Highfill officials warn Senate bill’s sales-tax escrow could cripple city budget as airport detachment looms

A Senate committee heard competing testimony March 14 about provisions in Senate Bill 96 that would escrow sales-tax revenue tied to Northwest Arkansas National Airport (XNA) if a detachment from the City of Highfill proceeds, a change Highfill officials say would sharply reduce the city’s operating revenue.

The dispute in the Public Health, Welfare and Labor Committee centered on a default provision in the bill that airport and authority representatives said was included to protect bondholders; Highfill officials said the escrow language would leave their city without roughly $1.7 million in annual sales-tax receipts and could force cuts to police and fire services.

An airport authority representative told the committee the escrow language reflects the position of the bond counsel who drafted the bill. “Our intent was to have a level playing field so that we could have a conversation … and the reason the language is in there the way it is, is to protect the city's bond holders when those bonds are secured by sales tax revenue,” the airport representative said, adding the language is intended to avoid unconstitutionally impairing bond covenants.

Justin Allen, a Highfill city councilman, said the city first saw a written offer from the airport authority only days before the council considered it and described the proposal as fiscally unsustainable for Highfill. “The plan that was put before us on Tuesday as a city council will cripple us. We will go bankrupt. We will have to defund our police. We’d have to defund our fire department,” Allen said, describing a counteroffer his city submitted that would stop detachment if the airport withdrew the petition and the authority supported a special sales tax vote administered by the state.

Committee members pressed for specifics. A committee senator asked whether the authority’s move was intended to “lock up 100% of the sales tax” during any detachment process; the airport representative said the statute contemplates mediation and other steps and that the escrow language is the default legal position to protect bondholders, but that the parties have the ability to reach a separate agreement.

Committee exchanges and testimony included these financial figures and timeline points, as reported in the hearing:

- Highfill council members and the airport representative repeatedly cited roughly $1.7 million as the annual sales-tax revenue currently tied to airport operations; speakers also referenced figures of about $765,000 and “a little over $2,000,000” in various contexts. (Amounts were presented in committee testimony and on-the-record public comments; precise accounting and how the amounts were calculated were not specified during the hearing.)

- The airport authority representative said there are approximately $7,000,000 in outstanding water/sewer bond obligations from two issues and described those bonds as the reason for the escrow proposal. A witness described the 2018 and 2021 bond issues as water and sewer projects; the exact outstanding principal and maturity dates were not specified in committee testimony.

- Highfill officials repeated an 8-to-14-year planning horizon they say the airport previously discussed as a “soft landing” timeline for repayment of the city’s bonds should detachment occur. Highfill leaders said they do not have that planning horizon and said they only recently received written offers from the authority.

Several Highfill officials who spoke urged more time for negotiation and criticized the authority’s offer as one-sided. “We are doing our best to find on behalf of our citizens to do what they said they would do,” Justin Allen said, adding that the city’s council had reviewed financials publicly and sought a more workable path forward.

Shai Adelman, a Highfill city council member for Ward 3, said the city does not want the airport to detach. “You’re asking if we want the airport to deannex? Absolutely not,” Adelman said, and she urged the committee to hold the authority to the “soft landing” terms that Highfill leaders say were discussed earlier in the process.

Highfill speakers described local impacts in concrete municipal terms: the city’s most recent census-based population was reported in testimony as about 1,500 (council members said current population is higher), the fire department is volunteer, and the police department includes seven full-time officers plus part-time staff; council members said property-tax revenue is relatively small (one witness estimated “little over $300,000” but said not all figures were available during the hearing).

Airport authority representatives told senators they had offered to allow the airport to retain sales-tax receipts until bondholders were satisfied or an escrow account had enough funds to prepay bonds, characterizing that arrangement as a means of shortening the timeframe for bond payoff while protecting investors. The authority said it had set a March 14 deadline for the city to accept an offer; authority witnesses said the city did not accept it by the deadline and that negotiations have continued.

No formal committee vote on the bill or final action on the escrow provision was recorded during the hearing. Senators asked clarifying questions about bond terms and the mechanics of escrow; witnesses said mediation and statutory processes play a major role in any detachment outcome.

Why this matters: Highfill officials said sales-tax proceeds tied to the airport are central to the city’s operating budget and bond capacity; a change in remittance during or after detachment would reduce the city’s revenue stream and, council members said, hinder its ability to maintain police, fire and infrastructure. Airport leaders said the bill’s default escrow language is intended to ensure bond covenants are not impaired and to preserve options for negotiation.

The record before the committee includes competing written offers and counteroffers, timelines and public testimony from Highfill council members and airport representatives; committee members signaled further questions but did not resolve the dispute on the floor of the hearing.