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Arkansas Cities Say Pandemic Losses of Revenue May Be OverstatedLock Icon

12 min read

City leaders around Arkansas are holding their breath as business and social activities gradually restart after the initial shock of the coronavirus pandemic.

With the exception of local taxes collected on lodging and restaurant meals (see Pandemic Pummels Visitors Bureaus), tax revenue has held up fairly well — in part because the state collects sales taxes and then remits them to the cities up to 60 days later, so the brunt of April’s shutdown has not yet been felt. Another “saving grace”: Most internet sales are now subject to state and local sales taxes.

Arkansas Business checked in with officials in seven cities last week. Here’s what we found:

Jonesboro

At least at first, the city of Jonesboro didn’t seem to be hurt by the coronavirus.

Its March sales tax revenue was up 2% from March 2019, said Mike Downing, chief of staff for the city of Jonesboro.

But the northeast Arkansas city of about 80,000 won’t learn its sales tax receipts for April until the end of June. “We’re looking to see what that’s going to be, and hopefully, we won’t be affected that much, but it probably will,” he said. “We just don’t know how much.”

In addition to COVID-19, a tornado struck the city on March 28. The Mall at Turtle Creek was the hardest hit, with damage estimates in the millions of dollars. Downing said nearly all of the stores in the mall remain closed.

And restaurants in Jonesboro, as they have in other cities, have suffered, as has the tourism industry.

Downing said one bright spot during the pandemic is that most of the city’s stores, other than those in the mall, stayed open, even if some reduced their hours. And he didn’t think any of the manufacturers in the city have had to shut down.

Jonesboro “is in good shape financially,” Downing said. At the beginning of the year, the city had the required fund balance of 15% of operating revenue, which was about $7.5 million, and then another $20 million in reserves, he said.

He said the city also hasn’t furloughed any workers, but “we’re being careful.”

The city has delayed making some purchases, Downing said. “We’re probably in a pretty good position, but we just want to see what the numbers at the end of the day look like before we do anything more significant.”

North Little Rock

North Little Rock’s emergency fund will help the city withstand the coronavirus’ economic punch.

Through March, tax revenue was 3.5% below the city’s budget, Mayor Joe Smith said.

The central Arkansas city of about 70,000 people expects April’s tax revenue to be down 25% for the month, a drop of about $760,000, Smith said. And May’s figures are projected to be off 20%, followed by a 10% drop in June, he said. July’s numbers are expected to be down by 8% and then 5% the rest of the year.

“It looks like the economy’s going to come back and come back pretty strong,” Smith said. “I think by year’s end we might be back to normal.”

If the projections hold, the city’s $76 million general fund budget will be down $2.4 million for the year.

The pandemic had not required the city to cut any services, but it has furloughed “some part-time employees,” Smith said. “We’ve still got all our full-time employees.”

The city also hasn’t filled open positions, except for those in the police or fire departments or in the city’s 911 division, Smith said.

It has about 25 open positions, and the money saved on salaries from the vacant spots is expected to help cover the revenue shortfall.

The rest of the shortfall will be covered by tapping the city’s emergency fund.

“Eight years ago I decided that we didn’t have enough money in our emergency account,” Smith said. “So we’ve probably put in … I’m guessing $30 million” in the fund.

“To be honest with you, I was really anticipating a recession, not a pandemic,” he said.

The industries in the city that were hardest hit by COVID-19 include restaurants, entertainment and tourism. “Believe it or not, we’ve got pretty good tourism,” he said.

Other blows to the city’s revenue came in March when Simmons Bank Arena began canceling or postponing a steady stream of events. Also the Dickey-Stephens ballpark, home of the Arkansas Travelers, hasn’t had any minor league baseball games this season.

Smith also said the Union Pacific facility in North Little Rock has seen job losses.

Still, some industries have had bright spots, such as the distribution sector, he said.

And economic development hasn’t stopped in North Little Rock, said John Owens, president and CEO of the North Little Rock Chamber of Commerce.

“We’ve had people coming into our market, as we’ve always had, looking at sites, planning businesses, talking about new opportunities. It hasn’t slowed down at all,” he said.

Hot Springs

Sales tax revenue in Hot Springs started the year with a bang: up 9.71% in January and a whopping 19.01% in February.

“Even though March was down 1.09%, we’re still up 8.9% for the year,” said Dorethea Yates, the city’s finance director. “We were on track to have an awesome year. I’ve been here for 16 years, and it’s been the highest number I’ve ever seen, and I think a lot of that was due to internet sales. Internet sales tax will be a saving grace.”

