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Published by info, 2021-04-28 17:01:49

Annual Budget Book 2021

City of Hot Springs 2021 Budget

1

FRONT COVER: The building on the front cover is located at 324 Malvern Avenue and was previously occupied by
Entergy, the City’s electricity provider. The City purchased the building in late 2019 and in 2020, it was completely
remodeled to house the City’s Finance Department, Utility Billing Services, and City Attorney. It is located in very close
proximity to City Hall. This move complements the City’s plan to improve the Malvern Avenue Gateway.

PHOTO CREDIT: City of Hot Springs Public Information

City of Hot Springs, Arkansas
2021 Annual Budget

Prepared by:
City of Hot Springs
Finance Department

INTRODUCTION 8
12
What are Funds 29
City Manager's Budget Message 30
31
Organizational Structure 32
Staffing Summary 34
Appointed Officials
37
Resolution Adopting the 2021 Budget 45
Government Finance Officers Association - Budget Award 46
54
ECONOMIC CONDITIONS AND OUTLOOK WITH 57
BUDGET OVERVIEW 60
64
Economic Conditions & Outlook
Budget Overview 88

General Fund & Special Revenue Funds 97
Enterprise Funds
104
Internal Service Funds 105
Fund Summaries 106
107
Statements of Revenues, Expenditures, and Changes in Fund Balance 108
109
FINANCIAL/OPERATIONAL 110
112
Capital Budget Summary 113
117
Water System Master Plan 119
120
General Fund 122
122
Board of Directors 123
City Manager 124
City Attorney 125
126
Human Resources 127
Finance

City Clerk
Public Information
Information Systems
Planning and Development

Parks & Trails
Sport Recreation

Public Works
Traffic

Urban Forestry
Property Maintenance

Engineering
Special Appropriations
Oaklawn Reserve Fund
Major Capital Projects Fund

Special Revenue Funds

130 District Court
132 Police Fund
136 Animal Services
137 Fire Fund
141 Street Fund
143 Intracity Transit Fund

Enterprise Funds

147 Parking Fund
148 Stormwater Fund
150 Airport Fund
152 Solid Waste Fund
154 Water Fund
156 Wastewater Fund

Internal Service Funds

160 Employee Wellness Fund
161 Fleet Service Fund
162 Utility Administration
163 Utility Billing Services

Debt Summary

165 Total Debt
165 General Governmental Debt
166 Special Obligation Debt
167 Enterprise Fund Debt
168 Revenue Bonds

Statistics

174 City of Hot Springs Quick Facts

APPENDICES

176 Appendix A | The History of Hot Springs
177 Appendix B | The Budget Calendar
178 Appendix C | The Budget Process
179 Appendix D | Financial Policies
182 Appendix E | Glossary of Terms
188 Appendix F | Board 2021 SMART Goals
194 Appendix G | City Manager Accomplishment of Board Goals for 2020
198 Appendix H | Additional City Manager Projects and Accomplishments for 2020
202 Appendix I | State of the City
213 Appendix J | Chamber of Commerce Demographics
221 Appendix K | Hot Springs Police Department 2021-2025 Strategic Plan

DAVID F. WATKINS MEMORIAL PARK

Dedication

6

INTRODUCTION

City of Hot Springs, Arkansas

7

What are Funds?

WHAT ARE FUNDS?

For accounting purposes, a state or local government is not treated as a single, integrated entity. It is viewed as a
collection of smaller, separate entities called "funds."

The Governmental Accounting Standards Board defines a fund as "A fiscal and accounting entity with a self-balancing
set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or
balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining
certain objectives in accordance with special regulations, restrictions, or limitations."

FUND TYPES

There are three major classifications of funds used by a government: governmental funds, proprietary funds, and
fiduciary funds.

Governmental Funds. Within governmental funds there are five fund types used to account for governmental type
activities: general fund, special revenue funds, debt service funds, capital projects funds, and permanent funds.

The basis of budgeting and the basis of accounting for governmental funds is modified accrual. Under the modified
accrual basis, revenues are recognized when they become both measurable and available. Expenditures are
recognized when they become measurable.

The City of Hot Springs has prepared a budget for general fund, special revenue funds, and capital project fund.
Currently, the City has no budgeted debt service funds or permanent funds.

The City appropriates funds for the following governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general
government except those required to be accounted for in another fund.

The Major Capital Projects Fund was established to account for unusual projects that are funded by General Fund
and those projects may change from year to year. Although this is a separate fund for accounting purposes, it is
rolled into general fund for official reporting. In 2020, this budget is solely for efforts related to redevelopment of
the Majestic Hotel property.

The Oaklawn Reserve Fund was established to account for a certain percentage of funds from Oaklawn which will
be set aside in a reserve to be used for unfunded needs. Although it is a separate fund for accounting purposes, it
is combined with the General Fund for reporting purposes.

The Garland County District Court Fund accounts for all activities associated with the operating costs of running a
district court. The cost of the court is funded 50% by the City’s General Fund and 50% by Garland County.

The District Court Automation Fund accounts for the fines received and related expenses that are designated by
law to be used to support the automation of the district court. These activities are reported in a separate fund as
required by Arkansas statutes.

The Probation Fee Fund accounts for fines received and related expenses that are designated by law to be used to
support probation activities.

8

The Police Fund accounts for all activities associated with local law enforcement. These activities are reported in a
separate fund to meet requirements imposed by a voters’ initiative that imposed a half-cent sales tax for public
safety.

The Fire Fund accounts for all activities associated with fire prevention and suppression. The voters’ initiative that
imposed the half-cent sales tax described above requires that 60% of the tax be used for police activities and 40%
of the tax be used for fire activities.

The Street Fund is reported as a special revenue fund to account for all activities associated with maintaining and
constructing streets and drainage improvements. Arkansas statutes that provide funding for street and drainage
projects require that these activities be accounted for separately.

The Jail Maintenance Fund accounts for revenue and expenditures related to a 3/8 cent sales tax passed by
Garland County to operate and maintain detention facilities and pay the costs of housing prisoners. By state law, a
pro rata share, based on population, comes to the City. The City has an agreement with Garland County to remit
that share back to the County in exchange for housing City prisoners. With the exception of a small amount of
interest earned on these funds, the revenue and expenditures will always be the same.

The Jail Fines Fund is used to account specific revenue derived from tickets that is dedicated to expenses related to
prisoners. The City uses this to pay the County for guarding of prisoners and pay the Police Department for prison
transport.

The Intracity Transit Fund The City owns and operates a bus company that provides transit services within its
corporate limits. Funding is received thru a grant from the Federal Transit Authority (FTA), with the remaining
funds being provided by bus fares and a General Fund match. The transit system is managed by a third party, but
all other employees are City employees and the City owns all of the assets. There are no anticipated changes in
level of service.

Fiduciary Funds. Fiduciary funds are used when a government holds or manages financial resources in an agent or
fiduciary capacity. There are four types of fiduciary funds: private purpose trust funds, investment trust funds,
pension trust funds and agency funds. Budgets for fiduciary funds are not adopted by the City.

Proprietary Funds. Proprietary funds are used to account for governmental functions that are similar to private
business, in that user fees are charged for a particular service. Enterprise funds and internal service funds are the two
subdivisions of proprietary funds. Internal service funds account for services provided to other departments or
agencies of the City or to other governments on a cost-reimbursement basis.

The basis of budgeting for proprietary funds is full accrual. Revenues are recognized when earned and expenses are
recognized when a liability is incurred. The basis of accounting is the same as the basis of budgeting which is full
accrual.

The City appropriates funds for the following proprietary funds:

The Parking Fund is used to account for activities associated with providing parking facilities for the public.

The Stormwater/Drainage Improvement Fund is used to account for activities associated with providing
stormwater management services and drainage improvements as mandated by federal and state agencies.

The Airport Fund is used to account for activities associated with maintaining the municipal airport. These
activities include selling fuel, oil and sundries, renting available office space, grounds and hangars and maintaining
the security and facilities.

9

The Solid Waste Fund is used to account for the activities associated with collecting, compacting, recycling and
disposing of solid waste.
The Water Fund is used to account for activities associated with collecting, treating and distributing drinkable
water to customers.
The Wastewater Fund is used to account for the activities associated with collecting, treating and disposing of
sewage from customers.
The Wastewater Impact Fee Trust Fund is used to account for revenue for wastewater impact fees, and transfers to
the wastewater fund for allowable expenses.
The City appropriates funds for the following internal service funds:
The Fleet Service Fund provides maintenance and repair service for all City vehicles and some equipment. In
addition, it maintains an inventory of fuel, vehicle parts and janitorial supplies.
The Employee Health Insurance Fund accumulates cash from all other funds that have employees and pays
medical, dental, and prescription claims for all City employees.
The Utility Administration Fund provides administration and engineering services for the Wastewater and Water
Funds. This internal service fund is considered a business-type activity.
The chart on the following page shows the budgeted funds of the City of Hot Springs and how they fall within fund
types.
The City has other funds that are used for grants, bonds, and bonded capital projects. These funds are not
appropriated.

