Well, good morning.

Good morning to all of you.

And welcome to our annual budget hearing.

This is where the rubber meets the road.

And we're glad that you're here.

All the staff, thank you for the hard work you've put into generating your budgets.

Appreciate your professionalism and hard work you put in day in and day out to make sure Fort Smith continues to be one of the premier cities in the state of Arkansas.

Again, this is budget hearing on November 17th of the year 2025 at the Blue Lion here in Fort Smith, Arkansas.

This meeting is officially called to order.

At this time, I'm going to turn it over to the uh acting administrator, Mr.

Jeff Deem.

Thank you, Mayor.

And I echo the mayor's sentiments and seeing all the staff here.

I know everyone has a vested interest.

And this has been a uh a rough process for the last few months as we've gone through this.

And uh mostly predicated by the fact that you know, we're we we are we are overall in financially healthy shape.

However, if we want to maintain that, the overriding theme for today will be um making our operating budgets balance.

And that is not something that we accomplished for the 2025 budget uh when we adopted an operating budget uh with a deficit of 5.7 million dollars.

Uh and that is a that is a hole that we need to start climbing out of.

And so um some targeted steps for getting out of that hole for the 2026 budget um have been discussed with during our uh departmental meetings that started in the early September and then through for the last couple of months as we've gotten to this point.

So um I appreciate everyone's hard work so far.

Uh we still have some work to do, so that's what today is about, and I'm welcome the board members.

We've um spoken with most or all of you about uh different concepts regarding the budget and things we're looking at, and we appreciate the feedback that you've given us so far.

And at this point, uh, with that very brief introduction, I'll uh turn it to uh Andy Richards to go through the city's uh current financial condition.

Good morning.

So my plan uh to just start out with is kind of walk through uh what the financial conditions look like um in the proposed budget and you know some of the try to drill down to some of what what is the actual issues that that I see and that I've been trying to communicate with uh departments and administration here and so um so basically you know we're you know I'm gonna be focusing on the four main operating funds.

Um that is what is considered by city policy the legally adopted budget of the city is the four main operating funds being general fund street maintenance water and service solved waste.

Um so for general fund, and these numbers are on the sheet that I've the board has, and it's basically a re you know reformatting of the summaries, it's the same results.

It's not moving, is it?

Oh, sorry.

All right.

Thank you.

So it's the same results that's in the budget book, the proposed budget that's online from the summaries, but we've reclassified some of the expenditures.

The the total results are the same, but um we started looking at it differently than what has been presented in the budget in the past, and the key is to separate what is considered to be an operating expenditure, something that's a recurring day-to-day expenditure and revenues, things that we routinely count on and expect, and what is the level of those expenditures versus you know, we have we have a lot of one time projects, capital items, things that happen.

