HomeMy WebLinkAbout1989-05-02 Minutes136
MINUTES OF A MEETING OF THE FAYETTEVILLE CITY BOARD OF DIRECTORS
A regular meeting of the Fayetteville City Board of Directors was held on
-Tuesday, Mat 2, 1989, at 7:30. p.m. yin the Directors! Room of the City
Administration Building, at 113 West Mountain Street, Fayetteville, Arkansas.
PRESENT: Mayor William Martin; Directors Paul Marinoni, Jr., Shell
Spivey, Fred Vorsanger,•-Michael Green, Ernest Lancaster and
Russ Kelley; City Manager James Pennington, City Prosecutor
Terry Jones and City Clerk Suzanne McWethy; members of the
staff, press and.audieice
CALL TO ORDER
The meeting was called to order at 7:30 p.m. by the Mayor, with seven Directors
present.
The Mayor asked everyone to stand and recite the Pledge of Allegiance and observe
-a moment of respectful .silence. The Mayor welcomed members• of the public
watching on television and present in the audience. He said everyone would be
given an opportunity to address the Board on each matter, but asked that they
'step to the podium, introduce themselves and give their place of residence. He
asked that comments be concise, non -repetitive, and addressed to the entire Board
through the Mayor. <.
CONSENT AGENDA
The Mayor introduced consideration of items which may be approved by motion, or
contracts and leases which may be grouped together and approved simultaneously
under a "Consent. Agenda." He said, since the Consent Agenda normally contained
items on which the Board believes there is unanimousconsent, any Director may,
on motion, remove an item. The Mayor read the items as follows:
A.' Approval of the minutes of the Apri1.18, 1989 .regular Board meeting;
B. An agreement authorizing theMayorand City Clerk to execute a
modification of contract with the City of Greenland for. fire
protection services to be extended through May 31, 1990;
The City Manager recommends approval of the contract for the
period of June 1, 1989 to May 31, 1990 for $42,662, which is
an increase of $275 over last year's rate. This results in
an approximate increase of .6%.
RESOLUTION 41-89 APPEARS ON PAGE OF ORDINANCE AND RESOLUTION BOOK
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May 2, 1989
137.1 C. Authorization for the Mayor and City Clerk to execute a one-year
contract with the University of Arkansas for fire protection
services;
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The City Manager recommends approval of the contract for the
period of July 1, 1989 to June 30, 1990 for $38,189, which is
an increase of $5,713 over last year's rate. This results in
an approximate increase of 17.6%. The major reason for the
increase is the increase in property value of building #276,
also known as the Altheimer Lab and Attached Greenhouses.
Director Vorsanger requested Item C be removed from the Consent Agenda,
he had a question regarding that item.
137.3 It was moved by Kelley and seconded by Marinoni to approve the consent
with the exception of Item C. Upon roll call, the motion passed, 7-0.
137.4
FIRE PROTECTION/EXPERIMENTAL FARM
The Mayor introduced consideration of item 1C, as described above.
stating
agenda,
137.5 Director Vorsanger said he thought it should be clarified that the fire
protection is for the University of Arkansas Farm, not the University of
Arkansas. He said the property values and costs are for buildings on the main
experiment station, and not the University of Arkansas.
137.6 It was moved by Kelley and seconded by Green to approve the resolution. Upon
roll call, the motion passed, 7-0.
RESOLUTION 42-89 APPEARS ON PAGE OF ORDINANCE AND RESOLUTION BOOK
INCINERATOR REPORT
137.7 The Mayor introduced a report to the Board and public concerning the legal
aspects of the incinerator disengagement project. The Mayor told the public that
in March of 1988 the voters of Fayetteville voted in a referendum to disengage
from the project and the Board accepted the staff's recommendation that expert
counsel be engaged in assist in the project. He said that, after a selection
process, the firm of Nixon, Hargrave, Devans and Doyle was chosen. Martin said
among the various tasks they have completed was to advise the City on the
termination of its contract with MK Ferguson. He said earlier this year we
received a report of the present financial status of the Resource Recovery
Authority. Martin said tonight's report would cover legal aspects, particularly
the City's liability for repayment of the bonds. Martin introduced Attorneys
Tom Ingoldsby and Frank Lyman of the firm.
137.8 Ingoldsby reported the Nixon, Hargrave report on the legal obligation of the City
to pay any amounts due on bonds that were issued by the Northwest Arkansas
May 2; 1989
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Resource Recovery Authority in connection with the incinerator project was 138.1
delivered to the City today. a
Reviewing fundamentals regarding the structure of the transaction, Ingoldsby
explained the Authority was composed of three members - Fayetteville, Washington
County and West Fork - and issued bonds which were purchased by investors. He
explained the proceeds from the bonds were going to beused to fund the
construction of the incinerator, and the Authority entered into a construction
contract with MK. Ferguson, who was also intended to operate the incinerator for
the Authority. He said the Authority also entered into a waste supply agreement
with its members - Fayetteville, Washington County and West Fork. He said that
agreementprovided the basic credit support and financibility of the transaction.
138.2
Explaining how the cash flow was supposed to work during construction and after 138.3
the facility began to operate, Ingoldsby said, pursuant to the waste supply
agreement, the three members of the Authority were to deliver their waste•to the
facility, which was going to be owned by 'the Authority but operated by MK
Ferguson. Under the waste supply agreement, Ingoldsby said each party agreed
to deliver specified amounts of waste for processing by the plant. He said that
was an essential component of the project, because without a guaranteed waste
supply.source, there was a risk that all the projections as to how the project
would operate would falter. Also under the agreement, Ingoldsby said each member
agreed to pay specified amounts as "tipping" fees, sufficient to enable the
Authority to pay the amounts due the investors on the bonds. He explained that
when the bonds were issued they had a bond insurance policy, meaning an insurance
company (FGIC) guaranteed the investor that the principal and interest -.on the
bonds would be paid in full and on time, removing much of the risk from the
investor's perspective. Ingoldsby said, however, that under the terms of the
insurance policy, if the insurance company ever had to pay, they would then step
into the shoes of the investor and would be deemed to be the owner of the bond
and have all the rights of the bondholders.
Ingoldsby explained that a "tipping" fee was a per -ton charge levied for the
dumping of waste at the incinerator plant. He said the per -ton charge was
normally computed by estimating principal and interest due on the bonds plus
operating cost for the year, divided by anticipated tonnage coming into the
plant. He -said the obligation to pay the tipping fee arose starting December
1, 1989, under the terms of the waste supply agreement. Ingoldsby pointed out
that tipping fees and payment of principal and interest due on the bonds were
synonymous terms, for purposes of his presentation.
