The $500 Million Question: Even Sales Tax Opponents Agree LR Needs Revenue

by Gwen Moritz  on Monday, Aug. 22, 2011 12:00 am  

(Painting by John Kushmaul)

Even the most vociferous opponents of the proposed 1 percent increase in Little Rock's sales tax don't dispute the city's need for additional revenue. Their question to city leaders is, in short: Can we trust you with so much more money?

Little Rock voters will decide Sept. 13 on two separate but complementary ballot items. One, if approved, will impose an additional sales tax of 0.625 percent - that is, 5/8 of a cent on every dollar spent on consumer goods and services - for operational expenses into perpetuity. The other asks voters for another 0.375 percent (3/8 cent) to make payments on a list of capital improvements during the next 10 years.

The first is projected to generate some $32 million a year, while the second will produce about $19 million a year for a total of about $500 million over 10 years, leading a small but motivated band of aginners to call itself $500 Million Tax - Too Much!

The city's plan, outlined in a resolution adopted by city directors on July 11, describes wide-ranging projects ranging from the unassailable - retaining police officers and firefighters currently being paid with federal grants that will expire next year and replacing the city's analog emergency communications system, for which replacement parts are no longer available - to items that could easily be categorized as luxuries, like $8 million for new exhibits and facilities at the Little Rock Zoo.

But the most controversial part of the proposal would use about 7.5 percent of the money generated by the tax for job recruitment and economic development, a first for Little Rock although the concept has become increasingly common around the state

Specifically, the proposal would use about $10 million to expand and improve the Port of Little Rock; about $22 million to develop a research and technology business park somewhere in the vicinity of the University of Arkansas at Little Rock and the University of Arkansas for Medical Sciences; and about $6 million to offer infrastructure incentives to companies that invest in and create jobs in Little Rock.

An Up-or-Down Vote
"These taxes are just way over the top," Jim Lynch, treasurer of $500 Million Tax - Too Much!, said in an informal debate with Mayor Mark Stodola arranged earlier this month by the Downtown Neighborhood Association. The operating portion of the tax proposal, Lynch said, is four times the size of the city's $8 million operating deficit. (Stodola disputed that characterization, pointing out that the city has already cut about $10 million from its budget during the past two years.)

But even Lynch, who said City Hall needed to work on its "trust deficit," told the audience that he would be willing to vote for a different proposal, one that would raise perhaps half as much as the upcoming ballot items. (See sidebar for more on the "trust deficit.")

Lynch and Kathy Wells, DNA member and neighborhood activist, voiced a common complaint: By larding up both the operating and capital components with a combination of essential and nonessential spending, the city board has created a situation in which voters must either accept spending they don't want or reject fundamental city services like police and fire protection and street repairs.

"If you want your street resurfaced, you have to buy a research park," Lynch said.

"We've been pushed to the point of an up-or-down vote because the city board won't listen otherwise," Wells told Stodola at the DNA debate.

But, according to Stodola, it was listening to diverse interests that led him and city directors to create a proposal that would address as many perceived needs as possible without overburdening the city's residents. (See sidebar on relative sales tax burdens.)

Jay Chesshir, executive director of the Little Rock Regional Chamber of Commerce, which supports the tax proposal, said he heard no discussion of giving voters a menu of tax choices other than separating out the perpetual operating tax from the 10-year capital improvement tax.

Economic Development Taxes
Voters in three counties and 17 cities in Arkansas have elected to pay sales taxes specifically to be used to attract or retain industry, according to information compiled by the Arkansas Economic Development Commission.

In June, Paragould voters added 0.25 percent to the city's existing 1 percent sales tax for economic development: for "spec buildings" and infrastructure. Jefferson County voters, by a wide margin, added 0.375 percent to the existing 1.25 percent countywide sales tax in February, with the proceeds dedicated to things like industrial site preparation, job-training programs and direct economic incentives.

But taxes dedicated to wooing industry have thus far been limited to much smaller cities - Russellville, with 28,000 residents, is the largest - and counties with much higher unemployment rates.

Chesshir, however, argues that having industrial sites ready and waiting and cash available to close the deal are as vital to Little Rock's future development as parks and streets.

"Incentives can't make a bad site good," Chesshir said. "Incentives are just the final piece of a deal" that helps a company limit the risk of expansion or relocation. "Incentives, unfortunately, are a necessary evil in the economic development workplace."

The Port of Little Rock has been a three-decade investment for the city that is now almost full due to the arrival of more than 2,000 jobs in the past four years, Stodola said. With about $7 million in new tax money, the city hopes to add more than 700 acres and then to put in about $3 million worth of streets and sewer and water lines to ready the site for additional industrial occupants.

"For a lot of people, the Little Rock Port Authority has been a wonderful, overnight, 30-year success," Chesshir said. But Little Rock also needs "a place to invest for the future," he said, which the tax proposal envisions as a research and technology park developed in partnership with UAMS and UALR.

"The likelihood of attracting early-state research companies from some other place is not near as high as keeping companies coming out of our own research facilities and institutions," Chesshir said.

The 'Slush Fund'
Although it represents little more than 1 percent of the total tax proposal, the establishment of a $6 million incentive fund has proven to be the most contentious part of the proposal. Jim Lynch referred to it at the Downtown Neighborhood Association debate as a "slush fund," and Arkansas Times blogger Max Brantley has repeatedly used the same description.

In a letter to Brantley, Mayor Stodola called that description "unfair and abusive."

The city board's resolution calls it the Jobs Recruitment & Economic Development Infrastructure Fund and says it will be used only with approval from the city board. Eligible projects will have to be inside the city limits, and the money will be used either in conjunction with the Governor's Quick Action Closing Fund "or by using guidelines tied directly to capital investments and jobs created."

Before the governor's office opens up its Quick Action Closing Fund to recruit industry, Chesshir said, it expects the local community to make a matching investment.

"People can say they don't trust city government," Chesshir said, "but we have these needs today."



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