Van Buren Municipal Utilities water bill at $1.2 million

The value, so to speak, of a water payment dispute between the city of Fort Smith and the Van Buren Municipal Utilities is just a little more than $1.2 million.

Acting City Administrator Ray Gosack defined the conflict as more of an honest disagreement than a heated dispute, but did note that full payment would help with revenue problems within Fort Smith’s water and sewer system budget. (The City Wire has a request to interview a Van Buren Municipal Utilities representative. Commission Chair C.E. Dougan is out of town and will not be able to respond until sometime next week.)

A combined 5% water and sewer rate increase and about $1 million in personnel and operating cost reductions are likely to soon be considered by the Fort Smith board of directors to help meet bond covenants. During a Nov. 15 budget hearing, the board informally agreed to the rate increase and budget cuts.

Not aggressively addressing the bond covenant issue could also result in the city losing its high credit ratings from Standard & Poor’s rating service. A reduced rating would lead to higher interest rates on the city’s debt service and other higher costs related to the issuance of bonds for water, sewer and other infrastructure work.

It was during the Nov. 15 meeting that City Director Don Hutchings asked city staff about the dispute with Van Buren. The Van Buren Municipal Utilities buys its water from the Fort Smith system.

Gosack explained that Fort Smith and the Van Buren Municipal Utilities department agreed to a water contract that included a “true up” provision allowing for a review of the true costs to provide water. Two primary and difficult to estimate factors in setting water charges are operating costs and volume of water sold. The “true up” calculation would be used to determine if Van Buren paid too much or too little for water purchased.

The first two years (2004 and 2005) found that estimates were close to actual costs, with the first year slightly favoring Fort Smith and the second year slightly favoring Van Buren.

“Neither party invoked the true up provision because the amounts were so small,” Gosack explained during an interview with The City Wire.

But a drought in 2006 and system disruptions caused by the expansion of Lake Fort Smith resulted in higher operating costs — primarily related to treating Arkansas River water — and a low volume of sales related to conservation measures created a true up allowance of $455,470 in Fort Smith’s favor.

Although the true up calculations were the same as those used in 2004 and 2005, Van Buren protested, Gosack explained.

The higher costs and lower water volumes continued, with the true up value reaching $205,191 in 2007, and $539,453 in 2008. The Van Buren utility also disputes those amounts.

The Van Buren utility did pay $161,000 toward the 2006 true up. Fort Smith Finance Director Kara Bushkuhl said those checks will not be cashed until an agreement is reached.

Gosack said the true up calculation is part of the ongoing rate study conducted by Ted Kelly, a consultant with Kansas City-based Burns & McDonnell. That report, expected to be complete no later than March, may give the city more perspective on how to resolve the payment dispute with Van Buren.

“My hope is that he (Kelly) would give us a fresh and objective look at this,” Gosack said.

Another outcome of the dispute is that Fort Smith and the Van Buren utility officials are talking about doing away with the true up provision.

“It can create too much uncertainty for both cities,” Gosack said.