138.9
Ingoldsby said areas they found which could raise a potential liability to the 138.5
City to make payments on the bonds were (1) any contractual obligations of. the
City; (2) any liability the City may have under any tort theory because of the
decision to withdraw from the project, and (3) the federal securities law as it
would apply to the bonds. -
Ingoldsby said.a classic example of a tortis an injury from an automobile
accident giving an individual a right of recovery. He said the whole concept
of the law of torts has expanded substantially and now covers many practices
involving commercial transactions where one suffers damages as a result of
• participation in the transaction. -He explained that, in this case, the.firm was
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May 2, 1989
139.1 looking at the decision of the City to withdraw from the transaction in March,
1988, after a lot of parties had made commitments and entered obligations in
anticipation of completion of the project. He said there were a number of
theories, such as interference with business relations, which would fall under
the tort category and would give someone a cause of action against the City
because of damages they suffered as a result of the City's decision to withdraw
from the project.
139.2
Ingoldsby explained the City had entered into a power sales agreement whereby
power was to be delivered to a coop and to be generated in the process of burning
waste. He said that contract only became operative upon the facility attaining
commercial operation status and, for that reason, it was felt it was not a
contract which would give any liability to the City in terms of making payments
on the bonds.
139.3 Ingoldsby said the terms of the waste supply agreement became effective on
December 22, 1986, the date the contract was executed. He said the agreement
obligated the City to deliver minimum amounts of waste to plant, and to pay a
tipping fee sufficient to pay debt service on the bonds. He said the City was
obligated to pay this tipping fee, regardless of the level of service it received
from the Authority - that is, even if the plant did not become operational, the
City was obligated to pay the tipping fees. He said the contract contained what
is known as "hell or high water" language - meaning your obligation to pay
remains in force regardless of what other events overtake the parties. He said,
in addition, the City guaranteed payment of 100% of the tipping fees. He said,
under the anticipated arrangement, the City was going to pay 95% of the tipping
fees and the other 5% was going to be covered by West Fork and Washington County.
He said, in a separate provision of the waste supply agreement, it was guaranteed
by the City that it would pay 100% of the tipping fees. He pointed out that,
in one section, it was recognized that they were going to pay 95% of the tipping
fees in connection with the processing of its own waste and, in addition, it made
a guarantee that 100% of the tipping fees would be paid.
139.4 Ingoldsby said their review of the waste supply agreement raised three questions
they thought affected its validity and, therefore, if it was deemed to be
invalid, it would not be enforceable in accordance with its terms and, if it is
not enforceable, then the City's obligation to make payments on the bonds would
be nonexistent. He said these were: (1) Is the City obligated to pay tipping
fees from taxes?; (2) Is the City obligated to pay West Fork's and Washington
County's share of the tipping fees?; and (3) Is the City prohibited from paying
amounts due on the bonds without receiving waste disposal services from the
Authority? He said, if the answer to any of those questions is "yes" the firm
felt there was a serious question as to the enforceability of the waste supply
agreement. Ingoldsby said the reason the report doesn't have any specific
answers to those questions was that they were dealing in areas of the law for
which there is not a lot of precedent or a sufficient body of case law developed.
He said they did not locate cases in Arkansas which specifically answered those
questions one way or the other. Ingoldsby said, if the contract is enforceable,
the City had a clear, contractual payment obligation.
139.5
Speaking to the issue of tort liability, Ingoldsby said Arkansas granted
municipalities very broad immunity for actions they have undertaken and it
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appeared to him that the immunity is in place, iii the absence of fraud or willful 140.
misconduct. He said their review of the matter did not disclose any level of
conduct which would rise to the level of willful misconduct or fraud. He said
they felt there was no basis in tort for.•any investorto comeback against the
City under a tort theory. •
Ingoldsby said the other major area of potential liability that they looked at
was the federal securities law area. He. said the City was subject to that law
.by virtue of the fact that the bonds are deemed to be securities. He said the
Securities and Exchange Act of 1934 as well as Rule 10b-5 provides that a party
who has made material misrepresentations or.omitted to state a material fact is
liable for damages: which a bondholder suffers as a result of 'investment in the
bonds. .Ingoldsby said 10b-5 was .a cause of action frequently utilized in
transactions involving securities where the expectations of the parties are not
realized. He said there were basically six elements in any 10b-5 cause of action
which he said were detailed in the report. He said the report concluded that
theelements of the 10b-5 cause of action are all present except for the question
of "scienter." He explained that term is .used in securities law and includes
"acting with a reckless disregard for the truth or the correctness of an action."
Ingoldsby said if the waste supply agreement was deemed to be unenforceable, the
question arises as to whether or not the City acted with sufficient scienter to
incur a. liability under Section 10b-5. He said in the firm's view that was a
very close question of fact and could go either way. Ingoldsby said they thought
it was possible a court would conclude that the City did have the -requisite
scienter. for a 10b-5 violation. Ingoldsby said then the question arises - what
isit that was either misrepresented or omitted to be stated that would be
necessary to know everything that you need to know about the transaction. He
said, if the waste supply agreement is unenforceable and is the critical credit
support for the transaction, any investor would want to know if its primary
credit support is enforceable. He said the City made a number;of representations
in public regarding the waste supply contract, it issued. an opinion that it was
enforceable and that the City was obligated to pay all amounts due on the bonds.
He said, if the agreement is unenforceable, the representations and opinions
which were issued in connection with it are also incorrect.
Ingoldsby said another item they thought could be a significant point was the
question of whether there was any disclosure of public opposition to the project.
He explained .that when bonds are offered for sale, an investor receives
"offering" documents - in this case a remarketing memorandum - a brochure
describing the transaction and used by investors as a basis for making a decision
as to whether or not to purchase the bonds. He said in the remarketing
memorandum there was no disclosure of any public opposition to the project. He
said any investor who suffers.a loss because of the purchase of the bonds is very
likely to seize on this as an additional point of 10b-5.violation. Ingoldsby
said, -if the waste supply agreement is not enforceable, it is_then and only then
that questions regarding any securities law violations arise.
Ingoldsby said this was the first time that he had seen a termination of a solid
waste project under the circumstances existing in Fayetteville. He said,
however, that in the State of Washington about five years ago, problems arose
inconnection with construction of some nuclear power plants. He said several
municipalities had joined with other organizations in entering into an.agreement
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May 2, 1989
similar to the waste supply agreement. He said it had the "hell or high water"
language, in that it required they make payments on the bonds regardless of
whether or not the plant became operational. He said the Washington Supreme
Court held that the agreement was unconstitutional and unenforceable and,
therefore, released the municipalities from their payment obligation. He said,
shortly after the decision was issued, the bond holders then sued all the
municipalities for 10b-5 violations under the securities law. He said the case
was settled before trial, with the municipalities agreeing to pay a substantial
amount of money. Ingoldsby said that case offers a potential blueprint for what
could happen on this project, if there is a default on the bonds. He said either
the City will be held to make a payment through the waste supply agreement, or
will find they are being sued by the bondholders or the insurance company under
a 10b-5 violation. Ingoldsby said the litigation involving this case in
Washington was very protracted, very expensive, and went on for about four or
five years.
