Fort Smith faces up to $25 million in consent decree penalties

The City of Fort Smith faces a possible $25 million penalty if state and federal officials do not approve a city plan to modify a federal consent decree mandating sewer system improvements. Part of that plan includes pushing the consent decree deadline to 2036.

“As was discussed during the Aug. 27 study session, we need Board approval to propose a 2036 program end date to the State of Arkansas and US Environmental Protection Agency for the modification to our sewer federal consent decree. The original decree specified a 2026 end date, which has become completely impractical. The agencies have proposed a 2034 program end date but have indicated they are willing to consider a 2036 end date providing the work is not too heavily backloaded,” Utilities Director Lance McAvoy noted in a memo attached to the agenda for the Sept. 3 meeting of Fort Smith Board of Directors.

The city Board at that meeting will vote on a resolution authorizing City Administrator Carl Geffken to negotiate for a 2036 consent decree program deadline and to continue to negotiate a consent decree modification.

Paul Calamita, an attorney with Richmond, Va.-based AquaLaw, and consultant to the city with the consent decree effort, told the directors on Aug. 27 that without a solid plan that would achieve a compromise with the agencies the city could be looking at hefty fines in the future.

“Because we are not in compliance, everyday (the city is met) with numerous deadlines that were contemplated for a program that would finish in 2026. Those deadlines are cumulative, and we literally are on the hook for thousands of dollars a day of stipulated penalties,” Calamita said.

When questioned what the amount of those fines would be, Calamita said if the city cannot reach an agreement and get more time added to the consent decree, the city could be looking at between $15 million and $25 million in penalties.

“Now again, we would say, COVID, flood, other force majeure type of events. But it is a significant liability. And I will tell you the Department of Justice rarely sends those letters and then pulls it all back. Usually you are paying something,” Calamita said.

After years of failing to maintain water and sewer infrastructure to federal standards, the city entered into a federal consent decree with the U.S. Environmental Protection Agency (EPA) and U.S. Department of Justice (DOJ) in late 2014. The consent decree, which began in January 2015, required the city to make an estimated $480 million worth of sewer upgrades in 12 years.

In May 2022, Fort Smith voters passed a 0.75% sales tax from Jan. 1, 2023, to Dec. 31, 2030, with 83.3% of the revenue going to federal consent decree work on the city’s water and sewer system, and 16.7% directed to the police department. Funding for consent decree work to date also has come in part from water and sewer bill increases, which are up 167% since 2015.

According to the city, the DOJ on Aug. 8 presented a revised financial plan that adds another five years to the previous five-year extension. The proposed revised plan includes customer sewer rate increases up to 19% beginning in 2031.

Article XII of the Consent Decree discusses stipulated penalties. The penalties may be assessed for sanitary sewer overflows (SSOs), for exceeding effluent limitations, and for other issues, including a failure to submit timely and/or complete deliverables, and meet deadlines for completion of remedial requirements.

“The only stipulated penalties assessed (to Fort Smith) by the DOJ and EPA have been for SSO’s. Stipulated penalties for not meeting deliverables, completing remedial requirements, and meeting the mileage targets have not been assessed due to the issues discussed at last Tuesday’s meeting could be assessed by the DOJ and EPA if they chose to do so,” Geffken said.

McAvoy said the city needs a consent decree modification so it can return to full compliance as compared to its current status of being behind on many of the deliverables of the original consent decree.

“While we believe there are valid reasons for the work being delayed and that the City has made good faith, best efforts to comply, we may face agency assertions of millions of dollars in stipulated penalties without a mutually agreed modification,” McAvoy said in the memo.

He said city administration is working to find ways to accelerate consent decree work and believes there are several options that may be viable including, reissuing revenue bonds, providing general fund support to the sewer utility, asking voters to allow the SUT to be used for debt financing, and other opportunities. If viable, these options would also mitigate future sewer rate increases, McAvoy said.