Convention Center Ideas Were Taxing

30 May 2010 -- An ad hoc committee looking at ways to keep the Fort Smith Convention Center afloat has completed its assignment, and what happens next will be up to the Fort Smith Board of Directors and, depending on its decision, up to voters.

The committee is to be thanked for its work. The task was not an easy one: Figure out what can be done with the convention center's lack of finances once state turnback money goes away at the end of June.

There were several ideas presented, which one would expect in a brainstorming exercise. Some stuck to the wall; some didn't.

What the committee on a unanimous vote will recommend to the board is a 1 percent prepared-food tax. That was the primary recommendation. But members also will say that the board might want to consider reallocating 10 percent of the city's 1 percent street tax to meet the needs of the convention center.

A couple of suggestions that didn't get any traction were to raise money through a business license fee or to let the facility close. Another idea was to turn the center over to a private contractor. And while that plan will also be presented to the board, the committee's orders didn't extend to asking potential operators for proposals so the committee members didn't have anything of substance to report to the board on that possible scenario.

Both of the sales tax proposals come with risks. The street tax was first approved by voters in 1985, then renewed in 1995 and renewed again in 2005 - the last two trips to the polls by wide margins. Voters obviously don't mind paying a penny of sales tax on the dollar if it goes to improving streets and drainage.

The upside to asking voters to reallocate part of the street tax to pay for the convention center operations is that the 10 percent cut would bring in a tidy $1.8 million a year, all without a tax increase - which would be enough to fund the convention center as well as pay for other projects.

The downside would be that by taking money out of this fund, work on street projects would be slowed. But the biggest risk is in messing with something that's working. We all know from past history that voters like this tax the way it is. Who's to say they would be so accommodating if they were asked to vote on a 1 percent street tax, convention center tax and other stuff tax instead of just a 1 percent street tax?

Then there's the 1 percent prepared-food tax, which would bring to 10.25 percent the tax that is paid when diners pay their tabs. You want to throw down another penny per dollar when eating out and feel good about it because it supports the convention center and other causes, such as the Marshals Museum? Well, that would be the $1.8 million question because that's how much such a tax is estimated to bring in each year.

Despite the anguish of a sales tax increase, Fort Smith, with an additional 1 percent prepared food tax, would be comparable to other substantial cities in the state. Right now, the 9.25 percent that we pay here is broken out thusly: 6 percent goes to the state, 2 percent goes to Fort Smith (1 percent for streets and 1 percent for wastewater treatment), 1 percent goes to the county, and 0.25 percent was passed by voters to allow Westark College to become the University of Arkansas at Fort Smith (and in exchange another tax was done away with).

Fayetteville has a 2 percent prepared food tax and pays a total of 11.25 at restaurants; Little Rock has a 2 percent prepared food tax and pays a total of 9.5 percent at restaurants; North Little Rock and Hot Springs both have a 3 percent prepared food tax and 11 percent overall, according to figures provided by Fort Smith city administration.

Still, even if Fort Smith fits in neatly with other cities on the matter of a prepared food tax and overall sales taxes paid, the city and state and country are just now recovering from a painful economic downturn. Asking for any sort of tax increase right now could be dicey.

The board has it within its authority to enact the prepared food tax itself, but if a restaurant tax is the route the members decide to go, they will likely ask voters to approve such a proposal because maybe they don't want to end up like Searcy. That city's governing body passed a restaurant tax and one on hotel fees, but angry citizens forced the matter to a vote of the public, and the taxes were overturned, forcing the city to refund what had been collected. Quite a mess and one that would have been avoided had the public voted on the proposed tax increases in the first place.

Some of these questions will be decided once the board makes its decision. And now that the ad hoc committee has done the heavy lifting, the board can do just that. After that, the really hard part falls to the voters. Stay tuned.