141.2 Ingoldsby said the bond rating agencies do not give overall ratings to cities,
but rate specific debt obligations. He said theagencies use two criteria - the
City's financial status and the quality of its management. He said they will
want to know if appropriate controls are in place, if there is sound leadership
and that there is an overall aura of stability. He said there would be a serious
question in the minds of the rating agencies regarding the management of the City
in the case of the withdrawal from the incinerator project, even if the City pays
for it. He said they recommended the City initiate contact with the rating
agencies to apprise them of the capital improvement plan, the new financing
needs, and to give them information regarding the current management of the City,
the controls that are in place, and the financial stability of the City, to
enable a vehicle to start discussing the incinerator project and what the City's
position is going to be. Ingoldsby said when meetings were scheduled recently
with rating agencies - Standard and Poors, and Moody's - they already knew about
the incinerator. He said, although they were interested in the City's capital
improvement program and future financing, they wanted a definitive explanation
as to how the issue was going to be handled. Ingoldsby said, until the City is
in a position to make a good explanation as to what is going to be done on the
bonds and why, he thought there would be a reluctance on the part of rating
agencies to proceed with any ratings.
141.3 Ingoldsby concluded by re -stating that if the waste supply agreement is
enforceable, the City's obligation to pay 100% of the debt service on the bonds
is clear. He said, if the agreement is unenforceable, the City is then going
to run a very serious risk that it is in violation of 10b-5 securities law, and
will be responsible for paying any losses that the bondholders suffer in
connection with the termination of the project.
141.4 Director Green asked Ingoldsby if he felt there were other sources of funds such
as sales tax revenue which might be appropriate to use to pay any debt, instead
of all of the obligation being covered by sanitation rate increases. Ingoldsby
said sales tax which was extended in the November, 1988 election could be a
source. He pointed out, however, that the approval of that sales tax was based
on funds being applied to a capital improvement plan, and the incinerator project
was not included in that plan. He said it would probably be necessary to receive
voter approval before being able to use those funds. He said the other sales
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tax which is generated would be available for paying off bonds, but he pointed
out those funds were used for the direct operation of the City..Ingoldsby. added
that new authorization has been enacted for additional hotel, motel use tax.
He said this may be an additional source and he intended to look into that.
Director Vorsanger said we spent money we shouldn't have spent. He said we spent
.about $10 million, collected interest on about $22 million, and have,about $3
million we can use to offset the $10 million. :Vorsanger said $5 million of the
$10 million went to a contract which we signed to build the incinerator, and
another $5 million went for supporting fees to issue' bonds, negotiate the
contract, and to law firms. Vorsanger said we had to find $7 million to pay off
the bonds. He said the City wouldn't be able to issue another..bond until the
problem is solved and the bonds paid off.
Vorsanger said the matter was so complex that he thought the Board must take it
under advisement. He said as far as he was concerned,, we should look to other
responsible parties to make a commitment to help pay the debt. He said the -City
used some outstanding law firms in the State, mentioning The Rose Firm, and the
Wright, Jennings and Lindsey firm. He'said we ought to use .the old axiom -
"those who put us in it ought to try and. help take us out of -it." Vorsanger said
he wanted to know what their responsibilities were. He said we also bought a
little over $500,000 in insurance as part of the $5 million. •He said this might
be a source of some relief. He said the citizens were obligated by the contracts
to pay the bondholders. He said he thought it was the number one priority to
protect our future credit rating.
Vorsanger moved that the Board take the report under advisement.
The Mayor said he assumed the Board would be looking to city management for its
recommendation and input on all the questions. Vorsanger. agreed and added that
he hoped we would contact all our attorneys involved and the underwriter. Martin
commented that the motion suggests the Board will not take action at this time
but after the Board has considered it and received input from the public and from
the city staff. Martin seconded the motion.
Director Green remarked that he wasn't aware any action on the part of the Board
was required at this time and questioned the purpose of the motion. Green
agreed, however, that the Board should take the issue under advisement and use
a lot of care in making responsible decisions on the matter. -
Martin commented that he received the report at noon and certainly wanted to give
it further study. He said he didn't think we could raise additional debt for
capital improvements and school properties without settling the incinerator
issue. Martin said he thought there was•a substantial moral obligation as well,
commenting that the citizens of Fayetteville borrowed money with a commitment
to repay it. He said it was also true we were legally obligated to repay the
debt.
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May 2, 1989
PUBLIC COMMENT AND QUESTIONS
143.1 In inviting the public to comment, the Mayor said that responses would not be
made to questions as they are asked but would be made all at once, following the
public comment period.
143.2 David Dubbell, resident of 1651 Rockwood Trail in Fayetteville, said he thought
the Mayor was carrying too heavy a burden when he said he felt a moral
obligation. He said many groups were involved and many decisions were made, but
citizens of Fayetteville really did not enter into the selling of the bonds.
He pointed out an Authority had been formed with a Board of Directors, and many
attorneys advised them. He said citizens wanted to see Fayetteville go forward
in an orderly fashion, and certainly know there are many obligations we want to
undertake such as schools and capital improvement projects. He urged the Board
to turn to those people who worked through the many steps and ask that they
become involved, and be urged to consider the complexities and liabilities. He
said he didn't think the citizens of Fayetteville were in this alone, and didn't
think it was fair of citizens to ask the Board to carry the moral or ethical
issue alone.
143.3 Dubbell said he thought Vorsanger raised a crucial point, but noted it appeared
that the Nixon, Hargrave firm was not asked to assess the liability of all the
groups involved, but was only looking at the City's liability. Martin concurred
that the firm had analyzed the City's liability. Dubbell asked if the firm had
determined whether it was solely the City's liability.
143.4 Dubbell made reference to the following sentence on page six of the report:
"Much of the Project's development, including site selection, preparation of a
satisfactory feasibility study, negotiation of contracts and procurement of
federal, state and local permits and licenses, had not been completed at the time
the Bonds were issued. Therefore, most of the Bond proceeds were to be placed
in escrow accounts until the Project could be developed in sufficient detail to
permit reasonably prudent investment in construction of the Project." Dubbell
asked if these facts were disclosed in the initial 1985 bond marketing documents.
He asked if those same concerns were spelled out in the remarketing agreements
that issued the bond re -marketing in 1986.
143.5 Making reference to page 12 of the report, Dubbell noted there was no mention
of the fact that no permit had been issued in 1986. He asked if that was clearly
disclosed in the documents which went along with the remarketing of the bonds.
143.6
Dubbell said the report seemed to move rapidly from the point at which the bonds
were remarketed in December of 1986 towards the time when public opposition arose
and towards the time when it was clearly pointed out that no operating permit
had been obtained. He asked on what grounds the escrow agent was empowered, and
who made the decisions to empower the escrow agent to begin to disburse funds.
