Hold Those Horses!

Panic is not the way to go. There’s no need to immediately enact an increase in water/sewer rates as recently proposed by the Eureka Springs’ administration. The sky is not falling in. We have time to look at things. This Mayor is noted for saying this and that has to be done now, right away. Remember the bond refinancing referendum? The push-through on any number of other issues? We are still safe and sound for not having acted precipitously.

So Council should move slowly on increasing water/sewer rates. Any increase, no matter how small, seems too much to take after the 30% increase in water rates just enacted.

This second increase looks even worse when we get down to the fine print. The Mayor has said that the increase she wants is per family—and a family is defined, she said after the last budget workshop, as one. Eh what? That means my partner and I would have two City increases on top of the 30% increase for Carroll/Boone. That’s beginning to border on the intolerable.

Let’s hold those horses until we find out more.

The Mayor is in error on interest and past moneys due

The Mayor made things sound worse than they are in her speech to Council on April 14, 2008. She said that (1) we owe moneys for the past years; and (2) we didn’t have the money because we used interest to cover.

Let’s start with the interest. There is absolutely no restriction on these particular interest payments to the City. They go back into the general fund, where they can be spent– or saved– as they accrue.

It is of course true that interest rates have gone down, but Finance Director Yvonne Kline has reckoned with that in projecting an interest rate as of February, 2008, at one-quarter of what was coming in two years ago.

So interest can be used, and interest has been projected downwards. Interest won’t win the argument for the Mayor.

Second, the Mayor argues that we owe money for the past years we relied on interest to cover. Why, one might ask, do we owe money (1) when we had the money to cover (see the above on interest?); and (2) the Mayor is talking about money we never in fact had to pay?

We paid all of our bills consistently. We only had to keep 20% over yearly payments in reserve for what’s come to be called a “debt service ratio.” That doesn’t make up into anything we “owe” the bonding company.

The Mayor has circled back around on herself and what we owe, unnecessarily and erroneously making a problem where there is none.

We aren’t going to be taken to court

The administration threatens Council by saying the City will be taken to court. How come? Haven’t we made our payments to them? We have money enough in the bank to pay the bonding company.

The fact is the bonding company is not going to take us to court. They haven’t before. There’s no reason for them to do it now, not unless someone’s been messing with what has up until now been a pretty good relationship.

There’s something else to look here, too, about that “debt service ratio,” that 20% over what we’d pay in a year it’s said we have to keep on hand. I could find nothing in the contract requiring us to maintain a balance of 20% over our payments, so I can only assume it’s a gentleman’s agreement. That being the case, the bonding company is not going to—they cannot– to take us to court and hope to prevail, not if we pay them in a timely manner.

Finance Director Yvonne Kline cites state statute 14-232-108 to threaten the City with court action. That statute refers only to an actual default in payments, not to a “debt service ratio.” True, it also refers to other agreements made, but as I have pointed out above, there doesn’t seem to be any agreement that says the bonding company can take us to court if the City doesn’t maintain a “bond service ratio” of 20% over payments.

Here is what the statute says:

So Council should not take precipitous action to raise rates now, not until we have more information.

14-232-108. Receivership.

(a) In the event of a default in the payment of the principal of or interest on any revenue bonds issued under this chapter, any court having jurisdiction may appoint a receiver to take charge of any project acquired, constructed, reconstructed, extended, equipped, or improved, in whole or in part, with the proceeds of revenue bonds issued under this chapter.

(b) The receiver shall have the power to operate and maintain the project and to charge and collect rates and charges sufficient to provide for the payment of the principal of and interest on the bonds, after providing for the payment of all costs of receivership and operating expenses of the project, and to apply the income and revenues derived from the project in conformity with this chapter and the ordinance or indenture authorizing or securing the bonds.

(c) When the default has been cured, the receivership shall be ended and the properties returned to the county or municipality.

(d) The relief afforded by this section shall be construed to be in addition and supplemental to the remedies that may be afforded to the trustee for the holders and registered owners of the bonds and the holders and registered owners of the bonds in the order, ordinance, or indenture authorizing or securing the bonds. It shall be so granted and administered as to accord full recognition to priority rights of holders and registered owners of the bonds as to the pledge of revenues from the project as specified in and fixed by the order, ordinance, or indenture authorizing or securing successive bond issues.

On its face, the statute does not give the bonding company the authority to go to court so long as we pay them. For Council to take any action now would be precipitous.

Water/Sewer Revenues have been on the increase

Before enacting an increase, Council should give the City time to develop a reliable picture of water/sewer revenues this year. So far, they are up.

According to figures provided by Finance Director Yvonne Kline, the City brought in $76,930 in water sales in February, 2008. During the same time period in 2007, the City brought in only $66,817.

