Consent decree bonds require Fort Smith voters to approve all related ballot items

All three measures on the May 13 special sales tax election for the City of Fort Smith must pass in order for the city to fulfill consent decree requirements with the U.S. Environmental Protection Agency (EPA) and the Department of Justice (DOJ).

The election will include for Fort Smith residents ballot items to change the city’s sales tax uses to pay for $385 million in bonds to meet a federal mandate that requires the city to fix and maintain the city’s sewer system.

After decades of failing to maintain water and sewer infrastructure to federal standards, the city entered into a consent decree with the U.S. Environmental Protection Agency and Department of Justice 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. That amount is now estimated to be as high as $800 million.

The Fort Smith Board of Directors on Feb. 21 approved the following tax package for the May 13 ballot:
• Reauthorizing a 0.75% sales tax first approved by voters in 2022 to pay for consent decree work and to pay bonds, with 0.125% used for the Fort Smith Police Department, and
• Renewing the 1% street tax but reallocating 0.625% for streets, bridges and drainage work, with the remainder of the tax to fund consent decree work and bonds.

The May 13 ballot also will include a third question asking residents to vote for or against issuing the bonds.

“All three ballot measures must pass for the City to issue the proposed $385 million in bonds, which would fund up to $360 million in sewer capital improvement projects,” said Josh Buchfink, public relations manager for the City of Fort Smith.

If the measures pass, the city will issue bonds to fund up to $360 million in capital improvement projects. Debt would be payable over 30 years, though that time could be reduced if sales tax revenue grows, according to the city.

Without voter approval of both the reallocation of the existing streets, bridges, and drainage tax and the reauthorization of the ⅝-cent tax dedicated to sewer infrastructure, the city would be unable to issue bonds in the proposed amount, Buchfink said.

“If only one or two measures pass, the City could issue bonds in a lesser amount; however, this would not align with the financial plan submitted to the EPA and DOJ to fulfill consent decree requirements,” he said.

If approved by voters, taxes would be in place until 2059. The proposed tax changes do not raise the existing tax rate in the city. If the sales and use tax measure passes, consent decree work will receive 1 cent (1%) of the current 2% city tax allocation.

“This is anticipated to be a 30-year obligation of the associated sales and use taxes,” Fort Smith Chief Financial Officer Andy Richards noted in a memo. “Recognizing that the city would not be able to issue all $360 million up front — there are 3-year spend down requirements and we couldn’t spend all $360 million that fast — it will likely be issued in two or three different series in two-year increments, and the sales tax authorization will need to recognize that the tax needs to last until 30 years after the final issue of bonds.”

If the three ballot issues are not approved, the city would be compelled to fund capital sewer infrastructure projects through rate increases and other means, city officials have said.

The city has scheduled the following three community meetings on the sales tax ballot.
• 6 p.m. Thursday (April 17) in the community room of the main branch of the Fort Smith Public Library, 3201 Rogers Ave.
• 6 p.m. April 28 in the large conference room at Arkansas Colleges of Health Education, 7000 Chad Colley Blvd.
• 6 p.m. May 5 at the Fort Smith Senior Activity Center, 2700 Cavanaugh Road.