He said he thought around $350,000 had been spent on construction activities in
January 1986, at which time he said the public began to raise opposition and ask
that money not be spent. He said he saw no mention of that in the report.
Dubbell asked who had the responsibility for communicating (1) the fact that no
permit had ever been obtained; and (2) how were decisions made to begin the
expenditure of funds.
May2
Dubbell said he thought the fact that the permits had not been issued is a
question which might affect the assessments of liability. He said it was clearly
known that there was no operating permit issued, until finally a permit was
issued for Happy Hollow which then was abandoned by the City due to public
opposition. He asked why the attorneys did not think this' was a key issue, if
they did look at the issue.
Dubbell said he thought the public should 'be reassured about the appearance of
gaps in the report on page 21.
Tom Browri addressed the Board, stating he lived near Morrow, in the southwest 144.
portion of Washington County. Referring to page 12 of the report, Brown read
the following statement: "The opposition focused on the location of the
Project." Morrow said he served as a solid waste commissioner in Alaska and as
such testified before the Authority and City Board regarding the incinerator
project and the way it was funded. He said one of the first program decisions
made by the Citizens for Clean Air was made by the Environmental. Committee, and
was to make clean air the number one priority and was the first line the
association took in opposing the incinerator. He said thatenvironmental issue
pre -dated any other form of opposition.
144.
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Brown said in an August meeting of the Authority when it was decided to disburse 144.
money, he urged them to talk to a lawyer other than City Attorney McCdrd who was
also representing the Authority, to find out what their legal liabilities were.
He said he told them they could probably,be held personally responsible for the
costs of the project. Referring to a statement on page 19 of the report, Brown
said it was illegal for a city to lend its credit. He said we were not looking
at an act committed by a municipality but at an act which had been committed by
individuals. He said when individuals who are members of a legislative body
commit an act of malfeasance or misfeasance, the governing body does not
represent the entity it is supposed to represent, but those individuals accept
legal liability for their actions. Brown said the City was not liable for the
debt, and people doing commerce in the City are not liable for.the.debt.
Brown said -every effort to'bring the issue to a public vote was deliberately 144.
quashed. He said it has been established that the public was always denied the
opportunity to express itself. He said in the last election all the Board
members involved in the decision either did not run or were replaced, commenting
that the public had expressed itself in terms of the election. He said a lawsuit
was filed and it was determined it was physically impossible to recall Board
members:because you have to get 15% of the votes cast for every Board member.
Joe Robson addressed the Board, stating he was a resident and sanitation rate 144.
payer in Fayetteville. He said early in the project environmental concerns were
paramount, as well as cost. He said many early opponents had asked for a
moratorium on spending.
Robson said Ingoldsby told him the waste supply agreement signed by Fayetteville
on December 22, 1986 was the only one. Robson said the December 5, 1986 minutes
df a special meeting calls for changes to the agreement. - Robson refers to
statements on page 8 of the report regarding the construction agreement and
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145.1 management contract with MK -Ferguson and said if he were MK-Ferguson's attorney,
he would have known how much trash there would be and whether or not it would
be there. He asked the Board to consider that there may have been an earlier
waste disposal agreement.
145.2 Robson said there is more recent case law and said it was pointed out in a
document signed by Mr. Menz of Wright, Lindsey & Jennings. Robson read from a
Motion for Summary Judgement he said was dated October 22, 1986 and filed in
Chancery Court by City Attorney McCord after December 22, 1986 (when the waste
supply agreement was entered into), in response to a lawsuit filed by Gordon
Cummings: "This bond and the interest and premium if any thereon are payable
solely from and secured by the revenues, income and moneys of the Authority
pledged to the payment, that this bond shall not in any manner or to any extent
be an indebtedness of the State of Arkansas, the Authority or of any
municipality." He read "This obligation is not an obligation of the City...These
bonds are secured by the revenues generated by the facility." Robson read a
statement he said was dated October 22, 1987: "The cities' and the county's
obligation to pay tipping fees shall be payable solely out of income derived by
the cities and the county from charges for the disposal of garbage and trash."
145.3 Robson said "a previous agreement" entered into, and ones entered into by the
county and the city of West Fork state "that the cities' and the county's
obligation to pay tipping fees shall be payable solely out of income derived by
the cities and the county from charges for the disposal of garbage and trash at
the facility." He said the significant change which took place on December 22,
1986 was the removal of the words "at the facility" and the addition of language
that created an unconditional guarantee.
145.4 Robson, quoting from the Motion again, read "Act 699 of 1971, as amended, does
not require voter approval before a sanitation authority is authorized to issue
revenue bonds. When the authority's bonds were issued on December 31, 1985, the
Arkansas Supreme Court had held that the Arkansas Constitution permitted bonds
to be issued without an election to obtain funds for a genuinely public facility
if the bonds are payable only from revenues derived from the facility."
145.5 Robson suggested it was not the moral obligation of the rate payers and citizens
of Fayetteville.
145.6 Fran Alexander, resident of 1946 Fox Hunter Road, made reference to the following
statement on page 8 of the report: "The City acquired the Happy Hollow site by
condemnation..." Alexander said she believed this site was described in the 1986
reissuance prospectus. She said she wondered what the legal ramifications were
since the sites were changed twice after the time of the prospectus description.
She asked if that was a non -issue unless a bondholder makes an issue of it and
canshow personal damage.
145.7 Alexander, referring to page 12 of the report where it states "In an effort to
meet public concerns, the Authority improved the Project's environmental controls
and attempted to move the Project from the Happy Hollow site. The Authority
proposed two sites for the Project, one within Fayetteville and the other in West
Fork. In each instance, local property owners objected to the recommended site
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and the proposal was abandoned. On October 8, 1987, the Authority directed MK -
Ferguson to place a moratorium on all discretionary spending."
Alexander said there was an additional siting on Fox Hunter Road and an air study
done, which she thought should be included in the report.
Al Vick, resident of Fayetteville, said he wondered about the moral obligations
to the blue-collar workers and others who can't afford a rate increase and who
have opposed the project.
RESPONSE TO QUESTIONS FROM PUBLIC
Ingoldsby, referring to the moral obligation question, said that in the report
they addressed the issue strictly as lawyers, and did not address the question
of any moral. obligation. He said, however, that there had been a lot of
discussion about the distinction between the Authority and the members of the
Authority. He said it was important to understand the reality as opposed to the
legal organizational structure. He said the Authority had no assets and its only
source of revenue was tipping fees that members agreed to pay under -the waste
supply agreement. He said it was important in terms of•looking at the credit
analysis to recognize that the Authority on its own does not have the ability
to borrow any money without a proven source of revenue. He said it was the
tipping fees under the waste supply agreement which enabled the bonds to be
issued and purchased. He said in the case of any -litigation, the courts will
be .looking at the substance of the transactionsas- well as organizational
structure. He said the use of authorities is a recognized financing tool and is
used principally to provide a conduit for more than one organization to .issue
obligations to finance larger projects.