That’s $9000 more so far this year than last.

The City Clerk argues that two major lodgings have closed, which would mean revenues would go down after this month. Could be, but probably not because two lodgings have closed. One of them, the Victoria Inn, hasn’t been drawing big time water for a long time. Even if it had, it’s doubtful that two closings would add up to $9,000.

Just to be on the safe side, though, Council should wait for the figures for April and May, and see what part of the debt service ratio of 20% over our payments this revenue stream might cover.

Sewer Plant Operating Costs Should Go Down

One of the ultimate financial benefits of the new sewer plant was that operating costs would go down.

Relying on gravity rather than pumps, the charges for running the pumps should disappear.

Because the problem of overflow has been drastically minimized (and has been minimal during the recent floods), the need for additional staffing, and hence additional payroll costs, should go down.

Council needs to wait for these figures to come in to see what this revenue stream might contribute to maintaining sufficient moneys to satisfy the bonding company.

If revenues are going up, and operating costs are expected to go down, there will no doubt be money to offset the “debt service ratio– and make payments.

Public Works Sales Tax Could be Reworked

If that’s not enough, the best solution would be to divide the portion of sales tax that automatically goes to Public Works so that part of it goes to refunding the debt and/or “debt service ratio.”

At present, Public Works receives 60% of a penny from the sales tax. Ald. Kathy Harrison has suggested splitting those moneys 40-30-10, with the 10% going to pay off the bond issue and maintain the “debt service ratio.”

As Beverly Blankenship has pointed out, abundant moneys sit in that account, unspent by Public Works. both now and in the past. She has warned Council to be careful of the administration because it will try as it can to get what it wants.

Public Works Director Dwayne Allen says he needs the money, but he has yet to present any kind of a plan for using it. He sounds like what you’d expect a department head to sound like– don’t take any money away, just give me more. He would of course get more if the administration’s rate increase goes through– more that it looks like he does NOT need.

The Building Inspector has also contributed, being somewhat disingenuous in saying the City is under the gun to make its sidewalks handicapped-accessible in compliance with the Americans with Disabilities Act (ADA).

The City has one year to make a plan to address the problem. That’s a year, and it’s a plan we need, not an entire new set of sidewalks.

Of course the sidewalks need to be brought into compliance. ASAP. But Public Works can certainly do it with the percent it will get after the 10% goes to the bond fund. Or at least the City needs to get a reasonable estimate of what it will take to bring the sidewalks into compliance, with particular attention given to those that are actually out of compliance.

The advantage to reapportioning Public Works’ share of the sales tax is that it is not a stop-gap solution. It would be rock-solidly in place, consistently.

The City Attorney has only the power of persuasion on this issue

The City Attorney has informally opined that the tax cannot be split because of the way the tax came down through referendum.

However, the referendum itself seems to have been lost, according to an inside source, so neither we cannot rely on that. Neither can the City Attorney.

What we can rely are the three ordinances relating to the tax. Not a one of them restricts the way the Public Works portion of the tax money is spent– or the way it can be divided.

The City Attorney may opine, but at this point at any rate, he has no legal backing for his position. He has only the power of persuasion.

One of the City Attorney’s points is that the ordinances were illegally enacted. Without the referendum, it’s hard to know how this could be accurate.

A second legal opinion would not be remiss at this point. The Municipal League’s David Schoen has been consulted, and traces it all back to the referendum.He says it “would be critical to know what the voters approved.| He also makes note of the fact that the City Clerk, who asked the question of him, has not been able to find the referendum:

The city council can not reallocate funds that have been approved by the voters for one purpose to another without having another election. So it would be critical to know what the voters approved. If it was for “general purposes” on the ballot approving the sales tax, and the council later made an allocation by ordinance on its own, then you could probably make a change by ordinance. I say probably, as I’m not aware of any authority on the question of whether a ballot approving “general purposes” can be narrowed by ordinance, although there is one case that suggests you can do so by resolution.

So you would have to find the ballot title that approved the tax at issue before you could even consider making any changes. I’m wondering if the problem you are having finding the ballot title is that the sales tax was approved at an election in a prior year, and then the council later came along and passed its ordinance allocating the funds in
1990.

Other remedies might help somewhat

Ald. Rae Hahn has suggested a hiring freeze. This could certainly help– if department heads don’t badger Council with requests for waivers too much or too often. It would, however, be only a stop-gap measure.

Annexation is certainly another solution. It’s something that should happen anyway. People relying on City services should also be paying taxes, which could help the City.

Similarly impact fees need to be looked at, and enacted.

In short, Council needs to wait before imposing a water/sewer increase on the residents of the City.