10

Governmental Fund Types
General Fund
General Fund
Major Capital Projects Fund
Oaklawn Reserve Fund
Special Revenue Funds
Garland County District Court
District Court Automation Fund
Probation Fee Fund
Police Fund
Fire Fund
Jail Maintenance Tax Fund
Jail Expense Fines
Street Fund
Intracity Transit Fund
Proprietary Fund Types
Enterprise Funds
Parking Fund
Stormwater/Drainage Fund
Airport Fund
Solid Waste Fund
Water Fund
Wastewater Fund
Wastewater Impact Fee Trust Fund
Internal Service Funds
Fleet Service Fund
Employee Wellness Fund
Utility Administration Fund

11

City Manager’s
Budget Message 2021

12

City of Hot Springs

Budget Message Bill Burrough, City Manager
Dorethea Yates, Finance Director

Post Office Box 700
Hot Springs National Park,

Arkansas 71902

October 27, 2020

Honorable Mayor McCabe, Board of Directors, and Citizens of Hot Springs:

Introduction

It is my pleasure to present the 2021 Budget for the City of Hot Springs. This budget is balanced and has been prepared
in accordance with Arkansas budget law and applicable local ordinances. The 2021 total budget is $134.6 million. This
budget is specifically designed to align with the Board of Directors’ vision and priorities for the City of Hot Springs.

This message provides an executive summary of the budget and is divided into three sections. The first section is a
discussion of budget objectives and an overview of significant changes from the prior year. The second section
provides an overview of the City’s major funds and includes summaries of revenues, expenses, and major programs.
Finally, the closing section includes a discussion of budget development and fiscal strategies.

BUDGET OBJECTIVES AND OVERVIEW

The primary objective of this budget is to advance the Board’s current vision and priorities for the City of Hot Springs,
which were set at the Board retreat held on August 22, 2020 and provide basic and essential services through sustained
departmental operations. The Board’s priorities for 2021 are 1) begin construction on the Majestic redevelopment, 2)
continue to move the Water Supply Project toward a completion date of Fall, 2023, 3) focus on future street paving
improvement plan by doubling the 2020 street paving budget in 2021, 4) continue to move the Malvern Avenue Project
towards completion, and 5) establish and secure a homeless facility for a non-profit to operate.

Other new and ongoing major projects that will continue into 2021 are the completion of the radio communication
system, wastewater system improvements, continued improvements to the Northwoods, advancement of the
Greenway, parking improvements, and purchase of a tilled aerial ladder truck.

The $134.6 million 2021 proposed budget is $4.9 million above the 2020 amended budget. Some major increases in
the 2021 proposal include the funding of a $2.2 million tilled aerial ladder truck, an additional $823,000 of street
paving, improvements at the Airport, debt service for the 2020 water bond issue, an accounting change in the
treatment of the Oaklawn Reserve Fund, and a 3.5% COLA for all employees.

E-Mail: [email protected] Phone: (501) 321-6810
E-Mail: [email protected] Phone: (501) 321-6825

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In providing an overview of the 2021 budget there are a number of changes of which to be aware. First, a 3.5% cost
of living increase has been budgeted for all employees. On the revenue side, there is a projected 2% increase in sales
tax collections, 6% in Oaklawn Casino revenue and previously approved increases in Water, Wastewater, and Solid
Waste.

The following chart shows a comparison of the 2021 proposed and the 2020 adopted expense budget:

Fund FY2020 FY2021 Net Change
General 27,771,785 29,016,569 1,244,784
District Court Probation (8,750)
District Court Operating 53,750 45,000 (166,895)
District Court Automation 1,096,954 930,059 89,529
Police 198,752 441,507
Fire 109,223 14,912,387 2,545,897
Jail Maintenance Tax 14,470,880 12,575,427 450,000
Prisoner Expense Fines 10,029,530 3,300,000 -
Street 1,281,431
Intracity Transit 2,850,000 80,000 266,771
Major Capital Projects 80,000 5,635,821 5,000
Oaklawn Reserve 2,056,597 152,800
Parking 4,354,390 (14,132)
Stormwater 1,789,826 20,000 41,756
Airport 1,680,800 862,842
Solid Waste 15,000 208,728
Water 1,528,000 280,946 3,796,223
Wastewater 1,149,850 (350,150)
Employee Wellness 295,078 5,205,759 -
Fleet 1,108,094 8,756,945 25,097
Utility Administration 4,342,917 18,480,202 182,724
8,548,217 19,018,222
14,683,979 5,212,000
19,368,372 1,081,723
5,212,000 4,919,346
1,056,626
4,736,622

Total 123,501,243 134,556,405 11,055,162

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SUMMARY BY FUND OR FUND GROUPING

GENERAL FUND

Revenue. The total 2021 General Fund revenue is $29.8 million, a breakdown of which follows:

Classification Amount % of Total
Sales tax
Franchise fees $ 15,071,541 51%
Administrative fee
Oaklawn racing and gaming 2,610,000 9%
Intergovernmental
Occupation licenses 2,711,468 9%
Alcohol permits and taxes
Fines 4,952,000 17%
Other
Loan proceeds 914,280 3%
Development fees
750,000 3%

960,000 3%

586,750 2%

506,250 2%

270,450 1%

487,700 2%

Total 29,820,439 100%

The majority of revenue is from the 1% sales tax. Sales tax revenue increased 4.29% in 2016, .02% in 2017, 1.47% in
2018, 7.07% in 2019, and as of August, 2020, has increased 4.03%. The 2021 budget is based on a projected increase of
2%. Projecting sales tax growth in an election year and a major health pandemic is challenging, but based on all known
data, we should be able to sustain this rate of growth.

In 2019, Arkansas voters approved full casino gambling at Oaklawn and other venues, and changed the distribution
formula, providing a greater distribution to the county and City where the gambling facility was located. The new
distribution went into effect in July, 2019, and the gaming revenues from July thru December of 2019 were 83% above
same period revenues in 2018. For 2020, we projected a 9% increase in Oaklawn activity, and adjusted it for the new
distribution formula. Due to the pandemic, Oaklawn was closed down for part of March, all of April, and part of May.
It was partially reopened in June, and has been subject to social distancing guidelines. Therefore, the 2020 revenue
numbers do not provide a good basis for the 2021 revenue projection. The projection was developed taking the 2019
numbers, normalizing them for the new distribution allocation, then using a very conservative growth rate of 6% in
2020 and 2021. If we reach a point where the pandemic is no longer a factor, the growth should be much higher than
that. If the pandemic continues, it may be difficult to sustain that rate. The addition of a new game room in 2020 and
the opening of a new hotel at Oaklawn in the first quarter of 2021 should serve to drive those numbers much higher in
a normal environment.

Other revenues expected to increase include administrative fees and alcohol permits and taxes. Loan proceeds are a
function of the amount of capital to be financed.

15

Expenditure. The total expenditure budget for the General Fund is $29 million and is summarized below:

Expense Classification Amount % of Total

Personnel $ 6,601,346 23%
Services, Supplies, Intergovernmental 2,910,183 10%
Debt Service 588,818
Transfers Out 2%
Capital 18,328,022 63%
Reserves 397,450
190,750 1%
1%

Total $ 29,016,569 100%

Transfers to other funds are 63% in general fund expenditures. Of the remaining amount, after the transfers, the
majority is personnel expenditures. For the proposed 2021 general fund budget, revenues exceed expenditures by
$803,870.

A chart of each General Fund department’s expenditure budget for 2020 and 2021 follows, with explanations below:

Department 2021 Proposed 2020 Adopted Net change %
Board of Directors Budget Budget 0%
City Manager 5%
City Attorney $ 115,550 $ 115,600 2%
Human Resources 497,572 475,297 4%
Finance 435,677 429,165 -1%
City Clerk 423,233 408,358 2%
Public Information 2%
Information Services 1,132,362 1,138,587 1%
Planning and Development 232,165 227,488 1%
Parks and Trails 197,107 192,513 -9%
Sport Recreation 809,985 800,850 0%
Public Works
Engineering 1,538,482 1,530,617 -39%
Traffic 1,650,120 1,804,957 31%
Special Appropriations
361,017 361,081 5%
1,257,335 2,062,716 12%

287,845 220,559
744,351 710,868
19,333,768 17,293,029

Total Expense $ 29,016,569 $ 27,771,685 4%

All of the department budgets for personnel services have increased slightly due to the 3.5% COLA. A few have
additional larger increases or decreases in their total budget with explanations below:

Parks and trails – the 2021 budget does not include any grant matches whereas the 2020 budget had a grant match.

Public works – the 2020 budget included several expenditures related to the renovation of 324 Malvern. That has been
completed, so that shows a large reduction.

Engineering – an Assistant Engineer was added to the 2021 budget.

Special Appropriations – in 2020 we changed the accounting for the Oaklawn Reserve Fund to a different method than
what was used for the budget. All of the Oaklawn revenue is recorded in the General Fund, then the reserve is
transferred to the Reserve Fund. This increased the amount of transfers in Special Appropriations.