Ingoldsby, referring to statements made about what citizens wanted, what citizens
said and what the City did, noted the law is:that even if there is majority
disapproval, as long as the Directors are acting in accordance with the
constitution and the statutes, their decisions are binding upon the City. He
said that was a fundamental concept underlying our system of government.
•
Ingoldsby said his firm's charter to review what the City's legal obligation
was to pay the bonds was the third step in a three-step work plan. He said, to
the.extent that there may be third -party liability to share some of the risk,
was not part of their obligation. He •said, although that may be a method of
sharing the loss, it would not eliminate or reduce the loss of the City. He
said it was a "joint and several" concept as opposed to a "several liability"
where you proportionately allocate percentages of the amount of liability at
stake.
Responding to questions from Dubbell in reference to page six of the report,
Ingoldsby said bonds were initially issued in December 1985, were to be placed
in escrow for one year, and at that time, if the project was sufficiently
developed, they were going to be remarketed.. He said at the time the bonds first
went out, it was disclosed in the offering memorandum that they were going to
be in escrow for one year at which time, if they decided to proceed with the
transaction, they would be brought out of escrow and they would be reoffered.
He said that was a common procedure done with regularity and there was nothing
J-40
146.1
146.2
146.3
146.4
146.5
146.6
146.7
May 2, 1989
147.1 unusual about it. He said there was minimal description of the project in the
1985 offering documents but that was to be expected because there was very little
that was definite to be said about it and the idea was to raise the money, and
lock in the rates under the current tax law which was going to change.
147.2 In response to the question of what concerns were expressed regarding the
development of the project in the 1986 offering material, Ingoldsby said the
bonds could not be brought out of escrow until an opinion was received from bond
counsel that all steps that were necessary to bring the transaction out of escrow
had been satisfied. He said such an opinion was rendered and it was pursuant
to it that the bonds were brought out of escrow. He said the opinion was
supported by a feasibility study by a recognized engineering consultant firm.
147.3
147.4
Addressing the issue of non -disclosure noted on page 12 of the report, Ingoldsby
said that issues such as siting and permitting were critical to successful
completion of the project. He said they looked at the permitting issue very
carefully. He said it was not disclosed in the offering material that there was
any risk because permitting was not in place, but it was disclosed as an appendix
to the offering material that certain permits had been applied for. He said
the record didn't support any finding that there was going to be a problem in
getting the permits issued. He said the permits, which were to come from the
Arkansas Environmental Department, were at the final stages of approval until
some protests came in and, at that time, they set the matter for hearing.
Dubbell, commenting from the audience, said the permit had not been in the final
thirty days of its process but instead in the first stages of public comment.
Ingoldsby said their understanding was based on an examination of the files of
the Environmental Department in Little Rock and conversations with those
officials. Dubbell said when he called the department during the time period,
officials were stunned to hear that the plant had been moved from the west side
to the east side of town. Ingoldsby said he thought the real point was that,
to the extent that the permitting process was not complete, it may indicate that
the transaction was brought out of escrow prematurely. He said that did not
affect the liability of the City as to the bondholders and that may mean that
the City may have certain rights of action against other parties.
147.5 In answer to a question from Dubbell, Ingoldsby said the trustee's responsibility
is set out specifically in the trust indenture and functions in a ministerial
capacity - in other words, when the bonds are brought out of escrow and funds
deposited in the construction account, the trustee's duties are to disburse those
funds upon receipt of appropriate documentation, which is set out in the
indenture. Ingoldsby said when invoices come in, the trustee simply releases
the funds and makes no judgments. He said if the trustee starts to receive
material that would put it on notice that there is a problem, depending on the
specific facts, it would then turn to counsel for advice on how to proceed.
147.6 Frank Lyman, for the Nixon, Hargraves firm, added that the trustee is firmly
duty-bound to the bondholders and, if others were to intervene in the process,
he was not sure the trustee would have the right to act on that information.
147.7 Lyman explained the gaps in the report on pages 21 and 34 were deliberately
placed in the report so that the paragraphs following the gap would not be
148
construed to relate only to the paragraph before the gap, because the discussion 148..1
relates to a whole series of paragraphs before the gap.
Lyman, referring to the question about the waste disposal contract signed on 148.2
December'22,.1986, said it was the only contract to his knowledge that was
signed, was the only contract in the transcript, the only contract that MK -
Ferguson knew about, and the only contract that the bond insurance company and
other parties to transactions relied upon in going into the. transaction.
Ingoldsby, responding to comments about concern over site location and the
environment, as well as opposition to the project, when it began and the nature
of the opposition, said the report is a. compilation of conversations with
numerous. people and review of all the documents. He said, in terms of legal
significance, 'whether or not the opposition was based on environmental or
economic concerns really doesn't interplay.
148.3
Lyman said a question was raised about revenue bonds and he stated the parties 148.4
anticipated the bonds would be revenue bonds and those are permitted under the
constitutional statutes of Arkansas. -
Ingoldsby responded to the.question about the significance of the site location
change after the bonds were issued, because it was set forth in the offering
material it was going to be at the Happy .Hollow site. Ingoldsby said when
offering materials are prepared they are based on knowledge at the time the bonds
are offered. He said if the project had been completed, the fact that it had
moved from site to site would not be significant. He said it may be significant
if the Happy Hollow site had recently been decidedupon but perhaps had not been
fully developed. He said the fact that it moved is not significant in terms of
non -disclosure. ,
148.5
Ingoldsby said the reference to the site in Fayetteville in the -report was 148.6
intended to be the Fox Hunter site. He said when he looked at7it he was under
the impression it was in the. City of Fayetteville. He said this was not material
in terms. of legal significance.
•
Martin asked if some public comments, while they don't affect the City's
liability to repay the bonds, might reflect on something in the process the Board
should look at, to the extent that advisors may have "given a green light" before
it was appropriate. Ingoldsby said, in terms of resolving the question of
whether the bonds were prematurely brought out of escrow, issues -concerning
siting and permitting could be factors that have to be taken into account.
Alexander asked if bondholders should have.been interested in knowing that the 148.8
project was in a state of flux. She asked that the report be corrected by adding
the Fox Hunter site. Lyman said he did not know or remember, that the name of
the site they referred to as the Fayetteville site in their report was actually
the "Fox Hunter" site. He said their report should stand amended. The Mayor
asked the City Clerk to let the minutes reflect the amendment.
148.7
Lyman said his firm examined the files and was told one application was pending.
He said they looked at the application for the first site and it was that site
which the authorities told them looked to be fairly routine. Dubbell commented
148.9
149.1
May 2, 1989
that the project had moved from one site to another, and said he was concerned
and confused about how the firm could have only looked at one site application.
