Fort Smith officials say Barling owes at least $1.146 million for water services, with the amount possibly owed could rise to $3 million. But the officials hope to reach an agreement with Barling rather than pursue litigation.
The city of Fort Smith has begun the process of addressing expired water agreements with eight of its 13 outside wholesale customers. The expired agreements were discovered by the utilities department’s finance team prior to citywide implementation of Enterprise Resource Planning (ERP) software, though the ERP’s goal of streamlining financial processes has expedited the need for more standardized business practices.
The first to come due is the city of Barling, which holds the current agreement is in place from 2002-2032. However, Fort Smith officials believe the “take-or-pay” arrangement of that particular agreement requires Barling to take a certain amount of water even if it does not use that amount. The city also holds that Barling did not use the full amount, which, per terms of the original contract, would activate a fee Barling has not been paying for a number of years.
Initially, Fort Smith Utilities Director Jerry Walters included Barling’s contract as part of the eight expired agreements. He later corrected via email that “after some digging” he found the contract signed in 2002 had a term of 30 years. Fort Smith City Administrator Carl Geffken confirmed to Talk Business & Politics the estimated unpaid revenue from the start of the agreement through 2017 works out to around $3 million.
Estimates put the amount owed over the last five years — the standard period for statute of limitations — at around $1.146 million. According to Fort Smith Finance Director Jennifer Walker, the agreement “clearly outlined” that stipulation, thus legally obligating Barling to pay back the unpaid portion.
Barling has acknowledged the agreement to be take-or-pay, but they’ve stopped short of admitting the funds are owed. Barling City Administrator Mike Tanner told Talk Business & Politics he could not comment while his counsel was reviewing the contract, though he did say findings would likely be presented to his Board of Directors at the Sept. 25 meeting. The Barling board voted to table the issue at its Aug. 28 meeting. A spreadsheet provided to Tanner by Geffken states that over the last five years and starting with 2017, Barling has incurred charges of $102,004.59, $164,241.47, $235,276.06, $304,960.56, and $339,915.31.
Rather than pursue the claimed unpaid funds in litigation, the city of Fort Smith hopes to implement a standard agreement that would move the billed rate for water usage to $2.40 per cubic foot, or 748 gallons, from its current $1.80 per ccf and get rid of the take-or-pay altogether. This $2.40 would be the standard for all outside contracts going forward. Not all of the 13 contracts operate as take-or-pay. The city has not raised its rates to outside water users since 2011.
Walters told Talk Business & Politics the next wholesale contracts to be addressed will include “Chester, Mountainburg, Winslow, Rural Water District 7, Cedarville, Concord and HWY 71.” Assuming the same consumption in 2017 and 2018, the total revenue from the eight customers would increase 33.33% to approximately $3.678 million from $2.758 million, Walters said.