Fort Smith finance staff reports $10.5 million midyear shortfall; nonrecurring projects drove part of gap

At a Fort Smith City Board of Directors study session, Finance Department staff presented an interim midyear financial report showing a $10.5 million gap between expenditures and revenues for the six months ended June 30, 2025.

Finance staff member Andy said the municipality’s contingency balance was stronger than earlier projections, with a midyear fund balance of about 31% (projected to be about 20% by year-end under the amended budget). "Considering what we've been doing here as far as, you know, trying to retool the budget, trying to make cuts, making large investments in the city ... I think just overall, the numbers look fairly positive to me," Andy said.

The report compared four operating funds to the same six-month period in 2024 and to the adopted and amended 2025 budgets. Andy identified roughly $7 million in nonrecurring general-fund spending within about $34.2 million of year-to-date general-fund expenditures. Large one-time items included the Crane Kia property purchase from 2024 (about $2.3 million carried in expenditures), approximately $2 million in roof repairs, and roughly $600,000 toward the airport runway barrier/arresting-cable work. Those nonrecurring items made year-to-year comparisons more variable, Andy said.

Sales-tax and other revenues: Andy reported sales-tax receipts were effectively stable year over year through June 30, down about 1% compared with the prior June but noting a later collections report showing a 1% increase. He said the largest sales-tax source is county sales tax and that retail trade remains Fort Smith’s largest NAICS sector. Andy said overall sales-tax collections looked "stable" and that recent monthly data provide some reason for cautious optimism.

Outstanding projects and reimbursements: The report lists several projects and timing items that will affect final results. Parrot Island Water Park slide purchases total about $2.2 million, with about $1.9 million remaining to be paid; Andy noted that those costs were budgeted but not reflected in the June 30 actuals because invoices were not yet posted. He also said the city expects roughly $1.5 million in reimbursement draws for the transit program once grant paperwork is processed.

Water and sewer: The water and sewer fund showed a notable improvement over 2024 on an annualized debt-service-coverage estimate. Andy estimated a preliminary 118% coverage rate based on annualizing six months of net revenues, compared with a projected 71% for 2024 under the same methodology. He cautioned the estimate assumes similar revenues and expenditures in the second half of the year and that water/sewer results can be seasonal.

Reconnect and connection fees: Board members asked for a detailed accounting of reconnect, connection and late fees. Andy and water staff member Lance explained those fees are recorded in service charges; staff later provided figures showing reconnect-related revenue rose to about $196,000 for the six-month period compared with about $43,000 in the prior-year period. Lance said that category appears to include both reconnections for nonpayment and new-account (tap/connection) fees, and staff said they will provide a clearer breakout.

Other funds: The street maintenance fund showed a high midyear reserve (about 70% projected to 69%), which board members said merits a follow-up with the streets division about carryovers and capital purchases. The solid-waste fund showed modest improvement in working capital but a small $304,000 deficit at midyear, driven largely by equipment maintenance and container purchases.

Property-tax timing and budget implications: When asked whether this year’s county assessment notices would change city property-tax revenue in 2025 or 2026, Andy and administration staff said increased valuations would flow to the city in fiscal 2026 (the assessments are reflected in the subsequent year’s revenue cycle). Board members noted that valuation increases will boost future general-fund revenue but not immediately change 2025 results.

Board direction and next steps: Directors pressed staff to continue seeking expenditure reductions where feasible and to provide updated projections in September, including an updated debt-service-coverage estimate for the water and sewer fund that reflects July 1 rate changes. Staff also agreed to provide a clearer breakout of reconnect/connection/late-fee revenue and to report on outstanding capital commitments (airport work, Parrot Island, and other carryovers) and reimbursable grant draws.

Ending: Finance staff characterized current results as manageable given the nonrecurring investments and pledged to supply updated figures during the next reporting cycle ahead of the 2026 budget process.