16

Capital. The capital budget for the General Fund is $397,450, of which $270,450 will be financed with a five-year loan,
and is summarized below:

Department Description Amount
Planning and Development Vehicle 21,000
Parks Art for Greenway 15,000
Parks 1 ton dually w/ flatbed stake dump 42,725
Parks 1 ton dually w/ utility box and ladder rack 37,725
Sport Recreation Soccer field improvements 45,000
Public Works - ASMSA Package HVAC unit 85,000
Public Works - 324 Malvern Additional improvements to 324 Malvern 75,000
Public Works - Urban Forestry Utility bed for truck 11,500
Public Works - Urban Forestry Zero turn mower 9,500
Engineering Vehicle 25,000
Engineering Plotter 10,000
Public Works - Traffic Downtown luminaire 20,000

Total $ 397,450

DISTRICT COURT FUNDS

There are three district court funds. The main fund is the operating fund for the District Court. The majority of these
costs are split 50/50 with Garland County. The City contributes approximately $625,000 for the operation of District
Court. There are two other funds associated with the District Court. The District Court Automation Fund is funded by a
designated fine and is used for expenditures related to automation of court processes. In 2021, one position will be
added in the District Court Automation Fund. The District Court Probation Fund was previously funded by a designated
fine and used to administer probation activities. In 2018, the court elected to outsource these activities and allow the
third party to collect a service fee. Therefore, there are no revenues in this fund for 2021. The fund has a balance, and
a portion of that balance is being used to provide funding for a previously approved grant.

The total 2021 expenditure budget for these funds is $1.2 million, a slight decrease from 2020. This decrease reflects
cost-sharing legislation changes made in A.C.A § 16-17-1106., this legislation removed the two judges from the local
payroll and transferred their salaries and benefits to the State payroll.

POLICE FUND

Revenue. The 2021 police revenue budget is $14.9 million, a $442,000 increase from the 2020 adopted revenue
budget. This includes a 2.0% increase in sales tax. The amount of the subsidy from the General Fund is expected to
decrease $258,000 in 2021 due to the increase and reallocation of cell phone fees.

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 12,194,913 82%
Debt Service
Capital 1,834,927 12%
Transfers Out
470,047 3%

380,500 3%

32,000 0%

Total $ 14,912,387 100%

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Expenditure. The 2021 expenditure budget is $14.9 million and is summarized below:

The majority of the increase is in personnel. This reflects the 3.5% salary increase and mandated step increases. There
are other large increases in service and supplies. The services budget includes $99,000 for Shot Spotter, a tool that can
be used to pinpoint the location of gunfire in the City. Supplies have increased due to an accounting change in how
vehicle accessories are treated.

Capital. The capital budget for the Police Fund is $380,500, of which $370,500 will be financed with a five-year loan,

and is listed below:

Description Amount

Vehicles $ 335,500

Automated LPRs 35,000

Livestock Trailer 10,000

Total $ 380,500

FIRE FUND

Revenue. The 2021 revenue budget is $12.6 million, a $2.5 million increase over the 2020 adopted revenue budget.
This includes a 2.0% increase in sales tax. Other revenue sources remained consistent with the prior years. The
amount of subsidy from the General Fund is expected to increase $120,000.

Expenditure. The 2021 expenditure budget is $12.6 million and is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 8,621,370 69%
Capital
Debt Service 1,202,742 10%

2,248,000 18%

503,315 4%

Total $ 12,575,427 100%

As with most service funds, the majority of the expenditures is personnel costs. The increase in personnel expense
reflects the 3.5% salary increase and the mandated step increases. The other major increase is capital, which includes a
new tiller aerial ladder truck and new pickup truck. The remainder of the budget is routine with very few increases over
2020.

Capital. The capital budget for fire is $2,248,000, all of which will be financed with a five-year loan, and is listed below:

Description $ Amount
Light/medium duty truck - Incident Command 48,000
Tilled aerial ladder truck and equipment
2,200,000
Total $ 2,248,000

JAIL MAINTENANCE TAX FUND AND JAIL EXPENSE FINES FUND

The Jail Maintenance Tax Fund accounts for the 3/8 cent tax paid to Garland County for prisoner housing. It is
estimated this tax will produce $3.3 million in 2021, which will be paid directly to Garland County.

PRISONER EXPENSE FINES FUND

This fund accounts for certain collected fines that are designated to be used for prisoner related expenditures. The
fines are stabilizing, so the 2021 expense budget of $80,000 is the same as 2020.

18

STREET FUND AND STREET-HIGHWAY TAX FUND

Revenue. The combined revenue for these two funds is approximately $5.6 million and mainly comes from state
turnback and a general fund transfer. Street Fund turnback will increase $3 per capita in 2021. In addition, street
paving will be funded by the Pave it Forward program, so that is included as revenue.

Expenditure. The 2021 expenditure budget is $5.6 million and is summarized below:

Expense Classification Amount % of Total
22%
Personnel $ 1,252,661 56%
Services, Supplies, Intergovernmental 3,147,700 5%
Capital 286,000 2%
Debt service 126,460 15%
Reserves 823,000

Total $ 5,635,821 100%

The majority of expenditures for this fund are for services and supplies. Of this amount, approximately $1,746,000 has
been budgeted for street and sidewalk work. Pursuant to the Board’s 2021 priorities paving was budgeted at 200% of
the 2020 budget. As always, this fund includes the cost of operating the street lights, which is around $520,000
annually. The 2021 expense budget is greater than the revenue budget due to budget spend down of prior year funds.

Capital. Total capital for the Street Fund is $286,000, of which $57,000 will be financed with a five-year loan. It is
summarized below:

3/4 ton truck $ 28,000
29,000
SUV 150,000
16,000
Bridge improvements (Woodlawn & Honeycutt) 63,000

Street banner poles

Pedestrian crossing systems

Total $ 286,000

INTRACITY TRANSIT FUND

Revenue. The Intracity Transit Fund is a balanced fund with projected revenue and expenditures of $2.1 million. The
two main revenue sources are a grant from the Federal Transit Authority (FTA) and a subsidy from the General Fund.
The 2021 federal grant budget is $878,398 and the General Fund subsidy budget is $472,769.

Expenditure. The 2021 expenditure budget is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 849,991 41%
Capital
798,606 39%

408,000 20%

Total $ 2,056,597 100%

Expenditures are almost an equal split between personnel and services and supplies. The majority of services and
supplies are fuel for the buses and bus repairs.

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Capital. Total capital for the Intracity Transit Fund is $408,000, and will be 100% funded by the CARES grant. It is
summarized below:

Description Amount 408,000
30 foot bus $ 408,000

Total $

PARKING FUND

Parking fees will produce around $90,500 in revenue for 2021. In addition, a general fund transfer of $45,200 will be
needed to balance this fund. The 2021 expense budget of $280,976 is summarized below:

Expense Classification Amount % of Total
Personnel $ 17,572 6%
Services, Supplies, Intergovernmental 42%
Depreciation 118,595 52%
144,809
Total 100%
$ 280,976

The majority of parking expenses is depreciation on the parking deck. A small amount is for a part-time employee that
collects from the meters. The majority of services and supplies are expenses related to the maintenance of the parking
deck.

STORMWATER FUND

Revenue. The revenue budget for 2021 is $1.6 million which remains the same from the 2020 adopted budget of
$1.6 million. The final phase of the multi-year increase approved in 2016 was implemented in 2020, so there are no
rate increases for 2021. Revenues will be used to continue to make improvements in the stormwater infrastructure.

Expenditure. The 2021 expenditure budget of $1,149,850 is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 256,541 23%
Depreciation
Reserves 534,391 48%

233,200 21%

100,000 9%

Total $ 1,124,132 100%

The Stormwater Fund continues to provide many programs which protect the water supply in Hot Springs.
Capital. The 2021 capital budget of $445,000 is listed below:

Description Amount 445,000
Drainage improvements $ 345,000
Building - preliminary design
Property Acquisition 50,000
50,000
Total
$

20

AIRPORT FUND

Revenue. The 2021 revenue budget is $3.7 million, this includes $1M of CARES funding from the federal
government. Some funding was received in 2020, but obviously was not included in the 2020 budget. The majority
(54%) of the remaining revenue budget is fuel. This is a reduction of the 2020 budget that reflects both a decrease in
the cost of fuel and a decrease in sales due to reduced flights. Rental income remains basically unchanged between
2020 and 2021.

Expenditure. The 2020 expenditure budget is $5.2 million and is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 821,634 16%
Reserves
Transfers Out 1,800,325 35%
Depreciation
1,180,000 23%

338,000 6%

1,065,800 20%

Total $ 5,205,759 100%

The largest portion of the expense budget is for services and supplies. Of this amount, $1.1 million is budgeted for
purchases of fuel to be sold. Other significant amounts include property taxes, general fund administrative expense,
utilities, a $338,000 match for a state grants, and a reserve of $1.18 million. This reserve has been set up to reserve
funding for terminal improvements of $680,000 and a traffic complex of $500,000. If revenues stay on track through
mid 2021, then these two projects will be done.

Depreciation expense is a significant portion of airport expense. The potential deficit is an accounting element which
occurs when all of grant revenue is recognized in the year it is received, but the depreciation for the associated asset is
expensed over the life of the asset. It is a non-cash flow item, so does not require current resources. Prospective grant
revenue for 2021 is not included in the operating budget but does result in revenue if it is received and offsets the
deficit produced by depreciation. The gap between revenue and expense is covered by the fund balance.

The Airport is currently working on a Master Plan which will provide guidance over the next 20 years. It is anticipated
that this plan will be finished first quarter of 2021.

SOLID WASTE

Revenue. The 2021 revenue budget is $8.3 million. There is a Board approved rate increase of 2% for commercial
customers.

