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FORT SMITH -- Officials from both Fort Smith and Sebastian County are unsure exactly what effect the coronavirus pandemic will have on sales tax revenue.

The uncertainty comes after Gov. Asa Hutchinson ordered the closure of all bars and restaurant dining rooms in the state March 19 and the Arkansas Department of Health ordered the closure of beauty parlors, barbershops, nail salons, massage therapy studios and tattoo parlors as of March 25.

Fort Smith City Administrator Carl Geffken said in a recent interview that the city will not know the real impact until May at the earliest, although it can make projections. This is due to a lag from the locations that collect the sales tax and submit it to the Arkansas Department of Finance and Administration.

Similarly, Sebastian County Judge David Hudson said he could not determine the actual financial impact of the pandemic at this point.

Geffken said Fort Smith has not yet done a month-by-month projection.

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"The problem with us trying to project our own sales taxes at this point is that there's not enough solid information for which to base that projection," Geffken said Thursday.

"However, there has been some information put out by the Arkansas State Chamber [of Commerce], the [Sam M.] Walton School of Business, and the Arkansas Economic Development Institute that we are using to help guide us at the moment, and we are looking to have some forecasting done for us."

Fort Smith has looked at how much it can reduce its expenses, Geffken said. He asked every city department to submit a "budget reduction exercise" in the amount of 10% by March 24. Geffken, city Finance Director Andrew Richards and Deputy City Administrator Jeff Dingman are reviewing this material, which will be presented to the city board of directors at a future date.

"It was looking at the amount of money saved due to vacancies, and of course fringe benefits, the potential to put off expenditures and purchases that, when looking at the operation of their departments ... that this purchase could wait until 2021, at which point we hope and are planning on having the economy definitely be back on a much more normal footing," Geffken said.

He said the city has also frozen capital expenditures, which are large projects that do not pertain to a 2015 consent decree, as well as many new hires.

Fort Smith officials signed the consent decree with the Environmental Protection Agency, the U.S. Department of Justice and the state, agreeing to make an estimated $480 million in repairs and upgrades to the city's wastewater system over 12 years to clear up chronic violations of the federal Clean Water Act.

Geffken said the city has 1,063 positions budgeted, with about 1,000 employees at any one time, although it varies. The biweekly payroll is about $1.1 million.

In terms of unobligated balances, Geffken said Fort Smith has more than $16 million in its general fund and about $42 million overall.

"At this point, given the time frame that we've seen in Asia, from China and South Korea especially, that have effectively used social distancing and also, as some states have done here, shelter in place, we will be able to make it through the three to four months without needing to consider [laying off city employees or bankruptcy]," Geffken said March 24. "But we will, of course, be keeping close track on our expenses and revenues to make sure that should further belt-tightening be necessary, it will be taken."

Geffken said Fort Smith's current tax rate is 9.75%, 2% of which is for the city. Of this amount, 1% is dedicated for 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 webpage for the city's finance department.

The remaining 6.5% and 1.25% of the tax rate goes to the state and to Sebastian County, respectively. 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%.

Hudson said Sebastian County's 1% sales tax is allocated based on population, meaning the cities in the county get the majority of it.

"The county gets the unincorporated share of about 15.5%, and ... the majority of that goes to operate the jail, law enforcement, juvenile detention, and then our other 11% of it is for our capital account," Hudson said. "We had some other allocations, but that's the majority of it. So, it's an important revenue stream."

County government, Hudson said, is not allowed to appropriate more than 90% of its estimated revenue, which leaves a reserve of 10%. The 10% in Sebastian County's general fund is about $2.6 million, although the county holds back about $4.8 million as a cash-flow reserve.

Hudson said the county already takes a "pretty conservative" approach to budgeting.

"As we look at the potential impact on the county, and I'm sure there will be an impact from the slowdown in the economy, we will look at being prudent in how we're spending money," he said. "We'll encourage the elected officials and department heads to spend money on essential operations and be cognizant of the potential impact on our revenue streams, and we'll be following up with that."

Court fines is another area in which Hudson said the county may see some difference between what it has estimated and what it collects.

The operations of Sebastian County Circuit Court, Fort Smith District Court and Greenwood District Court were adjusted due to covid-19, said Sebastian County Circuit Court Judge Stephen Tabor.

The county has 395 full-time employees and 44 part-timers, with a biweekly payroll of about $853,000, Hudson said.

"We keep a cash-flow reserve -- I think that's at $5.5 million for the general fund -- and then we have unobligated money right now," Hudson said. "We have a variety of earmarks, and then the difference in that cash-flow reserve and what we actually have in the fund balance that could be tapped would be a few more million dollars. So we do have some flexibility if we needed it to make some other adjustments."

Hudson said the county has not yet had any discussion of a hiring freeze, laying off county employees or anything of that nature. No projects in the authorized 2020 county budget have been restricted at this point.

Information for this article was contributed by Andy Davis of the Arkansas Democrat-Gazette.

SundayMonday on 04/06/2020

Print Headline: Officials brace for decreases in sales tax revenue

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