He said there was a permit already issued for the one on the west side of town,
that in 1986 when the bonds were remarketed there was a public notice for the
permit application for the Happy Hollow site. He said there was a lot of
controversy and a number of public hearings. He said there was then an issuance
of a permit which the Authority then asked to have withdrawn. He said the
project then was moved to West Fork and then to Fox Hunter Road, at which time
another engineering study and permitting application was begun. He said he was
concerned that the firm didn't know which permit they looked at. He said he
thought it was a key point.
149.2 Robson, reading from page 20 of the report, stated "Several revisions to the form
of the Waste Supply Agreement approved by Fayetteville's Board of Directors were
made at the request of FGIC." He asked if there was a material omission on the
part of the City Attorney to the bondholders where, in a certified document filed
on October 22, 1987, he claimed that money would come from the facility. Robson
said he wanted to know whether there was securities fraud. Ingoldsby said, if
Robson was asking if differences between the waste supply agreement and
representations filed in a pleading in October of 1987 constituted securities
fraud, the answer is "no" because the issue relating to securities law liability
derives from information supplied in connection with the offering of the bonds.
He said the revisions which came from FGIC were sent to the City by letter dated
November 27, 1986, and the form of the agreement the City approved was done in
a meeting on December 5, 1986. Ingoldsby said the proposed changes were already
in the City's possession but, to what extent they had been approved as part of
the package "gets to be a very difficult factual question." Robson said he
thought it was significant that the City Attorney did financially benefit from
the reissuance of the bonds, that he did receive an additional $20,000. He said
"when you hire a new City Attorney you had better adopt an ordinance...that
prohibits, as are all other public officials, from benefitting from contracts
that are entered into by the City because there is a possibility that central
to the problem that we are involved in now is the fact that people can benefit
from contracts and I think that that needs to be looked at closely in the
interests of the citizens of this city."
149.3 In answer to a question from the audience about whether or not there was "a
material omission," Ingoldsby responded that several facts had been identified
which they thought were relevant to that question. He said one was the waste
supply agreement which if unenforceable is certainly material to any transaction.
He said the failure to discuss any public opposition to the project in the
offering document might also provide a risk of a court finding there is some 10b-
5 violation.
149.4 Dubbell said he had a feeling the whole area of the permits had been glossed over
and asked the Board to ask that it be relooked at and sorted out carefully. The
Mayor said he was sure the firm would be pleased to take another look and be sure
some of the concerns do not alter their opinion.
149.5 A citizen in the audience asked how much the report was costing the City. The
Mayor said the firm had been conducting an ongoing investigation for over a year.
City Manager Pennington responded that he estimated the cost to be from $350,000
to $400,000, and so far the City has expended $211,000.
May 2, 1989
Nancy Maier, resident of Fayetteville, asked if, after reviewing the material, 150.1
it was obvious to the firm that there was public opposition starting in 1986.
Ingoldsby said they viewed the critical date of public opposition to be at the 150.2
time bonds were issued in December of 1986. He said they found early in 1987
there was very visible public opposition, and some letters of complaint were
filed with the Environmental Department in Little Rock that literally crossed
in the mail at the time the bonds were issued. He said in early December there
were definitely •individuals opposed to it, but they couldn't identify how
extensive the opposition was to the project. He said they did know there was
opposition prior to the issuance of the bonds. •
Maier asked if the law says the bondholders had to be informed that there is 150.3
opposition, if -the City Attorney knew there was opposition. Igoldsby said
opposition to the project was a material enough item to disclose, however, in
almost any financing, there is going to be one or more individuals opposed to
it.. He said the question was to what level the opposition had to rise before
it becomes appropriate to disclose it.
Phyllis -.Ricer reporter for the Northwest Arkansas Times, asked who rendered the 150.4
opinion that brought the bonds out of escrow.. Ingoldsby said it was issued by
bond counsel, Wright, Lindsey and Jennings.
•
Upon roll can, the motion passed, 7-0.
•
•
Y.
The City Manager suggested to the public that any additional questions or 150.5
comments go to his office prior to the next meeting. A gentleman in the audience
asked if some forum could be set up for citizens who have difficulty getting in
to see the City Manager. The Mayor said the best way. to handle it was for the
citizens to get the information to the City Manager so it can be handled in an
orderly fashion. Another citizen in the audience suggested certified mail can
be used by the public.
•
RECESS
•
The meeting recessed at 9:55 p.m. and reconvened at 10:05 p.m.
REZONING/R89-12,13,14 & 15
1
•
150.6
The Mayor introduced four rezoning petitions for property located near the 150.7
National Cemetery, owned by Elvie P. Heiney, for Regional National Cemetery
Improvement Corporation, to be rezoned from R-2 "Medium Density Residential" to
A-1 "Agricultural." The Mayor reported all four petitions were heard by the
Planning Commission on April 24, 1989, and were requested in order to accommodate
possible future expansion of the Natioanl.Cemetery. He reported the Planning
Management Director submitted the following recommendation:
Based on the fact that: - 150.8.
1 V 1
151.1
May 2, 1989
1) the four proposed rezonings do not appear to cause harm to
surrounding properties or to the neighborhood;
2) the rezonings do not conflict with any City plans or policies; and
3) expansion of the National Cemetery would address a laudable community
need;
151.2 The staff can support approval of each rezoning provided Mr. Heiney's
organization signs a Bill of Assurance stating that the properties will
only be used for cemetery purposes.
151.3
However, the staff would like to note that it prefers an amendment to the
text of the Zoning Ordinance which would allow cemeteries as a Conditional
Use in the R-1.5, R-2 and R-3 zoning districts.
151.4 The Mayor reported that no public opposition was expressed at the hearing and
the Commission recommended approval by a vote of 6-0.
151.5 The City Prosecutor read the ordinance, for all four rezoning petitions, for the
first time. Director Kelley, seconded by Marinoni, made a motion to suspend the
rules and place the ordinance on its second reading. Upon roll call, the motion
passed, 7-0. The ordinance was read for the second time. Director Kelley,
seconded by Marinoni, moved to further suspend the rules and place the ordinance
on its third and final reading. Upon roll call, the motion passed, 7-0. The
ordinance was read for the third time.
151.6 The Mayor invited public comment and, none being expressed, upon roll call, the
ordinance passed, 7-0.
ORDINANCE NO. 3422 APPEARS ON PAGE (o 0 OF ORDINANCE AND RESOLUTION BOOK
20(
151.7 The Mayor added that Elvie Heiney had directed a request to the City for a
financial contribution and he said that information will be given to the
Directors as soon as possible.
151.8
PROPERTY CLEANUP
The Mayor introduced an ordinance ordering the abatement of unsightly conditions
and the razing and removal of unsafe structures located at 1248 East 13th Street
and 1160, 1218 and 1236 South Happy Hollow Road.
151.9 The Mayor reported the City Manager recommended approval of the ordinance,
stating a similar ordinance had been previously before the Board on September
9, 1982 and left on its third reading. He said problems at the property, owned
by the Kellar family, have been addressed since 1969 by the City Inspection
Division, City Attorney, Mr. Kellar's attorney, the County Health Department,
and the Chamber of Commerce in an attempt to resolve City Code violations and
the unsightliness of the property.
