Town council debates adding $300,000 to pension budget; members split on using surplus

The Fort Smith Town Council spent the bulk of its March 24 meeting debating whether a proposed $300,000 addition to the town's pension contribution should be included in the FY2026 budget or covered from the town's surplus.

Supporters said spreading the increase across future budgets would smooth year-to-year swings in the actuarially determined contribution (ADC), while critics argued surplus funds should be used to reduce the immediate taxpayer burden.

The discussion centered on a recommendation from the Pension Investment Advisory Committee to add $300,000 in FY2026, $300,000 in FY2027 and $400,000 in FY2028 (a $1 million increase staged over three years). Town staff told the council the proposed $300,000 would be included in the town administrator's draft budget and, if approved, would be funded from the general fund. The finance director and town administrator warned using one-time surplus to cover a recurring increase risks creating gaps in future years if surplus levels fall.

Several councilors pressed for an alternative: apply some or all of the recently reported surplus to the pension now. Councilors and members of the public noted the town ended the prior fiscal year with roughly $1.2 million in surplus and questioned whether the council should use a larger one-time payment to reduce the pension liability faster. Town staff and bond counsel said drawing the fund balance below the council's 16% policy could risk the town's bond rating and increase borrowing costs for capital projects.

Council members also reviewed how the town currently meets the ARC/ADC payment (the annual actuarial contribution), the difference between fund balance and general fund, and the council's prior decision to direct 40% of future surpluses to the pension fund. Finance staff said the pension plan is roughly 61% funded and that the staged increase is meant to reduce future ADC volatility and accelerate funding toward the plan's current schedule (full funding projected under the plan in 2040 fiscal year).

After extensive discussion, the council voted to receive the information and place it on file so the budget process can continue; councilors indicated they may revisit the matter during upcoming budget hearings.

The issue will return to the council as part of the formal FY2026 provisional budget process in April, when members can vote to include or remove the $300,000 line.

Details and next steps: the town administrator said hard copies of the proposed budget will be distributed to councilors and posted to the finance webpage; budget hearings are scheduled the week of April 28.