Citizens of Little Rock will decide on Nov. 5 whether to increase the city’s sales tax from 1.125% to 2.125%. Early voting starts today, Monday, Oct. 21.
My first question is very simple: Why do we need to almost double the Little Rock city sales tax?
Several of my “progressive” friends are inclined to vote for the increase because they feel like we just have to do something, anything, to get our city moving. I think that is like a doctor prescribing chemotherapy without first examining the patient and deciding what medicine is really needed.
I cannot operate that way. Sales taxes are regressive and hit low income folks the hardest. The Little Rock sales tax applies to groceries, electric bills, water bills and sewer charges. For people already on a tight budget, raising the city sales tax will make a difference. The $650 million that the tax is projected to raise over the next 10 years are not pennies from heaven. Every single cent comes straight out of someone’s take-home pay.
(I must digress here to say that the city is probably violating state law by campaigning for this tax increase using city resources. Under Arkansas law, public funds should not be used to support or oppose a ballot measure. The city can put a measure forward and describe it, but it should not be promoting or opposing the measure with public funds. Unfortunately, there are multiple city websites where the tax increase is being promoted.)
The proponents of the increase have conspicuously avoided any real financial analysis, but I think it deserves serious study. It is your money, and a lot of it. Here are a few points that ought to be considered:
- The best way to grow sales tax revenues is to grow sales, not increase the tax rate. Little Rock needs to focus on growth, which will increase revenue organically. Our biggest problem is that people who work here do not choose to live here.
- Any discussion about increasing the amount of money citizens entrust to the city must include some analysis of how the city is spending what it already has.
- The current city sales tax produces about 56% of Little Rock’s general revenue. We also need to consider the rest of Little Rock’s financial picture, including the other taxes that make up the other 44%. Little Rock already has one of the highest overall tax burdens of any Arkansas city when taxes on real estate, utility charges and businesses are considered.
Growth in jobs, not people
In the 10 years between 2010 and 2020, Little Rock grew at an average annual rate of .47%, or less than one-half of one percent. In August 2021, Little Rock issued a press release extolling this growth rate, saying it “shows that people find Little Rock attractive.”
Well, actually, no. Of the 41 Arkansas cities that grew during that time, Little Rock ranked 35th. While Little Rock is barely growing, the nearby bedroom communities of Bryant, Conway, Cabot, and Benton are growing about four times faster. And now these communities are hitting critical mass, with populations large enough to support national chain restaurants, high-end retail, luxury auto dealerships and other major sales tax generators
The Little Rock-North Little Rock Metropolitan Statistical Area, which is made of Pulaski, Faulkner, Saline, Lonoke, Perry and Grant counties, is experiencing job growth at a rate of about 3.6% per year. The campaign material for the sales tax increase says, without substantiation, that Little Rock added 11,000 jobs over some undefined period. I question what the 11,000 number really means, but if that figure really does represent job growth in Little Rock over the last 10 years or so, Little Rock is adding a lot more jobs than residents.
One thing is crystal clear: Many people are willing to work here, but they hit the road at quitting time. If we don’t address that problem, Little Rock will fall further and further behind surrounding cities, and further behind Northwest Arkansas.
Why don’t people want to live in Little Rock? Is it racism, a vague fear of living in a more urban setting, or something else? Until we honestly talk about these things, we are not going to change our trajectory. We need more serious, open and honest dialogue about who we are, who we aspire to be, and how we are going to get there. Our problems need to become our mission.
If I were the mayor of another city near Little Rock, I would be donating to the campaign to pass this sales tax. The citizens of nearby cities won’t pay much tax, but they can commute to Little Rock to work at the expanded port. They can go to a better zoo, drive on our improved streets and be protected by our first responders, all while they are earning higher wages than are paid in their hometowns. And when the day is done, they can hit the interstate and quickly get back to their sanctuaries, all while Little Rock residents pay the freight.
Hard financial facts
Little Rock’s proposed total 2024 budget is about $333 million, but around $67 million of that amount is made up of special budgeted funds for streets, waste disposal, parking garages and other special categories that are funded outside the general revenue category.
For purposes of this analysis, the best approach is to focus on the city’s general fund, which is budgeted to be $257.5 million in 2024. Sales taxes are projected to pay about 55.7% of general fund expenditures in 2024. That sales tax revenue, $143.3 million, is projected to come from the city’s 1.125% sales tax and Little Rock’s proportionate share of Pulaski County’s sales tax, which is 1%. (Little Rock’s share of the county sales tax is dropping over time as its percentage of the county’s total population decreases.)
According to Little Rock’s annual budget report, in 2023, Little Rock sales tax collections hit an all-time high of $133 million, up 7% from the previous year. Sales taxes are automatically indexed to inflation, so the fact that costs go up over time does not justify an increase in the tax rate. As costs of purchases go up, so do sales tax collections.
The proposed tax increase is projected to raise an additional $650 million over 10 years. Three-eighths of the tax increase is to be used for “operating costs,” with 5/8th of the increase to go to capital projects. The largest projects are two sports complexes which would cost an estimated total of $115 million. The Little Rock Zoo and the Port of Little Rock would both receive $30 million, or a total of $60 million.
The zoo and the port bring tourists and workers to town, but 70% of the zoo’s visitors are from outside of Little Rock, and the businesses at the port hire workers from counties all over the state. These are not bad things, but it means the port and the zoo are really regional assets that shouldn’t be funded solely by sales taxes paid primarily by the citizens of Little Rock. Based on Little Rock’s 2024 budget, the zoo already will be subsidized by the city in 2024 to the tune of $5.3 million, or about $14,500 per day.