Expenditure. The 2021 expenditure budget is $8.8 million and is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 4,056,515 46%
Transfers Out
Reserves 3,658,280 42%
Depreciation
60,750 1%

50,000 1%

931,400 11%

Total $ 8,756,945 100%

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The majority of the Solid Waste expense budget is for personnel. Other large expenditures include vehicle repairs and
maintenance, fuel, landfill fees, and billing and administrative costs. The 2020 expense budget was $8.5 million. The
2021 increase can be mostly attributed to the 3.5% COLA and the addition of the Hope Works program.

The difference between the revenue and expense budget is easily covered by fund balance.

Capital. The Solid Waste program is heavily dependent upon reliable equipment and has a sound equipment
replacement program. The 2021 budget for capital is $1,065,000 and is listed below:

Description Amount
Light/medium duty vehicles (2) $ 60,000
Compactor (2)
Transfer Trailer 450,000
Dumpsters (Commercial Roll-Off) 80,000
Bin Moving Truck 50,000
Frontload Collection Truck
125,000
300,000

Total $ 1,065,000

WATER

Revenue. The 2021 revenue budget is $19.6 million. Due to increases previously approved by the Board, this budget
is higher than 2020. Other revenue line items are very similar to the 2020 budget.

Expenditure. The 2020 expenditure budget is $18.5 million and is summarized below:

Expense Classification Amount % of Total
Personnel $ 2,451,276 13%
Services, Supplies, Intergovernmental 40%
Debt Service 7,451,216 24%
Reserves 4,499,690 0.7%
Depreciation 21%
125,000
Total 3,953,020 100%

$ 18,480,202

The majority of expense is for services and supplies. Approximately $3.6 million is for the cost share of Utility
Administration Fund and General Fund administrative fees. Two other large line items are the electricity and chemical
expense for the water plants. The 2021 budget includes debt service expense for bonds issued for water system
improvements and the annual payment for the Lake Ouachita water supply agreement with the Mid Arkansas Water
Alliance. Debt service was budgeted at $1.4 million in 2020 and $4.5 million in 2021, reflecting the issuance of $100
million bonds in 2020 for the new water supply project.

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Capital. The 2020 capital budget of $2.6 million is listed below:

Description $ Amount
Lakeside - Light/medium duty vehicle 28,000
Ouachita - Paving around maintenance building 30,000
Ouachita - Utility ATV 20,000
Ouachita - Parastaltic chemical pump 10,000
3/4 Ton truck with utility bed (2) 120,000
Mini excavator 55,000
Water main improvements
Tank improvements 1,635,000
Water meters (for capturing zones) 150,000
250,000
Total
$ 2,298,000

The Water System Master Plan was adopted in August 2019, and establishes guidance for operational and capital
planning over a 20-year planning period.

WASTEWATER

Revenue. The 2021 revenue budget is $18.2 million. Due to increases previously approved by the Board, this budget
is a little higher than 2020. All other revenue items are very similar to the 2020 budget.

Expenditure. The 2021 expenditure budget of $19 million can be summarized below:

Expense Classification Amount % of Total
Personnel $ 3,813,454 20%
Services, Supplies, Intergovernmental 39%
Debt Service 7,351,785 14%
Depreciation 2,720,886 27%
5,132,097
Total 100%
$ 19,018,222

Personnel expenses have increased in 2020 due to the 3.5% COLA. A large portion of services and supplies is due to the
cost share for Utility Administrative and the General Fund administrative fees. Other significant expenses are
electricity and chemicals for the plants, and replacement pumps and parts. The wastewater Master Plan should be
completed by the end of 2020.

Debt service is a significant part of the Wastewater Fund due to funding in 2009, 2013, 2016, and 2020 for system
improvements necessary to meet the requirements of the Consent Administrative Order. Finally, depreciation is also a
large expense due to the heavy investment in fixed assets by the utility funds.

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Capital. The 2020 capital budget is approximately $4 million and is listed below:

Description Amount
Davidson Drive WWTP - Utility vehicle $ 20,000
SWWTP - 1/2 ton 4 x 4 truck
Sludge/Compost - Paving Compost Pad 28,000
Collections - 1/2 ton truck 100,000
Collections - 5 yard dump truck
Collections - Main improvements 30,000
Lift Station - AC system 110,000
Lift Stations - Vac All Truck 2,656,500
Lift Stations - Line improvements
Lift Stations - Portable back up pump 17,500
450,000
300,000

75,000

Total $ 3,787,000

Major capital planned for 2021 includes collection line replacements, and sewer main improvements.

Another small fund associated with the Wastewater Fund is the Wastewater Impact Fee Fund. The 2021 budget
reflects impact fee revenue of $91,000, with no planned expenditures. The 2020 budget had a transfer in it.

EMPLOYEE WELLNESS FUND

The Employee Wellness Fund has performed well since rate increases were implemented, and a new Third Party
Administrator (TPA) and network were implemented in 2017. Results were favorable for 2018 and are on track to be
favorable for 2019. A fund balance of approximately 3.9 million is forecast for the end of 2019.

For 2020, $5.2 million in both revenue and expenses has been budgeted. There is no increase in premiums. If the
expenses come in under budget, those differences may be transferred to the reserve for the future. Premiums are
charged to each fund based on the number of employees; in addition, premiums are collected from retirees and
COBRA eligible individuals who elect to participate in the plan.

FLEET FUND

Revenue. The Fleet Fund is an internal service fund. Its mission is to maintain the City’s fleet and it is funded by
charging each department based on usage of Fleet services. The revenue collected from the departments is equal to
the expense incurred by the Fleet Fund.

Expenditure. For 2021, the expenditure budget is approximate $1.1 million and is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 948,969 88%
Depreciation
113,154 10%

19,600 2%

Total $ 1,081,723 100%

The majority of Fleet’s expense is for personnel costs. Services and supplies are primarily for maintaining the Fleet
workshop.

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UTILTY ADMINSTRATION

Revenue. Utility Administration is also an internal service fund and mainly serves the Water and Wastewater Fund.
The Utility Billing Services Division provides customer service and billing services for Solid Waste and for Stormwater,
so those two funds are charged for their proportionate share of those services. The remaining revenue is from charge-
backs to Water and Wastewater. The total revenue budget for 2021 is $4.9 million.

Expenditure. The 2021 expenditure budget is $4.9 million and is summarized below:

Expense Classification Amount % of Total
Personnel
Services, Supplies, Intergovernmental $ 3,012,054 62%
Depreciation
1,741,658 36%

128,500 3%

Total $ 4,882,212 100%

Personnel expense is a large portion of this budget. It includes Information Services personnel assigned to utilities,
Engineering personnel assigned to utilities, utility billing services staff that provide customer service, billing, and meter
maintenance, and other personnel that provide services to both Water and Wastewater.

Services and supplies expenses include professional services needs for utility planning, postage and production costs
for billing, software maintenance for metering and billing systems, water meter parts, and credit card costs for billing.
These are just a few of the major expenses.

Capital. The 2021 capital budget is $201,811 and is listed below:

Description Amount

Light/Medium Duty Truck 51,811
Generator for 324 Malvern 150,000

Total $ 201,811

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BUDGET DEVELOPMENT AND FISCAL STRATEGIES

The development of the City’s budget takes several months and hundreds of hours of staff time. For this year, each
department was instructed to develop a conservative budget focused on the Board’s objectives and priorities and hold
the line on expenditures due to the uncertainty caused by the pandemic. Once the departments had completed their
budgets, meetings were held with the City Manager, Deputy City Managers, Finance Director, and Human Resources
Director to review each budget. After reviews and changes by this group, the budget was reviewed by the City
Manager for further adjustments and then a recommendation to the Board of Directors.

The City of Hot Springs’ budget is balanced and fiscally responsible for the service demands currently experienced by
the City. In some cases, it is balanced using fund balance from prior years, a practice consistent with standard
accounting practices when budgetary demands fluctuate significantly from year to year. However, this year did not
require fund balance to budget.

For the General Fund, the City has historically approved a budget that required fund balance far beyond what was
subsequently needed. This is demonstrated below as a five year history of the General Fund budget (in thousands)
along with the 2021 budget:

Budgeted Actual Fund Actual Ending

Revenue Expense Fund Balance Balance Fund
Budget
Year Budget Change Change* Balance*
21,215
2015 21,970 (in thousands)
2016 23,760
2017 23,571 22,396 (1,181) (706) 5,108
2018 24,116
2019 26,982 22,879 (909) (385) 4,723
2020 29,820
2021 24,777 (1,017) 953 5,676

24,706 (1,135) 165 5,840

24,957 (841) 2,402 8,242

27,772 (790) 2,000 10,242

29,017 803 11,045

*2020 and 2021 are estimated

The required general fund balance per board policy is 16.5% of annual operating expenses. This equates to around $4.5
million, using the 2021 budget. The estimated ending fund balance for 2021 is $11 million.

Budgets for enterprise funds (parking, stormwater, airport, water, and wastewater) may require a small amount of
fund balance. These decisions are based on the fund balance availability and the cash flow required by the fund.

There are still many priorities that remain unfunded, and staff will continue to explore new ways of meeting these
funding requirements. Overall, the 2021 budget is based on sound fiscal decisions and provides the necessary funding
for many of the Board’s priorities.

Budgeting in uncertain times is very challenging. The election, the lack of a vaccine for the coronavirus, and the big jolt
to our economy in 2020 due to the shutdown all certainly create uncertain times. In 2020, we were concerned that our
sales tax would take a big hit and that did not happen. Some economists think that that hit is yet to come, while others
forecast an economic recovery. We have budgeted as though everything would be back to normal, but have been very
conservative in those estimates. It will be extremely important to watch indicators as we start into 2021 and react
quickly if there are major changes.