May 2, 1989tH
The City Prosecutor read the ordinance for the first time. Director Kelley,
seconded by Green, made a motion to suspend the rules and place the ordinance
on its second reading. Upon roll call, the motion passed, 6-1, Marinoni voting
in the minority with the comment that the project was sizable and he thought the
ordinance should be read at three meetings. Jones read the ordinance for the
second time. Director Kelley, seconded by Green, made a motion to further
suspend the rules and place the ordinance on its third and final reading. Upon
152
152.1
roll call, the motion passed, 6-1, Marinoni voting in the minority. The 152.2
ordinance was read for the third time.
Planning. Management Director John Merrell told the Board a series of slides of 152.3
the property would be shown. He commented that the property was located on East
Fifteenth Stret in the southern part of the City, practically at one entrance
to the Industrial Park. He said complaints about the property date back to 1969.
Following the slide presentation, The Mayor invited the public to comment either
for or against the ordinance, and no comments were made. In answer to a question
from Director Spivey,. the City'Manager said the property owner had been -informed
that the ordinance would be before the Board on this date.
Director Green asked if the City had talked to anyone still residing in the
structures regarding their alternatives. Merrell said the staff had not
attempted to speak with the tenants but had directed their inquiries towards the
property owners. He said they did not propose to start 'moving people out
immediately but would try to enforce the ordinance ina lenient manner as far
as tenants are concerned. Green said he hoped the City would be sensitive to
the people living there. Inspection Superintendent Freeman Wood said he believed
each of the structures were occuped by members of the family which owns the
property.
•
Director Marinoni said he voted not to suspend the rules because the project was
big, but said his vote in no way reflected that he was in favor of condoning this
sort of thing in the City, and said he would vote for the ordinance.
Marinoni said the Nixon, Hargraves report stated the City acquired the Happy 152.6
Hollow site by condemnation on December 22, 1986. . He asked at what point we
dropped the acquisition of that property. The Mayor said he had asked that
question and was told the condemnation order was liftedwhen the permit for, that
site was finally relinquished. Marinoni said in 1983 there was some discussion
about the City acquiring the Kellar property with CD money and possibly
relocating the owners. Marinoni asked if there was any possibility of continuing
that discussion. Pennington said not, because the CD program is now targeted
for a certain area in town. He said that, in:addition to the Board's concern
for the situation of the tenants, having been advised of the safety hazards,
the City has. an obligation to convince them to get into a safer living situation.
152.4
152.5
Upon roll call, the ordinance passed, 7-0.
ORDINANCE N0. 3423 APPEARS ON PAGE 6"3" OF ORDINANCE AND RESOLUTION BOOK X X V
May 2, 1989
FLAMMABLE STORAGE
153.1 The Mayor introduced a request for an ordinance amending regulations in the City
Code to prohibit the use of above -ground storage tanks for flammable liquids and
liquified petroleum gases. He reported that it was recommended by the City
Manager and would make it unlawful for owners or operators of any business to
store Class I or Class II flammable and combustible liquids and liquified
petroleum gases in above -ground storage tanks existing on May 2, 1989, unless
they are installed according to the State Fire Prevention Code. He explained
it would also give the Fire Chief the authority to require the removal of any
above ground tank existing on May 2, 1989, if he determines the tank creates a
safety hazard to life or property.
153.2 The Prosecuting Attorney read the ordinance for the first time. Director Kelley,
seconded by Marinoni, made a motion to suspend the rules and place the ordinance
on its second reading. Upon roll call, the motion passed, 7-0. The ordinance
was read for the second time. Director Marinoni, seconded by Kelley, made a
motion to further suspend the rules and place the ordinance on its third and
final reading. Upon roll call, the motion passed, 7-0. The ordinance was read
for the third time.
153.3 Marinoni pointed out that when the ordinance was first proposed it was drafted
to pertain to businesses, but noted it was now re -written to refer to "any
person" rather than to businesses. Fire Chief Mickey Jackson explained the use
of the words "any person" was more encompassing and the intent of the ordinance
was to cover the entire city. In answer to questions from Marinoni, Jackson
explained there was a specific exemption for LP gas tanks to be installed in the
City, except in designated "fire districts." He said that prohibition already
exists through the State Fire Code. He explained a designated fire district is
an area immediately adjacent to highways and the "high value" business districts
of the downtown area. He said there was one existing LP gas tank in that area
and the ordinance would "grandfather" it in, meaning no change would be
necessary. He said they wanted to prohibit that situation from reoccurring.
153.4 Marinoni questioned the wording in the ordinance "60 gallons to 600 gallons."
Marinoni said a typical oil drum was 55 gallons. Jackson explained an oil drum
would not meet the definition of an above -ground storage tank, stating he knew
of no prohibition against have a 55 -gallon drum of oil. Jackson said there might
be a problem with storage of gasoline in such a container, however, because of
the class of liquid. Fire Inspector Terry Lawson explained drums below 60
gallons were exempt from the Fire Code, and would be okay for farm use.
153.5 Marinoni asked how the ordinance would pertain to trucks that are fueled by LP
gas tanks. Jackson said there was a different standard for LP gas tank trucks
and there would be no application of this ordinance to such tanks mounted on
trucks.
153.6 In answer to a question from the Mayor about the definition of Class I or Class
II liquids, the Chief first explained that "flash point" was the lowest
temperature at which a flammable liquid gives off vapors that will ignite. He
explained a Class I flammable liquid has a flash point below 100 degrees
May 2; 1989;a4
Fahrenheit, while kerosene for example has a flash point of about 110 to 120
degrees, making it a Class 11 flalnrnable liquid.
The Mayor asked if anyone wished to speak for or against the ordinance. No
public. comments were made. Upon roll call, the ordinance. passed, 7-0.
ORDINANCE NO. 3424
APPEARS ON PAGE -4 9 OF ORDINANCE AND RESOLUTION BOOK X X
EMPLOYEE INSURANCE
The Mayor introduced. consideration of the award of Bid #89-10, for employee
health, dental and life insurance; and adoption of a long term disability
program; as well as a request for approval of a budget adjustment.
The. Mayor reported the City Manager recommended award to the low bidder meeting
specifications, Blue Cross Blue Shield. He explained the health plan included
hospitalization benefits, major medical and supplemental accident endorsement
(SAE); that the dental plan, as determined by employee vote, provides for
preventive care; and the life and accidental death and dismemberment insurance
policy provides coverage of $25,000 for exempt employees and $15,000 for non-
exempt employees.
Martin reported the City's total estimated cost for the insurance is $427,766.
He said a budget adjustment in the amount of $73,110 was recommended.