Many of the capital costs for the projects would presumably be incurred up front, with a lot of the subsequent tax collections going to pay interest on bonds issued to fund the initial costs. The proposal I reviewed on the city website lists capital expenditures and a category of spending called “Estimated Operating Expense Increase.” There is no timeline or schedule for when anything will be built, no contingency for construction inflation, no hard numbers for interest carry, and the like. I cannot tell much about exactly what is planned, and I can tell you nothing about when anything will be completed.
I certainly would like better local parks and city services, but when can those “quality of life” things be expected if the first call on the new money is for large capital expenditures of $175 million?
One tax among many
The promotional material being distributed by the City of Little Rock on its websites says that Little Rock’s sales tax rate is lower than those in some surrounding communities. This is generally true: If the proposed increase passes, local sales taxes collected in the city limits will go from 2.125% to an effective rate of 3.125%. (That’s just taking into account the city’s share and the county’s 1% share – it doesn’t include the 6.5% sales tax levied by the state.)
Viewed by itself, this rate would be in the range of what some Arkansas cities on the higher end now collect.But you cannot just look at sales taxes; you have to analyze the whole picture. When you do, you see that our overall tax burden in Little Rock is actually among the highest in the state. Again, sales tax only generates about 56% of the city’s operating budget. The other 44% comes from other taxes.
Property taxes are the second largest source of revenue for Little Rock’s general fund, representing about $38 million, or 14.7%, of the 2024 general fund budget. Here are the millages charged by Little Rock and some surrounding cities:
Little Rock | 15.1 mills |
Conway | 4.2 mills |
Benton | 3.8 mills |
Cabot | 3.5 mills |
Bryant | 1.9 mills |
Little Rock receives about 12.5% of its general fund revenue from utility franchise fees. These are simply sales taxes charged on the bills Little Rock residents pay for electricity, natural gas, cable TV, fiber optic services, water and sewer. Little Rock charges just about the highest fees of any comparable city, including an egregious 10% charge on water and sewer services.
This franchise tax — which you can see yourself if you examine your monthly bill — is just a cash payment to the city, computed in the same way as a sales tax. To add insult to injury, the city then charges you regular sales tax on your total charges, and then sales tax on your franchise tax. In effect, Little Rock residents currently pay the city about 12.3% in franchise and sales taxes on our water and sewer bills.
Other cities don’t do this. The average for the cities in our metropolitan statistical area is less than half of what Little Rock residents pay. Cabot does not charge any franchise tax on water and sewer services at all.
Little Rock also has a complicated annual tax on businesses that operate in the city limits. This tax is expected to raise $7.35 million in 2024. I pay $155 per year to the city of Little Rock for the privilege of practicing law here. If I lived in Conway, I would not pay anything. In Cabot or Benton, I would owe $50.
This same disparity is found all across the board for all sorts of businesses and professions, with Little Rock businesses being punished financially for locating here. I know of car dealers that moved to Bryant just to avoid city taxes on their inventories and businesses.
And don’t ask about Little Rock’s liquor license fees and mixed drink taxes. If you order a $8.75 mojito, Little Rock collects a little over a dollar.
So, yes, Little Rock’s sales tax is moderately low, but the idea that we are a low-tax city is just not true when all taxes are considered.
Focus on the problem
This tax proposal is icing on a styrofoam cake. We need to focus on the basics, such as good roads, public safety, trash collection, and parks. Folks will support those things, and maybe more, once we execute on the fundamentals.
But rather than tackle our real issues, or tighten our belts, the city wants to almost double a regressive tax, build some tourist attractions, and hope for the best.
Little Rock recently spent $750,000 for a downtown study that said one big problem is that people don’t live downtown. It says we need residents, not visitors. Will a sales tax increase grow our population downtown?
We need sustainability plans for the zoo, the port and any major facilities we construct. Search “Go Forward Pine Bluff” if you want to see what can go wrong with these sorts of plans after a tax sunsets and the operating costs continue. If we want to talk about major improvements, we need a timeline of when we can expect those improvements to show up.
We have a lot of wonderful things happening here in Little Rock. I love the reimagined Museum of Fine Arts, Robinson Auditorium, the Central Arkansas Library System, the Clinton Library and the new home for the Arkansas Symphony Orchestra. These are great assets, and we need more things like this in our city.
I also think Mayor Frank Scott Jr. is doing some good things, especially with some solid appointments to city boards and commissions. We finally have the right person as police chief. The mayor is a great ambassador for Little Rock, and he could be a unifier.
But we also have a growing number of administrative personnel, most of whom have vague goals and practically no accountability. The city board has approved some general budgets for more public relations persons, schedulers, spokespersons and chief policy advisors, along with a chief of staff, chief educational officer, chief economic development officer, chief homeless officer, security personnel, external operations, an internal communications coordinator, administrative assistants, and the like. We have eliminated a lot of people who work in the community, and replaced them with emailers.
I don’t think the public will support a tax increase unless the city stops all of that and flattens its organization, with more people on the front lines and actually working in the field.
In summary, because we are a high-tax city already, because we are not addressing our main issues, and because we are not wisely spending what we already have, I will vote against the current proposal. I want things to be better in Little Rock. I want to be for something, but I am not for this.
In the second part of this series, I will put forward some positive ideas for tax changes that I think could make a big difference in our city.
Source
(Except for the headline, this story has not been edited by PostX News and is published from a syndicated feed.)