Two sides of retail tax increase

Becky Gillette – Local businessman Ken Foggo, owner of EureKan Art on Main St., addressed city council recently in strong opposition to a proposed two percent retail sales tax increase saying it would hurt businesses like his to have higher city sales tax rates than other cities.

Mayor Butch Berry has floated the idea of a sales tax increase, which would have to be approved by voters, to help repair the city’s aging water and sewer system. Berry said improvements are needed largely because the town of about 2,000 has more than a million visitors per year, which puts a strain on the water and sewer infrastructure. He recently instituted a hiring freeze, stating that the city was behind on revenues and needed to reduce expenses.

During public comments at a recent council meeting, Foggo said he had the following concerns:

• In September 2015 aldermen were shocked to learn the city had not set aside reserves.
• In October 2015, the city budgeted $125,000 for a Public Works building, which is now estimated to cost $225,000.
• Spent $34,000 for Christmas decorations.
• Raised water rates, but did not have enough money to build a testing facility, which would save $2,000 a month.
• Found out that expected revenue for the ambulance service was about $180,000 shy.
• The finance director announced the total in all city accounts dropped from $10 million to $3 million over the past few years.
• The council approved $14,350 for storm warning sirens

“Now you propose a two percent additional tax on retail,” Foggo said. “Additional tax without responsibility will just lead to more indiscriminant spending. They need to do something different.”

Foggo said he already has customers complain about the high tax rate. “When I give them the total, the first thing they say is, ‘My God, what is your tax rate here?’”

Currently the sales and use tax on retail in Eureka Springs includes a city tax of 2.375, state tax of 6.5 percent and the Carroll County tax of .5 percent. That totals 9.375 percent on retail except for the grocery sales, which don’t have the full state tax. Currently the city tax rates for Berryville, Springdale, Rogers and Huntsville are two percent, and Hot Springs and Little Rock are at 1.5 percent. Foggo said if Eureka adds another two percent, the city tax would be two to three times higher than other cities.

Mayor Berry responded it isn’t that the city is being reckless.

“The truth is our water and sewer is needing help,” Berry said. “When we built that sewer plant, I don’t think there were any projections about what it would cost for operations and maintenance. No one ever mentioned it would cost ‘x’ amount to use that facility. Those are items we are finding through experience. We’ve known we have had water leaks. For a while we were paying more for our water than we were charging. No business can operate paying more for merchandise than you are selling it for. We have 110-year old water lines leaking water. Finally, it is costing us $300,000 to replace water meters to get accurate gauges on how much water customers are using.”

Berry said it is tourists who buy most of the retail here and who use most of the water and generate the most wastewater. So he said it would make sense to have visitors pay for upgrading the water and sewer systems.

“How would he [Foggo] like to add $400 a month to the bill for water and sewer charges?” Berry asks.

Foggo also questions spending on the police department at more than $1 million and what he feels is high spending for the fire department.

“When you look at the total we pay for everything, it is well over half of our budget for police and fire,” Foggo said. “Do we need protection that much, or do we need protection from city council spending? What has happened over a period of time is there are more and more and more people on city payroll. Do we need that many people? Do we need to be the ambulance service for the whole county? We might not can afford a new public works building and now they’re wanting a new water and sewer system. Where do you get off this buying spree?”

Berry said the fire and police budgets are larger than normal for a town this size because it is necessary to take care of a million visitors per year.          

“We have pretty good fire insurance rates for everyone,” Berry said. “We have one of the safest towns in America. The police department has done a great job of managing its budget, and the fire department is in the process of managing its budget, too.”

Berry pointed out that Berryville has a Walmart that generates a large amount of sales tax. Tyson’s, with plants in Berryville and Green Forest, pays a large portion for the water department with the amount of water they use in those towns for chicken processing plants. Eureka has neither of those advantages.

Berry said the reason why totals in city accounts have gone down from $10 million to $3 million in recent years is largely that the city has been borrowing to supplement the water and sewer department. And there was a $200,000-$300,000 rock fall near Grotto Spring that had to be repaired.

“So, emergencies happen,” he said.

Higher taxes, Foggo said, will send more people to Holiday Island, Berryville and Missouri to shop. Gasoline prices are also often significantly less in those areas.

Foggo said retail has declined in Eureka Springs since 2008, and that a number of local retailers are struggling, especially art galleries. He also found that sales taxes revenues to the city have increased from $2 million in 2010 to $2.5 million in 2015.

“This year through April they have collected $677,455 in sales taxes compared to $639,821 for the same time period in 2015,” Foggo said. “You are six percent ahead. But the mayor was quoted as saying we are falling behind in revenues. It all points to an unrealistic budget and overspending.”