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I wish to thank the department heads and all of the dozens of city staff who helped in the preparation, analysis, and
presentation of this budget.

Sincerely,

Bill Burrough, City Manager Dorethea N. Yates, Finance Director

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ORGANIZATIONAL CHART

City of Hot Springs

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STAFFING SUMMARY

Difference
2019 2020 2021 2020 -2021

General Fund 2.3 4 4 0
City Manager 3.5 4 4 0
City Attorney 4.5 5 5 0
Human Resources 14 14 14 0
Finance 1.5 2 2 0
City Clerk 0
Public Information 222 0
Information Systems 9 10 10 0
Planning & Development 19 19 19 0
Parks & Trails 19 19 19 0
Sports Recreation 111 0
Public Works Administration 9.23 9 9 1
Engineering 2.7 9 10 0
Traffic 7.67 8 8 1
95.4 106 107
Total General Fund
Special Revenue 17 17 16 (1)
133.17 138 138 0
District Court 8.5 8.5 0
Police 9.5 78 78 0
Animal Services 80 24 24 0
Fire 24 16 16 0
Street 16 281.5 280.5
Intracity Transit 279.67 (1)
Special Revenue Fund
Enterprise Fund 0.5 0.5 0.5 0
Parking 3.1 3 3 0
Stormwater 12.1 12 12 0
Airport 72.4 72 72 0
Solid Waste 41 38 38 0
Water 70 67 67 0
Wastewater 199.1 -
Enterprise Fund 192.5 192.5
Internal Service
Fleet 16 16 16 0
Utility Administration 12 14 14 0
Utility Billing Services 22.53 24 24 0
Utility Engineering 6.55 0 0 0
Internal Service Fund 57.08 54 54 0

Total All Funds 631.25 634 634 0

* The 2020 and 2021 reflects actual physical locations of employees. The 2019 reflects the salary distribution.

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APPOINTED OFFICIALS

City Manager ................................................................................................. Bill Burrough
City Attorney.................................................................................................Brian Albright
Deputy City Manager ......................................................................................Lance Spicer
Deputy City Manager ................................................................................. Kevin Brownlee
City Clerk............................................................................................. Harmony Morrissey
Human Resources Director ........................................................................... Minnie Lenox
Finance Director/Treasurer .........................................................................Dorethea Yates
Police Chief .............................................................................................. Chris Chapmond
Fire Chief............................................................................................................... Ed Davis
City Engineer............................................................................................... Gary Carnahan
Public Works Director ............................................................................... Denny McPhate
Utilities Director....................................................................................... Monty Ledbetter
Parks and Trails Director.................................................................... Anthony Whittington
Solid Waste Director .................................................................................. Randy Atkinson
Utility Billing Services Director .......................................................................Randy Outler
Information Systems Director ........................................................................... Jeff Winter
Planning and Development Director ............................................................ Kathy Sellman
Fleet Services Director ...................................................................................... Greg Speas
Airport Director .......................................................................................... Glen Barentine
Public Information Director ............................................................................Aaron Street

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DOWNTOWN HOT SPRINGS

Central Avenue

35

ECONOMIC CONDITIONS AND
OUTLOOK WITH

BUDGET OVERVIEW

City of Hot Springs, Arkansas

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ECONOMIC CONDITIONS & OUTLOOK

Economic conditions and outlooks worldwide have been overshadowed by what is known as the COVID-19 or
coronavirus pandemic. This pandemic created a worldwide disruption that had not been previously seen in this
century. Per Wikipedia, “the pandemic has resulted in significant global social and economic disruption, including the
largest global recession since the Great Depression. It has led to widespread supply shortages, exacerbated by panic
buying, agricultural disruption and food shortages, and decreased emissions of pollutants and greenhouse
gases. Many events have been cancelled or postponed.” In a economy that thrives on tourism, the impact has been
substantial. However, while there have been losses in some areas, Hot Springs has continued to rise above these
challenges and is poised for growth when things return to pre-pandemic conditions.

Over the last few months, vaccinations have been rolled out and cases are declining. This economic conditions and
outlook has been written with an optimistic outlook that the end is in sight.

Hot Springs, Arkansas is a growing, vibrant community with an exciting future. Its main industry is tourism and it is one
of the South’s most popular vacation and convention destinations. It hosts around 8 million visitors annually.

Hot Springs National Park is located in the heart of the City of Hot Springs. This area first became a United States
territory in 1803 as part of the Louisiana Purchase. It quickly became a popular settlement due to the springs’
potential as a health resort. In April, 1832 it was set aside as a federal reservation, making Hot Springs National Park
the oldest preservation in the nation. This Park is still in existence today and is a valuable part of the Hot Springs’
economy. The park includes several historic bathhouses, walking trails, scenic mountain roads and thermal pools. One
of the old bathhouses has been converted to a brewery and restaurant and another is a nine-room boutique hotel with
two public dining areas (www.nps.gov/hosp/index.htm).

Hot Springs is surrounded by an abundance of natural resources. There are three lakes, which offer a wide variety of
water sports, fishing, and entertainment opportunities. Local parks provide venues for outdoor enthusiasts who enjoy
hiking, canoeing, rock mining, rock climbing and mountain biking.

Hot Springs is becoming established as a premier mountain bike destination. It is home to a versatile mountain bike
trail system with offerings for riders of all ages, style, and skill levels. It has three International Mountain Bicycling
Association (IMBA) Epic Rides within an hour drive from downtown and was designated as an IMBA Bronze-level Ride
Center in 2015. In 2018, 15.7 miles of mountain bike trails were completed on a 2000-acre city-owned land located in
the northern section of Hot Springs which is called the Northwoods Trail System. The Northwoods is connected to an
already existing trail system in the neighboring county park, Cedar Glades Park. Cedar Glades includes 10 miles of cross
country mountain bike trails that were recently improved by the IMBA Trails Solutions team. In late November of 2019,
the National Park System published a new regulation allowing the park superintendent to permit bicycles on a 0.65-
mile trail connection within the park. This connection was completed in 2020 and will increase accessibility of the trails
from neighboring communities and the downtown area. The Northwoods project is ongoing, with financial support
from the Walton Family Foundation, and will be a 44 plus mile system of trails when it is completed (https://
www.singletracks.com/mtb-trails/northwoods-trails-system/ ).

The Hot Springs Greenway Trail opened in 1998. It originates downtown and runs south alongside Hot Springs Creek
and will eventually connect to Lake Hamilton. The trail has been largely funded by state grants. Currently there is
approximately two and a half miles of trail completed, and when finalized it will be about four miles in length with
connections into the adjoining neighborhoods all along the multi-use pathway. This trail is used extensively for
transportation and recreation. It is in a beautiful natural setting with many art elements along the way.

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Hot Springs is also a thriving arts community. The Hot Springs Area Cultural Alliance (www.hotspringsarts.org) is a
nonprofit organization whose mission is to celebrate, advocate, and promote the arts in Hot Springs. There are
numerous art galleries as well as several events including the Hot Springs Music Festival, Hot Springs Documentary Film
Festival, Hot Springs Blues and Jazz Fest, Valley of the Vapors Independent Music Festival, Arts and the Park and the
monthly Gallery Walk on Friday night.
Other major attractions include a botanical garden, a water and amusement park, a gangster museum, an alligator
farm and petting zoo, a science museum, a magic show, a wax museum, and a mountain tower.
The City also hosts various fishing tournaments, motorcycle rallies, and parades. The City also hosts the World’s
Shortest St. Patrick’s Day Parade annually, (cancelled in 2020 due to the pandemic) which draws a large number of
visitors and participants (www.shorteststpats.com).
Hot Springs has an active growing night life. Over the past years, several new premium restaurants have been added to
augment the other long standing restaurants. Microbreweries have become more popular across the United States
and Hot Springs is no exception, with two located downtown, as well as a wine bar and distillery. Visitors can enjoy live
music seven nights a week at one or more locations in the City.
In addition to being a tourist destination, Hot Springs is a popular retirement community. Due to this, the health care
industry has a significant economic presence in Hot Springs with two major hospitals and many other healthcare
facilities. Both of these hospitals are two of the top ten employers in the City.
There are several school districts in the community. Arkansas School of Mathematics, Sciences, and the Arts (ASMSA),
a two-year, public residential high school is located in Hot Springs. National Park College was established in 1973 and is
located in Hot Springs, Arkansas. The College enrolls over 7,500 credit and non-credit students per year. NPC is a
comprehensive two-year institution offering associate degrees and certificates as well as continuing education,
community services and workforce training. NPC partnered with Southern Arkansas University to offer three bachelor’s
degrees on campus (www.np.edu).
Approximately 39,111 residents live within the city limits per the World Population Review. Hot Springs is the county
seat for Garland County, which has a total population of over 100,226. Many county residents travel to Hot Springs to
work, play, shop, and dine. Economic growth in the City has a positive effect on the county and vice versa, and should
be viewed as a regional endeavor and not just what happens in the city limits.
The promotion of Hot Springs is accomplished thru an advertising and promotion commission (A&P). It is funded by a
3% tax on restaurants, motels, and hotels. Its responsibilities include promoting Hot Springs and managing the
Convention Center and Mid-America Science Museum (www.hotsprings.org) . This tax provides an excellent barometer
of the economic impact of visitors on the community.

