As the Sept. 14 special election nears on a one-cent Little Rock sales tax, questions are being raised about the size of the increase and impact of the tax on low-income people, who are hit hardest by sales taxes.
Greg Henderson, who announced this week for mayor in 2022, suggested to the Arkansas Democrat-Gazette that a simple renewal of an expiring 3/8th-of-a-cent tax, or a half-cent sales tax, would have been a better option.
Two separate groups have announced opposition to the sales tax. Both of them — one led by West Little Rock Republicans including City Director Lance Hines and the other led by grassroots advocates from lower-income neighborhoods — say the burden falls too heavily on those least able to pay with an additional levy on groceries, clothing and utilities.
And then there’s the question of whether the city needs all that the tax will produce. It has been estimated to produce $53 million a year. The net increase in the city tax rate will be .625-cent on the dollar because of an expiring .375-cent capital improvement tax.
In a report issued July 27, the city budget data showed revenue running $7.5 million ahead of projections for the first five months of the year.
The state, which collects sales taxes for cities, reported. Aug. 23 that collections for Little Rock continued to run ahead of forecast (more than 18 percent more than in the same month in 2020). Thus it is likely to continue on target for $20 million in overage for the year. That performance, if it continues, also means the new penny sales tax will produce more than the $53 million estimated.
I’ve been trying to get the city’s latest budget report, which was expected Aug. 27. This morning, I finally received the information about the latest distribution of city sales tax, the city’s share of the county sales tax and state turnback. Sarah Lenehan, the city financial officer, says her office is very busy, including handling the huge influx of federal pandemic relief money (another element in the debate on the need for a new penny tax).
Will a full budget report be completed before the Sept. 14 election? No guarantees have been given. Lenehan also told me in one email that the last report was issued Aug. 12. The document distributed to city directors was dated July 27, however.
Now comes more analysis of city money from Baker Kurrus, who unsuccessfully challenged Frank Scott Jr. for mayor in 2018 and who opposes the tax increase. He’s analyzed city revenue and spending before. The spending side here. And the tax burden here, in which he argued the city has a high tax burden.
He has a new statement out on the mayor’s Rebuild the Rock campaign titled “Don’t Crush the Rock.” It outlines the ways, beyond the sales tax, that Little Rock imposes higher taxes than other Arkansas cities. It also notes that a 5/8th-of-a-cent tax increase, while sounding small, amounts to a 41 percent in the city sales tax rate.
It includes comparisons of interest. First is a computation of total tax burden, based on city sales taxes, franchise taxes, property taxes and business taxes on a typical family with $2000/month in taxable spending; taxable home and cars of $250,000 and typical utility bills:
How can this be? He gives some examples:
Kurrus, who has managed car dealerships and still consults in that business, uses that enterprise to illustrate the business tax burden on a dealership with $40 million inventory and 100 employees.
A new sales tax will increase the disparity, Kurrus argues. The campaign for the tax — with promises of Zoo, park, education and child care spending — emphasizes the good that will come and economic development it could encourage. Kurrus responds:
This tax increase is about giving money away to gain influence and votes. That is the wrong way to govern.
If Little Rock wants a rate of sales tax like other cities, it needs to reduce all of its other city tax rates. Raising sales taxes in a city that already taxes at levels unseen in other cities is unconscionable.
Sales taxes hit hardest on the necessities of life, like groceries, utilities and water bills. The rate on groceries in Little Rock will be 3.125% while the state tax rate on groceries is .125%. The City of Little Rock currently taxes your water usage at over 12.5%. For regular folks these taxes are back-breakers. Maumelle and Sherwood residents pay less than half as much tax on the same water from the same water utility.
We all want better and safer streets, and clean, attractive parks.
The real question is why don’t we have those things already when we are the highest taxed city in Arkansas?
Little Rock has high taxes because its voters have traditionally supported tax increases and elected leaders who championed those taxes. Continued voter support, I’d guess, is tied less to promised spending projects (none of which is guaranteed by the vote) but by confidence in the leadership’s management, transparency and dependability.
The mayor has an enthusiastic base of support, which is a good start for his campaign, maybe all he needs.
He has money from some of the biggest real estate, contractor and financing names in Little Rock, according to the Rebuild the Rock financial report. The $128,000 raised so far includes $25,000 from the Arkansas Zoological Foundation, which hopes to reap millions from the sales tax for zoo expansion.
Hines’ opposition group has raised about $7,000.
PS: To those who’ve asked, there is a progressive avenue to raise city money. In 1973, the Arkansas legislature allowed cities to levy an income tax, a percentage of the amount owed the state. Approval of a local sales tax, always more politically palatable, has meant the law has never been used.
Problem: The law as written applies only to the city residents. It could be assessed on income paid in the city to include non-residents only by legislative amendment.