Members of the Fort Smith Board of Directors discussed city finances at today's noon study session, where they learned that the city's 2014 budget would likely stay at levels similar to the current budget.
The budget is unlikely to rise noticeably in the next fiscal year, according to City Administrator Ray Gosack, due to the drop in sales tax revenues this year.
In response, Director Pam Weber questioned whether any cuts need to be made to this year's city budget following the across the board 4% cuts that went into affect earlier this year.
"The sales tax revenue is still meeting those revised revenue estimates, so at this time there's not any spending adjustments to the general fund. But if those revenue trends continue into 2014, then that level of spending we made for the rest of 2013 would need to continue into the rest of 2014," Gosack said.
He said even with the decline, repayment of bonds are in good shape since the bonds were drawn out over multiple years and included "cushion" should a drop in revenues, such as what happened this year, were to occur again or continue.
Gosack added that the city has budgeted 7.5% for contingencies, a number he said cannot go any lower without affecting cash flows.
"Given what's gone on the last eight to ten months revenue, that's the most prudent route to take at this time."
Each of the city’s 1% sales taxes (1% for streets and 1% for water and sewer projects) collected $1.614 million in the July report, down 3.49% from the same period in 2012, and 6.34% below budget estimates.
For the first seven reporting months of 2013, each of the 1% sales taxes generated $11.494 million, down 1.63% compared to the same period of 2012, and 4.49% below the budget estimate.
For the first seven reporting months of 2013, the city’s portion of the countywide tax has generated $8.958 million, down 1.75% compared to 2012 and down 4.15% compared to budget forecasts.
The countywide tax collection is critical because the revenue is a little more than 40% of the city’s general budget of roughly $42 million. A majority of the general fund budget general supports fire, police and other critical city functions.
Despite the decline in sales tax revenues, Gosack said there were reasons to be optimistic about the future of Fort Smith.
"There are other positive signs in our economy. It will probably take sales tax or retail sales some time to catch up with those other positive trends," he said.
Among the positives, Gosack highlighted the recent announcements of new jobs coming to the Fort Smith area and the positive signs in the commercial construction market.
"So although people focus on the employment rate, one of the things I look at is the actual number of people with jobs working in our MSA and that number continues to go up. So that tells me there are more people with jobs, working and that provides more income to be spent on retail sales in the economy."
Gosack also highlighted positive signs in the residential real estate market as an indicator that the sales tax revenue decline will eventually turn around, though likely not until fiscal year 2015.
One of the few areas the city administrator said would need additional funds in the 2014 budget would be in healthcare, where premiums have continued to rise.
"Even though the revenue will be flat, the one significant expense that I know will rise in 2014 is healthcare," he said, with Board members speculating it could rise as much as 7% or 8%.