reclassified some of the expenditures the the the total results are the same but um we started looking at it differently than what has been presented in the budget in the past and the key is to separate what is considered to be an operating expenditure something that's a recurring day to day expenditure and revenues things that we routinely count on and expect and what is the level of those expenditures versus you know we have we have a lot of one time projects capital items things that happen um you know covet occurred you know back in 20 and then we eventually we ended up we were able to you know collect and record six million dollars into the general fund just you know those type of non-recurring things that happen you know every year it's something new um but we try to you know we try to flatten out the numbers so we can say trend as far as what is our normal trend and what can we expect and so the the deficit that pertains to our operations which is our day to day um in the 26 proposed budget is the four million four million eight hundred and forty six thousand if you looked in the budget the total deficit would have been about eight million so about three point two million of that was capital request generally at this stage we don't have these type of capital requests in the original budget those things typically considered later but this time around we wanted to put everything on the table all what all the needs were so we can prioritize what the needs are whether it's capital or operating uh type expenditures but this um and so the deficit that's 4.8 million dollars so that is a day to day overspending of what we do in the general fund so all the different departments that that make up the general fund are a part of this um police fire uh parks transit administration um management services development services planning development every you know everything that's part of the general fund that's all considered in what I'm talking about and so and if you look back at uh 24 an actual uh that there was actually a surplus in operations it was uh the the schedule that I'm showing you there has it shows 2.2 million dollars surplus um there is some the we did building roof repairs in 24 so it was a little bit of skewed there but we did have an operating surplus in 24 um and so but what if you equate this 4.8 million dollars that we've proposed that's basically what you're doing is you're just you you're burning up your fund balance your bleeding money to the tune of about 1400 a day out of the general fund and that's what we're and that's what this does um you know this is something that has over time with this situation is created you know we've had um you know you know we've we've got we've got sizable fund balance right now the projection at the end of 26 would be 11.8 million which is right at our 20 percent reserve policy um then that's with considering a you know total deficit of eight million dollars but um but it you know it's it's not just uh it's this we don't want to you know fundamentally we don't want to spend day-to-day operations we don't want to fund it with fund balance it needs to be it needs to be you know with current year revenues by and large you can have you know you can have uh cycles where one year you might be over or under but this situation is indicating that we have a structurally imbalanced general fund budget I do want to make mention of that if if you if you go back and look at our audits from 15 to 24 we're a positive fund balance every single year the 15 we were negative but 1617 1819 25 there were some big years nine million dollars one year in the general fund it was just 24 and 25 that we went negative so we don't have this long history of of dipping into the fund balance we we it's it's time for a correction for the last couple years but traditionally historically we've been extremely positive in the general fund so we just got to go back to that so I just at least want to acknowledge that in terms of you know where we've been spending and and how we've spent historically at least in the last 10 years so yeah so cyclically we've had increases and decreases in fund balance over time um but you know and you know I'm saying we had a we had a cert you know we had an operation surplus in 24 we still had an overall deficit of six and a half million dollars

So I just at least want to acknowledge that in terms of you know where we've been spending and and how we've spent historically, at least in the last 10 years.

So yeah, so psychically, we've had increases and decreases in fund balance over time.

Um but you know, and you know, I'm saying we had a we had a certain, you know, we had an operation surplus in 24.

We still had an overall deficit of six and a half million dollars.

Uh we did a lot of capital things.

Uh and we had the fund balance built up over those years to be able to fund that.

Yeah, at the beginning of 24, we had 41, almost 42 million dollars of fund balance in the general fund.

Um, which is about a you know, that's a sizable, it's over a 60 percent reserve.

But now two years later, we're projecting for uh 12 million dollar fund balance basically.

So um, but you know, a lot of that's capital investments, and that's what when you have when you have a reserve that large, that's what you should be doing.

That's that's the time to make one-time capital non-reincurring investments, but fundamentally for long-term fiscal sustainability, we have to look at the operations.

What does it cost to run the general fund of the city day to day and make sure that our daily recurring revenues can cover these daily uh incurring expenditures, and that's not what we're seeing in 25.

We're projecting a 3.7 million dollar operational deficit in 25.

And so that is that is the task at hand is to balance, you know.

You know, we say we want to balance the budget, that's great.

The real the real thing to focus on is balance, making sure at least our operations are balanced.

The operational budget is balanced.

Then you look at the fund balance and look at the reserve, having what the reserve level is, and that would be an indicator of okay, we've got money we can spend on capital.

We've got x, we've got enough fund balance to fund that.

You know, ideally we'd like to have you know enough revenues to cover all of it in one year, but that's you know, typically is not always gonna happen.

We need we're gonna need to replace capital and make improvements and and do those type of things over time, they're not gonna occur every year.

But if we're maintaining an adequate fund balanced reserve and keeping this operational budget balanced, we should be well suited to stain whatever capital needs that that are gonna come around.

So um so and you know, I did know you know that the government finance officers, you know, we talked about our policy 20%.

Um the government finance, they say a minimum of at least 16.7, which they say 60 days, so that's what it equates to.

Um that's the bare minimum reserve that they recommend.