North Little Rock sales tax increase will prevent cuts, mayor says

North Little Rock resident Joe Whalen asks a question to Mayor Joe Smith during a meeting Thursday about the Aug. 8 vote on a 1 percentage point sales tax increase.
North Little Rock resident Joe Whalen asks a question to Mayor Joe Smith during a meeting Thursday about the Aug. 8 vote on a 1 percentage point sales tax increase.

Editor's note: This is the first report in a series detailing North Little Rock's plans for funding from a proposed 1 percentage point city sales tax increase. Today's focus is the permanent, one-half percent portion to fund city operations.

A sales tax increase won't send North Little Rock city departments on a spending spree, but it would let the city maintain the current services it provides residents and solidify future budgets, city officials said of the upcoming tax special election.

North Little Rock voters will decide Aug. 8 whether to approve raising the city's sales tax by 1 percentage point. Early voting will begin Aug. 1.

If passed, the new tax would produce revenue that would be divided equally between a one-half percent permanent tax for the general fund and a one-half percent tax for five years for capital improvements to the police and courts building, fire stations, and streets and drainage. The tax is projected to raise about $16 million annually.

The one-half percent permanent tax would cover the city's day-to-day operation and maintenance needs. This would include public safety, employee salaries and benefits, and services such as North Little Rock's free sanitation collection. The additional revenue also is projected to build up city reserves for emergencies.

"The [permanent] half-cent is needed for the city to maintain its current level of service and be fiscally responsible in the future," said Nathan Hamilton, the city's communications director. "This election is about moving the city forward and having the money to get there."

Officials said the rising cost of operations, coupled with flat sales tax revenue, has created the need to increase revenue and find the money for replacing police, fire and sanitation vehicles.

"There's not this great list of all this stuff we'll buy if it passes," city Finance Director Karen Scott said. "There's no wish list for new stuff. That is not the intention at all."

North Little Rock's general fund budget this year is $66.3 million, up from $60.1 million in its 2013 budget. Among the biggest increases have been employee salaries and benefits, which includes the city continuing to pay 100 percent of workers' health insurance premiums.

Mayor Joe Smith has said at a series of 40 presentations citywide on the tax proposal that 75 percent of the city's general fund budget goes to personnel.

"That leaves me only 25 percent of our budget to manage expenses without cutting people," Smith has said.

Salaries were raised this year by 2 percent and last year by 3 percent to be competitive in the market, Smith said, especially concerning police officers, firefighters and city electric workers. Those raises cost the city a total of $2.37 million, according to budget figures. The city transferred part of the money from its reserve fund to balance budgets.

Putting money back into that reserve is one big reason that Smith has listed during his presentations on the necessity of a tax increase. The fund was at $13 million to begin this year, but it is projected to fall to $4 million by 2019 without any revenue increases.

"For a city our size, that amount should be no less than $8 million," Smith told a group last week.

Smith has also defended pulling money from reserves to cover employee raises.

"We were way out of the market," Smith said. "Police and fire are our largest group of employees, and we needed to get their salaries up to where they're equal to other [cities'] departments and to where we could compete."

What has hurt the general fund is a lack of growth in sales tax revenue, Smith has said. City expenses have grown by an average of 3.5 percent annually in the past 10 years, according to city figures. In the same period, revenue from city and Pulaski County sales taxes has risen from $29.3 million in 2007 to $30.2 million in 2016, or an average of only 0.3 percent annually, according to city figures.

Smith has said the flat tax revenue is because out-of-towners have stopped going to North Little Rock to shop because their cities now have the same stores. Also, online sales cost the city between $750,000 and $1 million annually in lost revenue, he said, citing state government estimates.

Consumers currently pay sales taxes in North Little Rock totaling 8.5 percent, which includes the city's 1 percent sales tax, a 6.5 percent state sales tax and a 1 percent county tax.

About $4 million of the current city sales tax revenue is dedicated to capital expenditures, not city operations -- expenses that may include replacing police and fire vehicles and sanitation trucks. Also, it costs the city almost $5 million to provide 22,000 households free sanitation services, according to city figures.

The city receives other revenue from sources such as taxes and fines ($12.5 million), a transfer from the North Little Rock Electric Department ($12 million), utility franchise fees ($3.6 million), and business permits and general licenses ($1.93 million combined).

Smith has emphasized holding down expenditures while he's been mayor, Scott said. Department heads are already working on next year's budget requests without considering the tax increase, she added.

"Department heads have been really efficient with their budgets," she said. "But when you look at five to 10 years down the road, it's not realistic to think we can keep operating that way."

Expenses the city has to meet include the almost $5 million to provide garbage and yard waste pickup without charging residents, a pledge made to voters for passing the current 1 percent city sales tax in March 2000.

The City Council called the special election for the latest tax increase proposal instead of going back on that pledge from 17 years ago and implementing a sanitation fee, which it can do without a vote of the public. However, city projections show that revenue from a garbage fee would be "a Band-Aid at best," Smith has said, for the city's financial needs.

Hamilton said that if the tax should fail, "there's no gloom and doom" for the city, though something would have to give.

"Cuts could be an option if the City Council decides that route is where the residents want to go," Hamilton said. "The City Council could vote on a sanitation fee or choose to eliminate other stuff. Nothing is for sure."

Ending a presentation Thursday, Smith said the city has only three choices: The new sales tax increase, a sanitation fee or cuts throughout city departments. Doing nothing, he has said, isn't an option.

"Can I balance the budget without it? Yes," Smith said. "I don't think you'd want me to make some of the cuts I'd have to make. We're going to have to cut some things we don't want to cut."

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Arkansas Democrat-Gazette

North Little Rock Mayor Joe Smith gives a speech Thursday at the Patrick Hays Senior Citizens Center on how the money from a proposed 1 percentage point sales tax increase would be used.

Metro on 07/23/2017

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