Fort Smith Board changes bond sale shift, Director cites threat over vote

by The City Wire staff ([email protected]) 180 views 

The Fort Smith Board of Directors met in a special meeting on Tuesday (Aug. 11) to determine the future of its 2005B Series Bonds with regard to underwriting allocations between Stephens, Inc., and Raymond James. At stake was $480 million in bond underwriting to meet specific requirements set forth in a consent decree entered against the city of Fort Smith for its violations of the Clean Water Act.

Board members on Aug. 4 voted 4-3 on a 50/50 split with Stephens and Raymond James to alternate management of the bond sale, a role called the “Book Running Manager.” But after that vote, City Director George Catsavis said he was confused about which resolution was being considered. Catsavis had voted for the 50/50 split.

After some back-and-forth, City Directors on Tuesday moved from a 65/35 split to an 80/20 in favor of Stephens, Inc., with the same percentage disbursement for associated management fees. The decision, however, did not come without conflict as Catsavis leveled a charge that an employee of Raymond James had called and “threatened” him over his vote.

Prior to the charge, Vice-Mayor Kevin Settle, who was in favor of a 50/50 split and aware of how the vote was about to shake out, admonished the four-person majority in favor of 80/20 for fostering a lack of transparency and competition for the city’s business.

“I advise each board member to go back to the last board meeting and listen to what Mr. (John) Carson had to say about competition,” Settle said. “I think the decision’s already made, but I want to have my say here before the vote. Competition was good. That’s what he spoke of. How do you put something in direct competition when you don't ever allow anybody the opportunity?”

Settle continued: “Competition is good. That's what Mr. Carson, the president of Raymond James, which is the ninth largest [financial services firm] in the United States said to us at the meeting. He even said, ‘Bring competition even if it's not us.’ He talked about that.”

Addressing comments from former City Directors Philip Merry and Pam Weber, who spoke in support of Stephens, Inc., for what a “great partner” they’d been to the city of Fort Smith over the years, Settle said that “because somebody gives something, that doesn't mean we turn around and do them a favor.”

“There's nothing fair and equitable about having an 80/20 split,” he added. “Fifty-fifty was fair, 100% — all above the board and transparent. If you ask me, we're going back to ‘what it was’ and doing things the way it was done in the past. … How can we ever know how good it will be going forward if we keep holding on to what we did in the past? That's my issue here. It's not fair, it's not equitable. Thank you for allowing (Raymond James) to at least get the 80%/20% Bonds. I think that's a move in the right direction. But at the end of the day, we need to make sure what we are doing is the correct thing, and that it's a fair thing for the future of this city.”

It was after this statement that Catsavis dropped the “threat” allegation, first acknowledging that “competition is good,” but then stating that “When an employee of a company calls me and threatens me over a vote, that crosses the line.”

“That’s exactly why I changed on this,” Catsavis told the Board. “That was uncalled for, and that crossed the line. Do I want to do business with a company like that? No, but I’m going to be equitable about this. Eighty-twenty, that’s fine. Who knows what the future holds? But that went over the line with me. That was a determining factor with my vote.”

In comments to The City Wire after the meeting, Catsavis did not specify the nature of that threat — business or personal — but he reiterated it was a “deciding factor” in him changing his vote to an uneven allocation in favor of Stephens, Inc.

“I received a call from an employee at Raymond James, and what they said I perceived as a threat to me, and that turned my whole outlook around,” he said, refusing to elaborate any further.

“I don’t want to elaborate, [but] that’s what happened, and after that happened, I thought that crossed the line. I talked to legal counsel, and I don’t think anything of it [now], but I thought it was a bad incident.”

The City Wire reached out to the City Clerk’s office to see if there had been any previous mention of the incident in public. There hadn’t been. The City Wire also reached out to Raymond James financial advisers Ron Pyle, who was present at the meeting, and Terry Gallamore. Neither responded by the time this story was published, but the story will be updated when and if they respond.

Pyle told Catsavis after the meeting that the threat “didn’t come from me.”

Final voting affirmed the 80/20 split on underwriting and book running management fees in favor of Stephens, Inc., with Settle and City Directors Mike Lorenz and Tracy Pennartz voting “no.” Catsavis, Don Hutchings, Keith Lau, and Andre Good were the “yes” votes.

The study session, which followed the special meeting, was to focus on four items related to finding money to shore up funding for the police and fire pension funding. The items included general fund budget reductions, reducing contributions to the employee 401(a) retirement plan, enacting business license fees and seeking voter approval of a prepared food tax to replace the almost $800,000 that comes out of the general fund to support operations at the Fort Smith Convention Center.

Tuesday’s meeting, like the July 14 Board study session, attracted a large crowd of city employees, but nothing new was discussed beyond the previous memo issued by Deputy Finance Director Jennifer Walker to Acting City Administrator Jeff Dingman.

At issue is the ongoing struggle by the Board and city staff to plug an anticipated 2015 budget year shortfall of $899,273 in the city’s police and fire (LOPFI) contribution fund. The estimates show the fund balance at $5.731 million by Dec. 31, but reaching a deficit of $419,042 by 2021.

The Board has voted to return benefits under the pension plan back to the levels in place in 2004. That action saves the city an estimated $477,000 in this fiscal year and up to $516,000 by year 2026. But based on estimates, additional spending reductions and revenue increases totaling approximately $2.1 million annually are needed to keep the LOPFI contribution fund solvent beyond 2030.

Walker’s Aug. 7 memo noted that cutting personnel costs to a 1% margin, removing most “operating cushions” and other personnel budget reductions could free up $834,000 for the general fund. Walker’s cuts did not include salary reductions or contribution changes to the 401(a) retirement plan.

Walker’s memo also projected an increase of $315,000 from the city’s portion of countywide sales tax revenue for the remainder of 2015. Combined with the proposed personnel changes, the net effect is a $1.148 million pool of money that could address the pension issue.

The next regular meeting of the Fort Smith Board of Directors will take place next Tuesday (Aug. 18) at 6 p.m. from the Fort Smith Schools Service Center.