FORT SMITH -- The Fort Smith Board of Directors voted to hit pause on a tax increase that would affect private clubs throughout the city.
The board voted to adopt the city operating budget for fiscal 2021 during its regular meeting Tuesday. It also approved an ordinance amending the 2021 operating budget to accommodate recommended new needs requests made by city departments.
Also on the agenda was a proposed ordinance increasing a city "supplemental alcohol tax" from 5% to 10%. However, despite this increase, which is estimated to generate about $500,000 each year for the city's general fund, the board adopted the ordinance after approving an amendment to it that it not go into effect until Dec. 1, 2021.
City Administrator Carl Geffken explained that the tax applies to customers who order alcoholic beverages at bars and restaurants in Fort Smith.
In a memo to Geffken, City Finance Director Andrew Richards wrote that 10% is the maximum fee allowed for such a tax under Arkansas state law. City Clerk Sherri Gard said Wednesday that the city established the tax at the current 5% rate in 1969.
At the meeting, Talicia Richardson, executive director of 64.6 Downtown, a nonprofit organization that focuses on revitalization projects for downtown Fort Smith, spoke out against increasing the tax with the covid-19 pandemic still ongoing. She said certain small businesses in the community have closed during the pandemic, with others trying to sustain themselves by 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, have been hit heavily by the pandemic and have been 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 the operations of bars and restaurants will be continually affected because they are not operating at full capacity. In addition, despite creation of a covid-19 vaccine, it is still uncertain when the pandemic will end.
"I'm respectfully asking the board of directors tonight to consider postponing your decision until December 2021 to allow these businesses to operate post-covid because we are still in covid," Richardson said.
After Richardson stated her case, City At-Large Position 6 Director Kevin Settle made a motion to amend the ordinance so that it would go into effect July 1. Ward 3 Director Lavon Morton mentioned that the motion would not preclude the Board of Directors from further extending the effective date if the pandemic did not sufficiently improve before July 1.
At-Large Position 7 Director Neal Martin voiced his opposition to the tax increase even with such a delay. He noted that the board had approved the city's operating budget for 2020 at Tuesday's meeting, which at that point showed an estimated surplus of more than $4.7 million across the city's four operating funds (more than $2.5 million of which is in the general fund), 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."
Ultimately, Settle's motion was defeated, with three directors voting for it and four voting against it. Ward 2 Director Andre' Good then made the motion to amend the ordinance with an effective date of Dec. 1, 2021, which passed with five positive votes and two negative votes. The latter votes were made by Martin and Ward 4 Director George Catsavis. The amended ordinance was passed afterward by the same 5-2 vote.
Geffken said he would ask Gard that the issue be placed on the agenda for an October Board of Directors study session for review.
With the new needs requests that were approved as a result of the ordinance amending the 2021 operating budget Tuesday, the city is left with a total projected deficit of more than $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 the Board of 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."