Although the city budgeted a conservative 2.5% sales tax revenue increase for 2020, Yates said a hiring freeze has been instituted and travel expenses are being closely monitored.

Early projections have proved to be “too gloomy,” she said.

“We were expecting to lose $5 million for the year, but I don’t think it’s going to be anywhere near that bad. After the April numbers come in later this month, we’ll have a much better idea of where we’re going from here.”

Mayor Pat McCabe sounded less optimistic since Oaklawn Racing Casino Resort’s operations were interrupted. “We really don’t know,” he said. “We had half of March in the books, and no race fans in April.”

Oaklawn officials were forecasting track attendance to top 40,000 for the $1 million Rebel Stakes weekend of March 14, but the pandemic left the stands empty. However, the weekend wasn’t a total wash because the closure was announced shortly before the scheduled race.

“People were already here in town,” McCabe said. “They stayed and had a nice weekend. But for weekends following, there was no need to be in Hot Springs.”

Gradually more tourists ventured out for day trips to the Spa City. McCabe said the second half of May was pretty good for smaller businesses in town.

“Restaurants are doing pretty well,” he said. “People are anxious to get out and do things outdoors, and Hot Springs was a desired location.

“We were catching people from Texas, Louisiana and Mississippi. They were coming to Hot Springs and enjoying themselves. What I was really pleased with was how patient the tourists were. Everyone was just happy to get out.”

Fayetteville

The pandemic essentially closed Fayetteville’s largest employer — the University of Arkansas — and the businesses that depend on it, mainly in retail.

It also sent much of the city’s college-age workforce back to their hometowns, said Paul Becker, the city’s CFO. He said he’d seen many a “help wanted” sign in the windows of local shops and restaurants that are beginning to reopen.

Becker also said uncertainty abounds.

“I don’t know what to make of it yet,” he said. “So I don’t have enough information to make some [sales tax] projections at this point right now.”

The local sales tax represents about 60% of the city’s general fund. March’s collection, $3.86 million, was up a fraction of a percent from March 2019, and Becker attributed that to residents stocking up on groceries and other staples in the early days of the pandemic.

Becker said April collections, due back from the state this month, would be “a good bellwether” of what’s to come. Fayetteville, however, has not formally revised its budget, and Becker doesn’t think that will be necessary.

He said, however, that there will be savings from employee travel that was canceled and from the lower-than-anticipated cost of gasoline. City departments have also been asked to delay or cancel expenditures, even those that had been approved before the outbreak.

Fayetteville budgets conservatively to begin with, Becker said, and it has a $3 million rainy day fund to use in case of a major economic decline.

“We have realistic reserves, so I think we’re prepared for a downturn,” he said. “It’s going to depend on how long this lasts. It’s going to depend on the duration and the magnitude of the revenue declines to see if we can fully handle it, but we’re fairly optimistic that we can handle this realistically.”

In addition, the city is not struggling with its bond obligations yet, and Becker doesn’t anticipate a problem with that this year. But if the pandemic were to continue for 18 months, its effects could put a strain on the city’s ability to meet bond obligations, he said.

Becker also said that, while the restaurant and retail industries suffered most, Fayetteville saw its construction sector carry on.

Springdale

Springdale seized an opportunity during the coronavirus outbreak: It refinanced a $50.7 million bond issue when interest rates dropped, saving $5 million over the next five years.

The savings could be important. The city is projecting that its sales tax revenue will be flat and that its share of the state highway tax will take a big hit, said Morgan Wyman, director of administration and finance.

Highway tax collections are down because fewer people have been driving. The project it funds — street improvement and trail projects — “will continue, but probably at a slower pace,” Wyman said. “The refinanced bond did not affect these projects. We expect street turnback to be down 40% for three months and down 21% for the following three months.”

Springdale has few high-end retailers, so most of its sales tax revenue comes from residents buying groceries and other staples. As a result, “we’re pretty stable. We’re handling it very well,” he said. And while restaurants have been hit hard, Wyman said one bright spot has been record-setting sales numbers at home improvement stores.

The city is moving forward with projects that were already underway, including a new police station and city hall, three new fire stations and a new 120-acre park.

Fort Smith

Fort Smith, expecting the coronavirus pandemic to cause a sharp decline in sales tax revenue, has implemented a 10% across-the-board budget reduction, said City Administrator Carl Geffken.

A mostly healthy manufacturing sector has helped it weather the economic downturn, he said, but “there was no way we didn’t project a reduction in revenue,” Geffken said.