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As shown on the chart, this tax has steadily increased over the past few years, but the impact of the 2020 pandemic is
very evident with a negative growth rate of 11.24% for 2020. It is anticipated that we will go back to normal growth
levels once the pandemic ends.
The biggest driver of the Hot Springs economy is Oaklawn Racing Casino Resort (hereinafter referred to as Oaklawn), a
premier thoroughbred horse racing track and casino. Oaklawn officially opened in 1904. In 2006, voters of Arkansas
voted to legalize electronic games of skill at Oaklawn and a dog racing track in east Arkansas. A portion of the tax
revenue from these operations has been coming to the City and the county since this time. In 2018, Arkansas voters
passed a law to open up gaming to allow casino-type betting and sports betting and in November, 2018 Oaklawn
announced a $100+ million expansion consisting of a new 200-room hotel, an event center, and an expanded casino
area. The new casino area opened in January, 2020 and the hotel and the event center will open in early 2021. The
construction of these facilities has provided around 2,300 construction jobs and the completed project will add about
400 permanent jobs.
As a result of the new laws passed in 2018 regarding casinos, the distribution of tax revenues from it was changed,
providing a much larger distribution to the municipality and the county where the casino is located. This became
effective in July, 2019 and as a result, Hot Springs revenue from Oaklawn has increased significantly. During the first six
months of 2019, our revenue was $1.2 million. During the last six months of 2019, our revenue was $1.9 million, an
increase of around 54%. This growth was interrupted in 2020 by the pandemic and revenue declined by 12.1 %
compared to 2019. With the opening of the hotel and event center, it is anticipated that 2021 revenue will show
positive growth once again.

Currently 56% of the funding for the City of Hot Springs’ general government activities (administration, police, fire,
streets, parks) comes from a sales tax. A 1% sales tax levy is for general government activities and a 0.5% sales tax levy
is restricted to police and fire activities. In 2020, the City collected approximately $22.4 million from this combined tax.
The tax increased 4.29% in 2016, .02% in 2017, 1.47% in 2018, 7% in 2019, and 4.91% in 2020. A conservative 2%
increase has been projected for 2021 due to the uncertainty at the time of forecast. Because of tourism, the tax
burden has been borne by sales tax and the City does not levy a property tax. While this is a positive for residents, it
makes this major income source more volatile and sensitive to economic shifts. Tourism spending is discretionary
spending. However, sometimes economic downturns mean that tourists choose to go to smaller places and not travel
as much, and this can result in a positive, or neutral impact on the local economy. For the last 21 years, sales tax
increased every year, except for 2009 (the end of the Great Recession) when it declined by 2.4%. It is interesting to

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note that sales tax increased in 2007 and 2008, the first two years of the Great Recession.

The 2018 United States Supreme Court ruling in South Dakota V. Wayfair paved the way for states to enforce
collection of sales tax on certain online transactions. Arkansas legislators passed Act 822 which went into effect in July,
2019, and this has had a very positive effect on both state and local taxes. It is the common theory that this change was
what enabled us to post a positive growth during the pandemic.

In 2016, Arkansas voters voted to legalize medical marijuana. One of the first dispensaries in the State opened in Hot
Springs in May 2019. Since medical marijuana is taxable, it has had a very positive impact on our sales tax.

For the past few years, there has been major investment in downtown Hot Springs by both the private sector and
public sector in an effort to revitalize it. The effect of the pandemic is evident in these numbers. The following table
shows the investment over the last five years:

New Business Opened 2016 2017 2018 2019 2020
Commercial Properties Sold in Downtown 25 41 21 30 10
Value of Commercial Properties Sold 20 30 16 15 8
Downtown Investment
$15.66M $9M $8M $12M $3M
$19.3M $23M $12M $14.5M $3.85M

In addition to downtown development, there is major development in other areas of the City. The following is a
comparison of 2018, 2019 and 2020 commercial construction permits:

New Commercial 2018 2019 2020
Existing Commercial # of # of # of
Permits Valuation Permits Valuation Permits Valuation

20 $ 52,270,458 35 $ 139,460,035 30 $ 56,621,656
251 $ 26,460,072 300 $ 15,318,442 178 $ 11,573,452

Total $ 78,730,530 $ 154,778,477 $ 68,195,108

Part of the 2019 new commercial is the $105 million Oaklawn permit. In addition to the new hotel being constructed
at Oaklawn, a Microtel by Wyndham Hotels was completed in 2020 and other hotels are doing major renovations.

There are several other developments that will greatly enhance our tourism offerings. The first one is the Majestic Park
Baseball Complex. In 2019, voters approved a bond issue of $7.875 million to build new ball fields. These ball fields
will be built on the site called Majestic Fields where the Boston Red Sox practiced in the early 1900’s. The new complex
will host league play for multiple age groups during the week and will play host to tournament play on the weekends,
bringing in players from other regions. The complex will be state of the art, with five fields with artificial turf, covered
grandstands, concession stands, and bathroom facilities. These types of facilities are a proven economic boost,
bringing players and their fans into the City to stay in our hotels, eat in our restaurants, and enjoy Arkansas’ most
popular city. The ballfields will be completed in early 2022.

The second on is the development of a large site downtown known as the Majestic Hotel site. At one time the Majestic
Hotel stood in that site, but was destroyed by fire in 2014. The City purchased the property, demolished all the
buildings, and worked with the State to remediate the property. A considerable amount of site analysis and marketing
has occurred and it is hopeful that a sound economic project will be developed soon.

Economic development outreach for the City and Garland County is accomplished through the Metro Partnership, a

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division of the Chamber of Commerce. In 2020, there were 23 active economic development projects. The Metro
Partnership is also very active in retention and growth efforts of our existing industries and were instrumental in adding
a total of 44 new jobs to local companies plus around $8.5 million in new investment during 2020.

Infrastructure

The City provides water, wastewater, solid waste, and stormwater services to all residents, and water and wastewater
services to some non-city residents. The number of accounts is projected to grow by about 1% a year. Traditionally,
population growth is an indicator of growth in utilities, but in a town where tourism is the main industry, population
growth does not tell the whole story. Since water and wastewater services are weather-sensitive, comparing
consumption from one year to the next is not a true indicator. In years of very hot weather, the City has experienced
periods of consumption that were close to capacity. Due to this, the City began to explore an alternate water source
several years ago. After several years of negotiations with the Corps of Engineers, the Arkansas Department of Health,
and Entergy, an agreement was signed in 2017 securing Lake Ouachita as a future water source that will meet
projected water demands through the year 2060. This puts the City in a very advantageous position for future growth
of residents, tourism, and other industries. A comprehensive Water System Master Plan was completed in 2018 which
is a guiding factor for future development of the water system.

The Board’s top 2021 priority is to continue to implement the new water supply. There are four parts to this project:
intake structure, raw water lines, water plant, and finished water lines. A lot of progress was made in 2020. We issued
$100 million in bonds to fund the project, continued project engineering and began issuing contracts. Progress will be
made on all of these parts in 2021. Since this project is totally funded by bond money, it does not appear anywhere in
the budgets.

The City has invested several million dollars in its Wastewater collection system over the past few years and issued $18
million in funds in 2020 for more improvements. We have also invested several million in our Stormwater system,
continuing to protect the waters that flow into our lakes. The Solid Waste system provides excellent collection and
recycling services to residents and businesses and has a solid capital replacement plan. All of the utility services are
offered at affordable rates and the Board has shown solid support in keeping these utilities viable and sustainable. Each
year, rates are reviewed to make sure we are meeting debt coverage ratios as well as providing funding for operations.
The 2021 capital improvements plan (pages 88-96) includes several additional capital projects for these funds.

In 2019, the City contracted with Scenic Hill Solar to build and operate 12.75 MW of solar plants to supply 100% of the
City’s power needs. The first plant (1.3 MW) will be completed in early 2021. The remaining plants will start
construction around November 2021, pending permission from the Arkansas Public Service Commission. All of the
plants should be up and running in 2022. The net expected savings from the use of solar energy is over $200,000
annually. These projects are on track to make Hot Springs the largest city government in Arkansas to utilize 100% solar
energy for its buildings and operations.

Over the past five years, the Arkansas Department of Transportation has widened and improved every major highway
artery coming into Hot Springs. Most of these projects have been completed but those under construction should be
completed in 2021. Each of these projects required the City to relocate utilities, so the City has invested several million
in water and wastewater line improvements relative to these projects.

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A key factor in economic development for all cities is the presence of high speed broadband. Ritter Communication
has now completed a 100% fiber connection that is available to most commercial businesses in the City and is
expanding into other areas of our county. In addition, WEHCO media has announced that they will be spending $7
million to provide residential broadband. With these additions, we are poised to recruit a much wider array of
businesses to our community .

Planning

While the City does not do multiple year budgets, there are many planning activities that take place. There is a Water
Master Plan and a Wastewater Master Plan and Airport Master Plan are currently under development. In 2020, the
City completed the Hot Springs 2040 Comprehensive Plan, referred to as Forward Hot Springs. This document can be
viewed at www.cityhs.net/documentcenter/view/13645. It lays out the vision for Hot Springs and provides a detailed
action plan. The annual budget process each year includes a review of the fund balances or net position of each fund
in conjunction with the proposed budget and expected changes over the next few years. Citizens serve as advisory
boards for the airport, parks, planning and zoning, and community development. The local chamber of commerce has
organized and supports a group called Fifty for the Future that is focused on how our community is changing and the
best way to optimize our resources. All of these groups play an important role in envisioning the direction of our
community and how funding priorities are established.

