Fayetteville council calls special election to renew city’s 1-cent sales tax

Fayetteville Government Channel

Fayetteville voters will head to the polls this summer to decide whether to renew the city’s 1-cent sales tax.

The City Council on Tuesday voted unanimously to call a special election on Tuesday, Aug. 10 to decide the question.

The 28-year-old penny sales tax was first enacted in 1993. It was renewed for a second 10-year period in 2011. If passed, this renewal would also add another 10 years to the collection timeline.

NWA Sales Tax Rates

1%Avoca, Decatur, Elm Springs, Little Flock, Pea Ridge, Springtown, Sulphur Springs
2%Bella Vista, Bentonville, Centerton, Farmington, Fayetteville, Gentry, Goshen, Gravette, Highfill, Johnson, Lowell, Rogers, Siloam Springs, Springdale
2.25%Cave Springs
2.75%Elkins, Prairie Grove, Tontitown
3%Greenland, Lincoln, West Fork

Source: Arkansas Dept. of Finance & Admin (June 2021)

City staff said they hope residents fully understand that the decision is not whether to increase taxes, but rather to continue with the 1 cent that’s been collected for nearly three decades.

“I want it to be crystal clear that this is not a new tax, said Paul Becker, chief financial officer. “This is the continuation of the current one-penny tax used for operations and capital.”

The tax generates about $22.5 million annually, Becker said. That amount is split 60-40 between general fund operations ($13.5 million) and sales tax capital improvements ($9 million). That equates to about 27% of overall general operations revenue and 100% of the capital improvements program.

The tax is currently set to last through 2023, but staff said getting a decision from voters well before the expiration date is always key when considering the possibility that voters may not approve a tax continuation.

“If this does not pass it’s going to take us a while to figure out exactly what we might do in the next budget cycle,” said Mayor Lioneld Jordan. “I don’t think I can express enough how critical it is that everybody rows in the same direction here on this sales tax election.”

The tax was last renewed by a nearly 75% margin. It was first adopted in 1993 by an 86% margin. It was renewed in 2002 by a 76% margin.

Becker said without a renewal, a revenue loss of that magnitude could not be replaced by other sources, which means city jobs would be lost.

Nearly 82% of the general operations budget is for employee salaries, Becker said, so if cuts had to be made to each category in the budget in direct proportion to the revenue loss, the city would have to eliminate about $11 million in salaries or as many as 150 jobs. With public safety employees making up about 60% of all full-time positions, Becker said it’s possible that 81 jobs would be cut in that sector alone.

The $9 million for capital improvement projects funds programs like street overlays, trails sidewalks and drainage, library materials, information technology, equipment upgrades and replacements, and fire apparatus. Without a renewal, Becker said money for those programs would be gone.

While warning the council of the effects of a rejection at the polls, Becker said he remains optimistic that the tax will be renewed again.

“The citizens of Fayetteville have shown themselves to be thoughtful and intelligent voters,” said Becker. “I am confident that after being shown the facts, they will overwhelmingly vote to continue this tax, which provides funding for many vital programs.”

In total, Fayetteville collects a 2% sales and use tax, which is common for the area. Other nearby cities that also collect 2% include Springdale, Rogers, Bentonville, Siloam Springs, Centerton, Farmington, Highfill, Gravette, Johnson, Lincoln and Lowell.

Washington County currently takes 1.5%, but that tax is set to be lowered to 1.25% next month when a temporary increase to fund a radio system expires. Benton County’s sales tax rate is 1%.

The state collects 6.5% in sales tax.

Some cities in Arkansas collect an additional 2% tax at hotels, motels and restaurants for tourism purposes, including Bentonville, Conway, El Dorado, Eureka Springs, Fayetteville, Fort Smith, Harrison, Hot Springs, Jonesboro, Little Rock, North Little Rock, Pine Bluff, Russellville, Springdale, Texarkana and Van Buren. Rogers collects a 3% tax at hotels and motels.