Revenue short, Little Rock adjusts budget

Contingency funds used: Sales, franchise taxes miss forecast

Little Rock has dipped into its contingency fund to balance the 2016 budget, in part because sales tax collections are short of forecast.

The Board of Directors approved adjusting the budgeted 2016 revenue downward by a little more than $3 million Tuesday. Almost $1.7 million of that was sales tax revenue that didn’t materialize. Also, nearly $1.9 million in franchise taxes weren’t realized.

The decrease in budgeted revenue is offset by nearly $2.4 million saved in budgeted expenses for 2016 — expenses that were planned but didn’t occur.

The city plans for instances like this by putting a $1 million contingency line item into each year’s budget. If at the end of the year officials don’t need the contingency money to make up for a revenue shortfall, then the money is transferred into the city’s reserve fund.

In this case, the city will transfer $624,580 out of its contingency fund into its general fund account to make up for the 2016 revenue shortfall. The remainder of the $1 million contingency will go into the city’s reserve account.

The budget amendment approved unanimously Tuesday does not use any of the $9.4 million in the city’s reserve fund.

Ci ty M a n a ge r B r u ce Moore said before Tuesday’s meeting that the reserve fund is for serious emergencies. Little Rock has never had to use reserve money to balance a budget, he said.

Other cities have had to do so.

This is the second year North Little Rock has approved dipping into its reserves to balance the coming year’s budget. The current draft version of the 2017 North Little Rock budget includes taking $2.3 million out of the city’s $15 million reserve.

North Little Rock’s 2017 budget includes 2 percent raises for all employees. The dip into the city’s reserves is nearly double the $1.25 million it used from reserves to fund this year’s budget.

North Little Rock Mayor Joe Smith told his City Council last week, “That’s not fun for me,” and said aldermen must figure out how to add revenue since sales tax revenue is flat.

Sales tax revenue is playing a big role in municipal budget planning in many cities. When Little Rock voters approved a 1 percent sales tax in 2011, the city projected revenue from the tax would increase by 2 percent each year.

But revenue from the tax has fallen short of that projection, which city finance officials said they thought was conservative.

Given that reality, Little Rock City Director Dean Kumpuris asked during a budget meeting last week whether the city’s forecast for a sales tax revenue increase in 2016 was conservative. Finance Department Director Sara Lenehan said she thought it was when the budget was proposed last year, but the city is down slightly in sales tax revenue for the year compared with a year ago.

For more than a year Kumpuris has brought up the effect of Internet sales, in which shoppers don’t pay local sales taxes on items purchased online. He and Little Rock Mayor Mark Stodola have lobbied state legislators to pass a state law requiring sales taxes to be collected when online purchases are made in Arkansas.

“I would like us to issue an invitation to whoever wins our congressional district and to our two senators to let us talk with them here [at City Hall] about our sales tax,” Kumpuris said last week, before election results were announced. “I know that’s dramatic, and I know they aren’t going to like it, but we have a serious problem.

“We just reduced our budget by a lot of money and it’s going to have serious ramifications,” he said.

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