Fort Smith taxpayers had a good day in the bond markets on Tuesday (Sept. 23). High demand for bonds sold to fund federally-mandated sewer system work resulted in a lower interest rate, which will save the city about $6 million in debt payments.
Lauren Lowe, managing director with Philadelphia-based PFM, told the board on Tuesday that just under $95 million in municipal bonds were sold as part of planned $360 million in sewer system work supported by city sales and use tax revenue.
“During the bond sale, there was over $450,000,000 in investor orders which created a beneficial supply and demand opportunity,” according to PFM. “The underwriting team’s marketing efforts resulted in 41 unique institutional investors.”
Lowe said there were 25 Arkansas individual orders for approximately $3 million and 22 national individual orders for approximately $10 million. She said the final pricing resulted in a “true” interest rate of 4.6%, which is fixed for 30 years.
“This was well below estimates 2 weeks ago of 4.88%. Annual debt payments will be approximately $6,250,000, also less than estimated 2 weeks ago at $6,450,000. This is a significant savings over the 30-year term of these bonds,” Lowe noted.
Bond proceeds are expected to be available in October to the city for consent decree work. Bond sales supporting the $360 million are expected to happen every two years.
“We are very excited to put these dollars to use and will be bringing contracts for several Consent Decree projects to the Board for approval once the bonds close and we receive the funds,” Acting Fort Smith Administrator Jeff Dingman said in a statement.
SALES TAX VOTE, CONSENT DECREE
Fort Smith voters on May 13 approved by a wide margin a sales tax reallocation plan to provide $360 million over 30 years to fund federally-mandated sewer system work. Following are the three sources of revenue approved by the voters.
• Reallocation of 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
• 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
• Approval of the authorization to use the tax revenue to issue bonds to pay for the work.
Reallocation of the 0.75% received 2,381 votes for (64.58%), and 1,306 votes against (35.42%). Renewing the 1% street tax with noted changes received 2,361 votes for (64.21%), and 1,316 votes against (35.79%). The vote to approve authorization of bonds to be funded by the sales tax revenue received 2,443 votes for (66.35%), and 1,239 votes against (33.65%).
After decades of failing to maintain the sewer system, officials with the U.S. Environmental Protection Agency and the U.S. Department of Justice filed a consent decree in 2014 with the City of Fort Smith that required certain improvements to the city’s sewer system.
While estimates vary, the consensus estimate is that the total cost could approach $800 million. According to city information, the city spent around $49 million prior to enactment of the consent decree, and spent $87 million on consent decree work between 2015 and 2019. Between 2020 and 2023, the city spent $64.1 million on consent decree work. The total for the work, including prior to 2015, is around $200 million.