Working with the city’s Finance Department, his office estimated that April and May revenue would be down 80% and that June and July revenue would be down 50% — or a 22% overall reduction for the year.

“We didn’t know if this was going to be a short, sharp shock or was it something that would go on. Everybody had indicated that everything was going to stop,” Geffken said. That is what his dire projections are based on.

So far, reality has begun to paint a better picture. Collections for March, $3.66 million, were off about 3% from the same month last year.

“That was a good thing … but, of course, we also now think and pretty much know that the impact is going to be over a much longer period of time,” Geffken said. “So there’s still a very good possibility that, overall, our revenues could be down that much.”

For now, he said the city is confident that it can make its bond payments.

State law requires cities and counties to have a dedicated revenue source to pay off debt, Geffken said. “At the moment, we’re in a good spot, but again, it is a wait-and-see [situation], especially as the economic impact may drive on.”

That’s not to say families aren’t struggling to pay their bills. “I don’t want to paint too rosy a picture,” Geffken said.

The unemployment rate for the Fort Smith metropolitan statistical area is 11.9%, according to the U.S. Bureau of Labor Statistics; it’s 11.1% in Sebastian County, according to the Arkansas Division of Workforce Services.

As far as industries go, the restaurant sector was one of the hardest hit — as it has been throughout the country. Geffken said Fort Smith eateries have “thought outside the box” by embracing options like curbside pickup, but that hasn’t been enough to compensate for lost dine-in revenue for several of them.

Fort Smith’s health care industry has experienced contraction as well. Elective surgeries were halted and layoffs followed, he said.

But manufacturing has been a bright spot, though not all manufacturers in the city have been doing as well as others.

For example, he said, a local steel manufacturer and a manufacturer that caters to the leisure industry have experienced slowdowns.

El Dorado

The pandemic coincided with heartbreaking news for El Dorado: Murphy Oil Corp. will be relocating its headquarters and some 80 jobs to Houston. But local officials say there is much to be optimistic about.

Bill Luther, president of the El Dorado-Union County Chamber of Commerce, outlined the big-picture impact of the pandemic on local jobs.

“We started the year at 14,781 employed in Union County,” he said. “That dropped to 13,422 by mid-April. What’s really mitigated all that is CARES and PPP.”

Luther recalled talking with a local businessman who didn’t seem interested in plugging into the national relief programs — the Paycheck Protection Program is part of the federal Coronavirus Aid, Relief & Economic Security Act — and encouraging him to go ahead and submit his paperwork.

“He later called me and said ‘Thank you, thank you’ after he received a $50,000 electronic deposit in his business account,” Luther said. “That’s going to help him keep people employed.”

He reports that El Dorado remains in the hunt to land a half-dozen businesses, ranging from small to very large employers.

The May 15 bankruptcy filing by J.C. Penney Co. was followed by the retailer releasing a roster of store closings on June 4. Its Mellor Park Mall location in El Dorado made the list of 154 stores the chain intends to close nationwide.

Set to reopen June 12, the El Dorado store will wind down operations before closing for good during the next 10-16 weeks. While Penney’s prepares to go dark, two vacant retail projects are poised to return to business.

New commercial activity is in the works for the former Walgreens store at El Dorado’s Northwest Village Shopping Center. The focus of business will shift from pharmacy-based retailing to family-based entertainment.

Blacklight laser tag, an arcade and indoor playground along with food and drink will be served up by Excalibur Family Entertainment. Scheduled to open in the fall, the redevelopment will be a scaled-down version of the company’s venue in West Monroe, Louisiana.

This summer, Harbor Freight Tools is expected to open a store in a former Fred’s Super Dollar location at 440 S. Bradley Ave. on the south side of El Dorado. The chain, based in Calabasas, California, operates 14 locations around Arkansas.

Retail business in El Dorado didn’t wane during March, the first month to endure pandemic-induced economic fallout. City sales tax collections for the month totaled $316,341 compared with $285,872 in March 2019.

“I can say, and it was a little surprising, that our sales taxes didn’t plummet like I thought it would,” said Mayor Veronica Smith-Creer. “You can attribute that to bulk buying as well as El Dorado being a close-knit community and people supporting our local businesses. People wanted to be supportive of their neighbors.”

Financial disruptions to city business were minimal, but restrictions on social interaction between citizens and municipal employees are still in force.

Public access to city offices and facilities such as Barton Library and the water department remains closed. The private sector stepped in to bridge the service gap for water customers looking to drop off cash payments and conduct business in person.

“Simmons Bank helped us with opening their drive-through facilities for people to pay their water bills, too,” Smith-Creer said.

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