Council moving forward to pursue increase in city sales tax

The thousands of tourists and visitors who annually visit Eureka Springs and flush toilets, use showers and sinks and drink from water fountains may be in line to assist in paying for repairs to failing infrastructure within the next year.

That’s if the city and city council have their way in aiming to help ease the burden on residents with dire improvements to the system that are needed sooner rather than later. 

The city council took the first step in that process Monday, March 23, voting unanimously to begin the process for seeking a 1-cent increase to the city sales tax. Revenue from the tax increase would be used to help with much-needed repairs to the city’s failing water and wastewater infrastructure — which is more than a century old in some areas. City officials say a sales tax increase would help prevent the need for billing increases to residents.

Now, it’s full steam ahead with public education and explanation, the council said, of the proposal that is designed to have tourists contribute to infrastructure needs caused by wear and tear.

The council agreed on the 1 percent proposal —which includes a $17 million, 20-year bond — and an ordinance will be drawn up before the council’s next regular meeting, scheduled for Monday, April 13.

The council has to get final approval of the ordinance by August to meet the deadline to place the proposal on the ballot for the November general election, council members were told.

“We will have to pass three things on that ballot,” city finance director Michael Akins told council members during a workshop held before the March 23 meeting. “We will have to pass, number one, the sales tax. Then we will have to pass an authorization to use that sales tax for water improvement bonds, and one for sewer improvement bonds.

“Now, this could go a lot of different ways. … If we get the sales tax passed and the two bond ordinances don’t pass that means we still get the sales tax, we just wouldn’t be able to utilize it for a bond to get a big chunk of money to do a bunch of repairs.

“If the bonds pass and the sales tax doesn’t, we don’t get anything. It doesn’t mean anything. So, for us to do what we want to do, all three of them need to pass.”

Akins said information he has received indicates that a 1 percent sales tax increase would generate enough revenue to satisfy the $17 million bond over a 20-year term, with payments of “about $1.3 million a year.”

“So, you would have the $17 million up front, and then you would make the payment of the $1.3 million a year,” Akins said. “If the tax generates the $1.7 (million), as it is doing right now, that would leave you about $400,000 extra to put into your water department, put into savings for future projects or whatever.”

Current interest rates on municipal bonds are at 4.24 percent, Akins told the council, and there is some urgency to get the plan approved as soon as possible.

“[Rates] could go either up or down,” he said. “… We would want to do this as soon as possible so we can get going on this, but the Aug. 18 would be the last city council meeting that we could pass the ordinance … then the election would be Nov. 3.”

Council members asked Akins for clarification of the three things that would be on the ballot for approval.

“The very first one is the sales tax,” Akins said. “[Registered voters in the city limits] will vote on whether or not they’re for or against … the 1 percent … then, No. 2, they’re voting to use that 1 percent sales tax to be able to do water improvement bonds.”

Council member Terry McClung asked if all three items could be contained in one ballot item, but Akins clarified that a bond attorney advised that there are three separate issues that have to be voted on independently.

“For people out there, we need to really make this clear for the public to understand it,” council member Steve Holifield said. “The bonds are basically, we’re asking for the sales tax increase, then we’re asking for a bond to say this is almost like borrowing money on what would come in through the years. So, we’d have that chunk of money up front to start working on stuff right away.”

Recent water/wastewater rate increases, along with the Infrastructure and Improvement fees, have been a burden for some residents, and this proposal should provide the needed relief, council member Susane Gruning said.

“With the rate increases that we’ve had, and then if we increase the 1 percent sales tax that comes in from tourism and other people visiting the town, not just on the residents, we can help cover these expenses,” Gruning said.

Those facts have to be made clear to the entire community, she added.

“It’s got to be very clear to the public that if we only vote for the sales tax, that’s going to trickle in slower, where if they vote for the bonds, both of them ... then we have the money up front to be able to do what we need while we pay it back with the sales tax,” Gruning said. “I think we all get it, but we need to make sure that everybody in Eureka that votes for this understands this.”

Simon Wiley, the city’s public works director, said such a plan would be the key in paying for the dire repairs needed for an array of infrastructure issues, including replacing and maintaining a “hidden network of pipes beneath our feet.”

“Which is essential for the health and safety of our community,” Wiley said. “However, as infrastructure ages, the cost of repairs and system-wide upgrades continue to rise.

“Traditionally, these costs are passed directly to you through increased monthly water and sewer rates. We’re proposing an alternative by implementing a 1 percent dedicated water and wastewater sales tax to fund these vital projects. So, while both methods generate revenue, a 1 percent sales tax offers several distinct advantages for our local households. It broadens the base. The utility rates are [currently] paid only by local residents and business owners. A sales tax ensures that visitors and commuters who use our roads and water system also contribute to their upkeep.”

“Sales tax is a pay-as-you-go model,” Wiley said. “It doesn’t penalize basic essential water usage. Immediate funding for large projects [with] sales tax revenue can often be used to secure low-interest bonds, allowing us to tackle major dig-once projects like replacing entire neighborhood mains, rather than expensive temporary Band-Aid repairs.”

A dedicated tax would provide key transparency into how its proceeds are spent, Wiley told council members, with a “specific mandate,” adding that such a plan ensures “every penny is tracked and spent solely on infrastructure.”

“So, as far as the impact to your wallet goes, to put this in perspective, a 1 percent tax equates to just one penny for every dollar spent on taxable goods,” Wiley said. “For many households, a small contribution in tax at cash registers is significantly less — $15 to $20 a month in this situation — to pay back a bond … [where] water rates would have to increase by over $80 a month per account.

“Our commitment is by shifting the burden away from monthly utility bills we can ensure our water remains clean, our sewers remain functional, and our community remains affordable. We’re committed to full transparency to this process and will provide regular updates on every mile of pipe replaced.”

One of the project’s main focuses will be replacing 17 miles worth of pipe in the city that dates back as far as the 1800s and has never been replaced.

“When we do water line projects, of course, that would include new valves, new fire hydrants, pressure-reducing valves, which we don’t have in the city anymore,” Wiley added. “One of our reasons for water loss is because our pressure is so high in some of the lower areas of the city. … Back in 1998, we had a sewer line master plan that was created by McClelland [Engineering]. None of the work, to my knowledge, has been completed with that study. We promised work to be completed to some of the residents and businesses, but none of that was performed.”

The first step in any impending improvements would be to obtain an “adequate” map of the city showing the correct infrastructure locations, Wiley said.

“Once we have good maps … we will work to identify areas that we need to have pressure-reducing valves and bring that pressure down to reduce our water loss,” he said. “We’re running 150 to 200 psi of water pressure, and it’s leaking out of every joint, every little thing you can, and without adequate maps we can’t really run a proper model on the system.”

Wiley told the council that the American Water Works Association, which serves as “kind of our Bible in how we operate and what we do,” recommends replacing 3 percent of water and sewer infrastructure per year, including underground infrastructure.

“I've been here four years,” Wiley said. “We have done none. We should be at 12 percent replacement by now.”

Passing the sales tax and bonds would also allow the city to look at possibly requesting another rate study, which could lead to the elimination of the I&I fees on future bills, council members discussed.