Many cities are able to provide projections on their local sales tax revenue based on their knowledge of local business
and economic trends. Cities in Arkansas are handicapped by the inability to obtain individual sales tax data by business.
Sales tax information by sector is available, but the data is virtually useless, as any sector that has less than three
businesses is lumped into a special sector that contains numerous business types.

City Management

Senior City management includes the City Manager, two Deputy City Managers, City Attorney, Finance Director, and
Human Resources Director. The City Manager has been in that position since January 1, 2019, but previously served in
other City positions since 2002. The combined total of experience for all senior management is 109 years. Twelve out
of 14 department heads have been with the City over five years. With an experienced team, the city is well positioned
to meet the challenges of 2021.

Challenges

The City faces a major economic challenge. For many year the City was home to the Arkansas Career Training Institure.
The Institute occupied a very large piece of property in downtown Hot Springs that was formerly the Army Navy
Hospital. The building sits on a hill overlooking the City and is iconic. With the State discontinuing the Institute at the
end of 2019, the building and properties will revert back to the Federal government, further complicating a path to
reuse.

Summary.

Our goal is to continually improve the tourism experience and the quality of place for our citizens. This report has
attempted to list many of the different plans that are either currently being implemented, or will be implemented in
the near future, but it is not all inclusive. The City Manager’s State of the City (SOTC) report, in Appendix I, serves as a
useful complement to a discussion on economic conditions and outlook in Hot Springs and readers are encouraged to
read the SOTC. Our economic outlook is sound and we are confident that Hot Springs will continue to be one of the
best small towns in America.

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FALLEN HOT SPRINGS POLICE

Officer Brent Scrimshire—E.O.W. 3-10-2020

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BUDGET OVERVIEW

The following narrative will present an overview of each fund and discuss primary revenues and expenditures of each
fund and budgetary trends. Only appropriated funds are included in this overview. The City has many other funds that
do not require annual appropriations. Unless otherwise indicated, comparisons are of the adopted 2020 budget versus
adopted 2021 budget, so the reader should keep that in mind when looking at the percentage increases or decreases.
While the revenues and expenditures of each fund are driven by various factors, all of the funds are impacted by a
3.5% employee cost of living adjustment for 2021. The City’s Board of Directors recognizes that employees are the
City’s biggest asset. The Board is committed to retaining employees and recognizes that as the City’s workforce ages, it
is critical that the City be in a position to recruit outstanding staff. In 2020, the Board approved a one-time payment of
$1,200 to each employee to express their appreciation for the dedication of staff working amid the pandemic.
The board established five major goals for 2021. Not all of these goals drive the budget. Here is a brief discussion,
including any impact on the 2021 operating budget:
Goal #1 – Majestic Redevelopment. This goal focuses on the redevelopment of a prime piece of real estate located
downtown that is owned by the City. There is no budget associated with this request. Future budget impacts are
ideally more revenue due to increased tourism offerings.
Goal #2 – Water Supply Project. This goal focuses on the completion of raw and finished water lines, a water intake, a
new water plant, and new water storage by late 2023. All of these projects are funded by bonds, so they do not impact
the operating budget in 2021. Future budget impacts will be an increase in debt service and operating costs and
increases in water sales due to available capacity. Budget impacts have been estimated by rate consultants and will be
incorporated in future budgets.
Goal #3 – Street Paving/Roadway Improvements. This goal focuses on increasing spending for street paving and
roadway improvements. This goal does have an impact on the current operating budget for the Street Fund and
General Fund and a comprehensive discussion of the impact is on page 52.
Goal #4 – Malvern Avenue Project Continuation. This goal focuses on the improvement of Malvern Avenue gateway,
one of the most visible gateways to downtown. A comprehensive development plan was designed a couple of years
ago, and funding is available through grants and some Street fund monies to get this project underway in 2021. The
first phase is just a two block area and an additional $2 million is needed to complete the project. The goal does have
an impact on the 2021 Street Fund budget, but is expected to have a greater impact on future budgets.
Goal #5 – Homeless Services. This goal is to establish and secure a homeless facility for a non-profit to operate. The
plan is to use Community Development Block Grant funds as funding, so there is no impact on the 2021 operating
budget and no future impact is known at this time.

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GENERAL FUND AND SPECIAL REVENUE FUNDS

General Fund. The General Fund is used to account for administrative services, planning and development, parks
and recreation, public works and engineering. The total budget summary is shown below:

Revenue Adopted Amended Estimated Budget
Expenditures 2020 2020 2020 2021

26,982,407 26,998,091 27,975,413 29,820,439
27,771,685 29,072,865 23,902,693 29,016,569
(2,074,774) 4,072,720
(789,278) 803,870

The comparative summary of General Fund revenues and expenditures shows a significant difference between the
adopted, amended, and actual change in fund balance for 2020. There are many factors that contributed to this and
they will be identified and discussed in detail in the revenue and expense discussions.

REVENUES - The general fund has a number of revenue sources. The largest source of revenue is from a 1% sales tax.
The chart below shows the mix of general fund revenues:

Sales tax is the largest source of revenue, accounting for about 51% of total general fund income. This number has
steadily increased over the past few years as shown on the chart below. Monthly sales tax information is provided to
Hot Springs by the State of Arkansas and there is a two-month lag. When budget preparation for the City began in
early September, sales tax data was only available thru June. There were a number of factors that contributed to the
complexity of sales tax projections, both in 2020 and in 2021. Arkansas cities began collecting sales tax on internet
sales in mid 2019. Once all of the numbers were in, the increase over 2018 for the first six months of 2019 was 2.74%,
and the increase for the last six months was 11.41%. A 2.5% increase was used for 2020, based on the data available at
that time. The actual increase for 2020 was 4.91% over 2019 actual, and 6.3% ($890,000) over the 2020 budget. This
was a significant contribution to the variance between the adopted budget and actual. When the pandemic first hit,
the common thought was that it would have a significant negative impact on our sales tax revenue. However, the
collection of sales tax on internet sales “saved the day.” When budget preparation for the 2021 budget was underway,
the pandemic was still in full swing. That, along with political uncertainty, factored into our decision to once again
budget conservatively, and a 2% sales tax increase forecast was used for the 2021 budget. If the pandemic begins to
wind down and normal activity resumes, we are very optimistic that the sales tax growth for 2021 will be much higher
than we have forecast.

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For clarification, although sales tax collections were up in 2020, it is certain that they would have been much higher if
the pandemic had not occurred. There were a couple of months when things were basically shut down and the
tourism industry that feeds our economy was at a standstill. The opening of the new hotel and event center at
Oaklawn was delayed because of the pandemic. Oaklawn’s casino was shut down for a month and then reopened with
limited capacity. Horses raced without spectators. In 2019, the Hot Springs economy was booming and then suddenly
things stopped and we experienced the same challenges as other economies across the world.

The economic overview, on pages 37-42, has more details on the factors that are impacting our sales tax growth.

General Fund Sales Tax Collections

16,000,000

14,000,000

12,000,000 2011
10,000,000 2012
2013
8,000,000 2014
6,000,000 2015
4,000,000 2016
2017
2018
2019
2020

2,000,000

-
1

Hot Springs is home to Oaklawn Racing and Casino Resort, a premier thoroughbred race track and casino facility. The
City receives a portion of the revenue from Oaklawn, as provided by state law. Technically, this is another form of
intergovernmental revenue, but it is presented separately due to its nature and significance to the city revenue base.
Oaklawn revenue consists of breakage from live racing, simulcast breakage, and casino revenues. It totals 17% of the
General Fund revenue budget, with the majority of this coming from the casino revenues. Oaklawn revenues are
charted on page 39 and they have grown substantially over the past few years due to both expansion and changes in
the distribution formula. Due to the pandemic, the casino was closed for a month in 2020 and opened back up with
limited capacity. In addition, the 2020 racing season was conducted without spectators. The 2020 revenue reflects
the results of this. For 2020, total revenue of $4.5 million was forecast, with $1.5 million budgeted to be moved to a
reserve fund. Actual revenue was only $3 million, leaving only $16,000 to be moved to the reserve fund.

For 2021, we have budgeted around $5 million and plan to move $1.7 million to the reserve fund. This higher forecast
was used assuming that the pandemic would end in 2021 and reflecting the economic benefit of a new hotel and event
center at Oaklawn and the expansion of the gaming area, as discussed in the economic overview.

The third highest source of general fund revenue (9.2%) is charges for services. The administrative departments
accounted for in the General Fund (city manager, city clerk, finance, human resources, information services,
engineering, information technology, and legal) also provide services to the enterprise activities of the city. Those
funds that represent enterprise activity are charged an administrative fee based on their revenue and this comes back
into the General Fund as revenue. The 2021 budget reflects a 11% increase in this revenue source.

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The next major source of revenue (8.9%) for the general fund is franchise fees coming from electric, gas, telephone,
and cable TV utilities. The growth of this has remained relatively flat over the past few years, with increases in rates
being offset by technological changes. The move to cell phones and dish services for TV has eroded any real increases
in those franchise fees. They are budgeted to remain relatively flat in 2021.

