Conway will have to change the way it raises general fund revenue to face a future where growth in population and sales tax revenue seem to be “plateauing,” according to the mayor.
Generally, the city’s model of revenue generation over the past two decades has relied on sales tax revenue increasing in concert with the growth of city population and city operations, including street/utility, fire and police infrastructure.
However, retail sales tax income growth has been tapering off, resulting this year in a projection that next year’s sales tax income won’t be better than 2013’s and a 2014 budget that cuts all but the bare necessities from the city’s general fund.
According to Mayor Tab Townsell, the issue can be understood best by breaking the past 20 years into roughly seven-year periods.
Between 1994 and 2000, the city’s one-cent retail sales tax increased revenue by 59 percent. Townsell said this could be attributed to a second Walmart Supercenter and a 58-percent growth in population largely from “economic flight” from Little Rock during a period of much-publicized gang violence.
Between 2000 and 2006, retail sales tax increased by a further 49 percent — during this period the new retail growth from the Conway Commons shopping center offset the bust of the “dot com” industry.
And between 2006 and 2013 retail sales tax increased by about 20 percent, with sales tax being mostly “flat” between 2009 and today. Also, the building of single-family residential homes has tapered off for a number of reasons including development of most of the flat land within the city and an increasing cost of providing new utility infrastructure, Townsell said.
It is expected that the Central Landing development will increase retail sales tax figures, but given the city’s retail sector growth to date, the percentage increase will probably not be as large as that experienced when the Conway Commons came on-line, Townsell said.
For a number of years, the decline in new single-family homes was offset by a boom in new apartment complexes, but the population’s demand for apartment units seems to be mostly satisfied now, according to Townsell.
Townsell said that he thinks this “plateauing” is a new trend, and one that heralds a coming end to “the model of revenue we have been using for 20 years.”
About 83 percent of the city’s general fund goes to pay personnel, with the largest expense being the Conway Police Department. A one-percent increase in CPD budget would need slightly more than a one-cent sales tax increase to “keep up,” he said.
If retail sales tax and population growth are going to be “flat” in coming years, one response would be to increase the city’s property tax millage and/or utility franchise fees, which would effectively be a new tax on electric or water utilities.
This would “provide us a cushion against sales tax volatility,” Townsell said, but would not be a “silver bullet” solution.
With 2014 being an election year for four members of the Conway City Council, any proposal for a new tax would probably spark lively debate. The council can, by majority vote, either increase property tax or franchise fees by limited amounts. However, such an increase could be “rolled back” by a public vote in the form of a referendum properly introduced before a new tax is put into effect.
(Staff writer Joe Lamb can be reached by email at email@example.com or by phone at 505-1277. To comment on this and other stories in the Log Cabin, log on to www.thecabin.net. Send us your news at www.thecabin.net/submit)