052,936 has been collected for the capital projects while the city has already spent $58,891,732 on them, which has been possible because of the the short-term financing.
"Anything we've short-term financed ... we cannot cut those projects back," Finance Director Sara Lenehan told the citizen evaluation committee earlier this year. "And that's why we've been very judicious and focused primarily on public safety projects."
When the tax increase passed in 2011, it was the first time the city's sales tax had been raised in 18 years. It went from 0.5 percent to 1.5 percent and allowed the city to retain dozens of police officers and firefighters that previously had been funded with federal stimulus dollars.
The project list includes $67.5 million in street projects and $17 million in park projects. Large-scale building projects remaining include a police and courts headquarters downtown and a southwest Little Rock fire station.
While those projects may not get their total projected allocation, the city will still work to finish them within specified timelines. Whether that means doing so on a smaller scale with less money is yet to be seen, Moore said.
The future Little Rock Technology Park is promised $22 million of the tax revenue. Jay Chesshir, a member of the tech park board and president and chief executive officer of the Little Rock Regional Chamber of Commerce, said that a cut would be "difficult to overcome."
"It could mean a potential change to the phasing of how the tech park would be built out. Obviously we are going to have to seek other funds and resources to build out the park, while the city funding is significant and is the foundation for which all of this is being built. A cut could certainly impact the timing and what is included in the early phases," Chesshir said.
He added that he's hopeful that as more projects get completed with the tax, those destinations will produce more sales tax revenue.
INTERNET SHOPPING
When the city projected that revenue from the 1 percent tax would grow by 2 percent yearly, that number was "conservative," Moore said.
"Obviously we were putting this plan together back in 2011. Trying to look into the crystal ball and project what the economy was going to be doing, even two or three or five years away, is something we knew was a challenge, but we did think 2 percent growth was conservative," he said.
So why has the projection not been met?
Moore and several city directors attribute it to online sales. Most people don't pay city sales taxes when they purchase goods on the Internet. City Director at large Dean Kumpuris has been especially outspoken on the topic. He wrote in an opinion piece for the Arkansas Democrat-Gazette that it is the most serious threat to continuing prosperity in Little Rock.
"Why is this an important and critical issue to the people of our community? City and county sales taxes make up about 50 percent of the revenue for the city of Little Rock. Unfortunately, over the last four or five years, the rise in Little Rock's sales-tax revenue has been minuscule," Kumpuris wrote. "Without this revenue, communities throughout our nation will gradually have to trim their budgets, which will inevitably lead to decreased services for citizens."
While the city hopes the state Legislature takes up the topic and ultimately the federal government passes a law requiring online retailers to collect local government taxes, Moore said there are other ways Little Rock's sales-tax revenue can increase.
He cited retail attractions like the relatively new Bass Pro Shops off Interstate 30 and the outlet mall coming there next summer as examples.
"Even unique restaurants we have in Little Rock that attract people to them, those will improve our overall economic picture," Moore said. "The power of the Internet where people can sit down and hit a button and the package is there in two days -- it's a major foe for us."
A section on 12/26/2014