Other sources of revenue for the general fund are expected to remain relatively flat for 2021. Fee and permits,
business licenses, and alcohol related revenues may see some slight increases as business activity in the City picks up.

EXPENDITURES – The biggest change in expenditures from the prior year is due to the 3.5% salary increase. The
following table shows each general fund department and comparative information for 2019, 2020, and 2021:

DEPARTMENT ACTUAL ADOPTED AMENDED ACTUAL ADOPTED Inc(Dec)
Board of Directors 2019 2020 2020 2020 2021 between
City Manager 2020/2021
City Attorney $ 52,593 $ 115,600 $ 113,000 $ 6,534 $ 115,550 ADOPTED
Human Resources 373,809 475,297 534,749 509,424 497,572 $ (50)
Finance 450,729 429,165 470,479 473,014 435,677 $ 22,275
City Clerk 361,714 408,358 408,358 365,795 423,233 $ 6,512
Public Information $ 14,875
Information Systems 1,119,723 1,138,587 1,206,588 1,190,602 1,132,362 $ (6,225)
Special Appropriations 203,542 227,488 231,027 211,272 232,165 $ 4,677
Planning and Development 183,977 192,513 197,752 183,688 197,107 $ 4,594
Parks and Trails 743,042 800,850 826,984 807,074 809,985 $ 9,135
Sport Recreation $ 2,040,739
Animal Services 15,670,090 17,293,029 17,380,871 13,508,010 19,333,768 $ 7,865
Public Works 1,662,640 1,530,617 1,617,029 1,432,713 1,538,482 $ (154,837)
Engineering 1,576,688 1,804,957 2,062,839 1,572,319 1,650,120 $ (64)
Traffic $-
259,436 361,081 423,197 269,770 361,017 $ (805,381)
- - - - - $ 67,286
$ 33,483
877,972 2,062,716 2,552,114 2,423,556 1,257,335
190,375 220,559 228,969 196,249 287,845
675,034 710,868 818,909 752,674 744,351

Total $ 24,401,365 $ 27,771,685 $ 29,072,865 $ 23,902,693 $ 29,016,569 $1,244,884

The 2021 General Fund budget is a continuation budget with no new major initiatives. As shown in the last column,
there are only three major changes between the 2020 budget and the 2021 budget. Special Appropriations is the most
significant. Of the $2 million change, $1.7 is the transfer to Oaklawn Reserve Fund, which was budgeted differently in
2020. In Sport Recreation and Public Works, the difference was a reduction in capital needs in 2021.

Personnel services – The personnel services budget is $6.6 million, up from $6.5 million in 2020 due to the 3.5% cost of
living increase and is 23% of the total general fund budget. Although salaries were increased by 3.5%, the total
percentage increase in less due to 2020 having an extra pay period in it.

Employees in the general fund are members of the Arkansas Public Employees Retirement System. For both 2020 and
2021, the employer contribution rate was 15.32%. Employees also have health insurance benefits thru the City’s self-
funded plan and these rates did not increase for 2021. The City added an additional employee in 2021 that will be 50%
funded by the General Fund.

Transfers - Transfers account for 63% of the General Fund expense budget. The General Fund provides a subsidy to the
Police, Fire, Street, and Parking Funds. It also reflects cost share or grant matches for the District Court Fund, and

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Intracity Transit Fund.

The 2021 transfer budget increased 10% over the 2020 budget. This is mainly due to an accounting change. In 2020,
Oaklawn casino revenue was budgeted in General Fund and in the Oaklawn Reserve Fund. For 2021, the revenue was
budgeted 100% in General Fund with a transfer to the reserve fund. For financial reporting purposes, these funds are
combined.

The largest deviation between budgeted expense and actual expense for 2020 is also in the transfers. This was due to
a couple of factors. The 2020 CARES Act provided a number of funding opportunities for the City. Two of those
impacted the General Fund. The first one was funding for the Intracity Transit System. The 2020 budget had a transfer
for the General Fund match of $477,383. The CARES money was available to fund 100% of intracity transit expenses
and no General Fund match was required. The second one was that CARES provided funding for public safety during
the pandemic. The City was able to obtain $1.5 million to reimburse salaries. This reduced the required transfer to the
Police Fund out of General Fund. The combined total of CARES money reduced the transfers expense by almost $2
million.

Capital - The capital asset budget for 2021 is $397,450 compared to $899,795 in 2020. There was a major building
purchase and renovation in 2020 which resulted in a higher capital budget in 2020.

While there are always unfunded capital needs, the City strives to maintain a schedule of replacements that provides
workable vehicles and equipment and minimizes repair costs. A major portion of the capital budget will be financed
with a five-year loan. A complete listing of 2021 capital is shown in the Capital Budget section of this budget
document.

Other expenditures - The 2021 budget for services, supplies, debt service and intergovernmental expense did not
deviate substantially from the 2020 budget. There was a substantial deviation between the adopted services budget
and the actual expense, with over $500,000 of funds unspent. Most of this can be attributed to lack of travel in 2020
and projects being put on hold during the pandemic.

Summary – The 2021 budget reflects an anticipated increase in fund balance of $803,870. This budget was developed
during the pandemic and was very conservative. It is anticipated that the actual results in 2021 will be much more
favorable.

The following two funds are budgeted and accounted for separately for convenience. For financial reporting purposes,
these funds are combined with the General Fund.

Oaklawn Reserve Fund. On page 39 of the Economic impact section of this report there was a discussion on revenue

that the City receives from Oaklawn and how it has increased. As is true with most cities, substantial increases in

annual revenue do not happen very frequently. In 2020, the Board of Directors directed staff to create a reserve fund in

which 90% of the new revenues generated by Oaklawn would be deposited. This was named the Oaklawn Reserve

Fund. No expenditures were budgeted in this fund as its purpose is to fund large non-recurring expenses that may

occur in the future. As previously discussed, Oaklawn casino revenue for 2020 came in substantially below budget due

to the pandemic, so the deposit to the reserve fund was only $16,000. All Oaklawn revenues are recorded in the

General Fund and the deposit is accomplished through a transfer from General Fund. The 2021 budgeted transfer is

$1.7 million.

Adopted Amended Estimated Budget

2020 2020 2020 2021

Revenue 1,528,000 1,528,000 16,311 1,680,800

Expenditures 1,528,000 1,528,000 - 1,680,800

- - 16,311 -

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Major Capital Project Fund. The redevelopment of the Majestic Hotel property was discussed in the Economic
Overview on page 40. The 2021 budget of $20,000 is to cover property taxes and consulting maintenance expenses.
Funding will be provided by a transfer from the General Fund.

District Court Funds. The Garland County District Court serves both the City and Garland County. The City collects
revenue and disburses funds for the court and the County reimburses the City for 50% of the operating costs. In
addition to the operating fund, there are two other funds. The Probation Fee Fund was used to account for a specific
revenue derived from tickets that is dedicated to probation activities. The District Court Automation fund is used to
account for a specific revenue derived from tickets that is dedicated to assisting in automating court activities. Both of
the later funds are self-supporting.

Probation Fee Account - In 2018, a decision was made to outsource probation activities. Fees will be charged by the
service provider and go to them. The fund has a large balance that will be used up over the next few years to provide
a grant match, causing the fund balance to drop every year .

REVENUES – The major sources of funding for Garland County District Court are a transfer from the General Fund, and
a transfer from the county. The District Court Automation Fund derives revenue from tickets and is not expected to
change in 2021.

EXPENDITURES – The Personnel budget in the Garland County District Court shows a substantial reduction in 2021,
even though 3.5% increases were budgeted. This is due to the State of Arkansas enacting a new law that converted
the judges to full time state employees from part time local employees. This was effective January 1, 2021. In
exchange, the county and the city are required to make a contribution to the state each year to partially fund this. The
City’s contribution for 2021 will be $58,650. Other changes in the 2021 budget include additional funds for security,
and automation projects for the courts. A new employee was budgeted for the Automation Fund, but a decision was
later made not to fill this position in 2021.

Summary – The net effect of the personnel changes and other expense increases resulted in reducing the budgeted
General Fund transfer to the Garland County District Court by around $40,000. The spend down of the Probation Fee
Fund fund balance continues due to the lack of revenue.

Police Fund. The Police Fund accounts for the activities of uniformed police and support staff. The total budget
summary is shown below:

Revenue Adopted Amended Estimated Budget
Expenditures 2020 2020 2020 2021

14,470,880 14,470,880 12,384,840 14,912,387
14,470,880 14,683,864 12,909,985 14,912,387

- (212,984) (525,145) -

REVENUES – Revenue for the police department is budgeted at $14.9 million. Of this, 55% comes from transfers in
from General Fund, 30% comes from the one-half cent sales tax, 10% from intergovernmental revenues and the
remainder from various other sources. Due to the financing of capital, $380,500 in issuance of debt is shown as
revenue. Budgeted increases for 2021 are a 2% increase in sales taxes. Animal services provides service to city and
county residents, and is funded 50% by Garland County.

EXPENDITURES - Personnel services accounts for 82% of all expenditures in the Police fund. The City contributes to
the police pension fund at a rate of 37.54%, up from 36.26% in 2020. The 2021 personnel services budget increased 3%
over 2020. This reflects the 3.5% salary increase, mandated step increases in the police pay plan, and the increase in
the pension rate. The services and supplies budget increased 25% over the 2020 budget. This was mainly due to 1)

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