Martin further explained that, under the proposed plan, the City would pay 100%
of the employee's major medical and hospitalization on the individual plan and
60% onthe fmaily plan. He said the City also would pay the total cost of life
and accidental death and dismemberment insurance, although the employee would
be responsible for paying the SAE and dental coverage. He said an increase in
rates of approximately 30% to the City and its employees was caused by the bid.
The Mayor said of the budget adjustments recommended, $1,874 would'go against
fund balance, in the belief that other cuts in the program could not be made
without reducing operations.
154.
154.
154.
154.
154.
The Mayor said the long term disability was a new program bid along with the 154.
entire insurance package. He said Blue Cross Blue Shield submitted the low bid
meeting specifications. He reported the yearly premium for the long term
disability coverage would be $36,288, and the City Manager recommended this be _.,.
paid by the City. He said the City, in the past, has carried disabled employees
by hiring temporary employees or by working understaffed. He said the City
Manager felt the program would more than pay for itself. He said the budget
adjustment is requested because no funds were budgeted in 1989 for disability.
Martin said the City Manager recommended the following"offsets: $18,900 to be
taken from the City Manager's Annual Report and $17,388 to be taken from
Woerker's Comp. Insurance Account, for a total of $36,288.
It was moved by Kelley and seconded by Vorsanger to approve the'new Health, 154.
Dental and Life Insurance Program with the low bidder, Blue Cross Blue Shield,
and to approve the budget adjustment.
May 2, 1989
155.1 In answer to a question from Director Marinoni, Assistant City Manager Scott
Linebaugh said the city did not use the services of consultant Bob Hall on this
project, but the staff followed the same procedures as in the past.
155.2 Director Vorsanger asked how the staff proposed to use the $86,000 refund from
Blue Cross for the period of April 1987 through April 1988. Linebaugh said a
final decision had not been made but said he was considering three alternatives:
(1) to use it against insurance costs for the 1989-1990 year; or (2) to use it
against costs over a two-year period; or (3) to refund it to employees and the
City. Vorsanger asked if there has been any reaction from City employees on the
matter of how to spend the money. Linebaugh said no reactions had been expressed
to him personally.
155.3 Vorsanger remarked that it appeared only two companies, out of eight, submitted
bids on health insurance. Linebaugh said only the bids from Blue Cross Blue
Shield and American General Group were acceptable, and only the bid from Blue
Cross met specifications, on the health insurance. Vorsanger said he thought
that was strange. He said fringe benefits were an important part of an employee
compensation package, and said he thought the City should do everything possible
to get the best coverage for the least amount of cost for the employees. He
said he wasn't convinced we were doing that, only having one bidder.
155.4 Linebaugh said the City's plan was unusual, noting there were only two or three
like it in the State. He said over many years the City has received about
$200,000 in refunds. He explained if Blue Cross charges more in premiums than
is needed to pay claims, the City gets a refund. Green asked how the City
would offset premiums according to the alternatives proposed by Linebaugh.
Linebaugh said offsets would be made on a pro -rated basis against both employees'
costs and the City's costs. Linebaugh said, although some employees would have
Board members believe this was a new item, it was not new, but had been handled
this way for many years. He said some employees have misrepresented the item
and have made some statements which he said were inaccurate.
155.5 Director Kelley asked if the City had ever considered self-insurance. Linebaugh
said consultant Bob Hall had studied this and recommended against it. Pennington
said the idea had been explored, but said one disadvantage is that employees
don't particularly care for it, even though benefits can be higher, because its
a lot harder to use the program Pennington said in addition the City would have
to set aside quite a bit of reserve funds for such a program. Kelley said he
thought, if we are continually getting a rebate, at some point self-insurance
would appear to be feasible. Pennington said it was not feasible for the City
to administer such a program ourselves. He said we would have to contract it
out to another agency to administer and then we would have to consider the costs
of administration. Pennington said rating our program compared to other
municipalities across the country indicates ours to be "probably in the moderate
to low -moderate range," benefit -wise. Pennington said he thought the insurance
program ought to continue to be reviewed. Lancaster asked why rates had gone
up. Linebaugh said this was due primarily to "a lot of little claims."
155.6 Thomas Cornwell said he was a general agent for American General Group at 138
N. College in Fayetteville. He said they received an invitation to bid on the
entire package, but couldn't bid on the group medical insurance "because we
1
May 2, 1989
'couldn't understand it." He said they tried to determine, and.could not
• determine, what "incurred claims" meant. He said they did bid on group dental
and group life insurance. He said: when bids were opened, their bid was the low
bid on the group life insurance. Pennington said the specifications were not
written by City staff but were developed by consultant Bob Hall, and said the
City had been using them for quite some period'of time.
.Ob
156.
Dan Farrar, President of Fayetteville Fire Fighters, asked for a definition of 156.
"exempt" and "non-exempt" employees as it relates to the difference between
$15,000 and $25,000 for life and accidental death and dismemberment insurance.
Pennington said the definition used is that described under the Fair' Labor
Standards Act. He said an "exempt" employee is exempt from the FLSA, meaning
if it takes them fifty or sixty hours per week to do there job, that's what it
takes. He said this excludes fire fighters. He said "non-exempt" employees are
entitled to overtime pay after working a forty hour week. He said. fire fighters
were "non-exempt". .
Farrar said he had attended a meeting with Blue Cross and the Purchasing Officer .156.
and was under the impression the $86,000 refund would be spent on premiums for
city employees. Linebaugh said, as soon as that point was misunderstood by the
fire fighters, he met with the Fire Chief who explained it to them once. He said
he explained it to them twice before they went individually to Board members.
Linebaugh explained the $86,000 would not be used to pay. for the disability
program, but will be handled in one of the three ways he described. earlier.
Vorsanger said he received a letter from the Fraternal Order of Police. He asked
if the Fire Fighters Association had seen the letter. Farrar said they took
the same stance. Director Spivey asked Farrar if he was speaking in favor of
applying the rebate to lower premium costs. Farrar said he was in favor of
that. Green asked Farrar if he understood that a portion of the rebate would
go to the City for their matching funds. Farrar said he understood that.
156.
Pete Reagan, speaking for.the Fayetteville Fire Fighters, said he didn't :know 156.
until now there was a difference in life insurance coverage for exempt and non-
exempt employees. Linebaugh said it was $15,000 and $25,000 and was recommended
by the pay plan consultant several years ago. Pennington said those amounts were
set several years ago as well as other inequitable benefits. He said he would
be.recommending more equity in the employee benefits.
Martin said he was not comfortable with the maturity of the proposal and could
see some merit in postponing it. Vorsanger said he didn't know if we could
postpone it, remarking that he didn't know how long Blue Cross Blue Shieldwould
allow us to continue with an extension. Pennington said the staff could sever
the life insurance package from the bid, but employees would not .have life
insurance coverage for the time being.
156.
Jeff Jackson, speaking for Blue Cross Blue Shield, said the city's current 156.
program has a "restrospective financial arrangement" attached to it which began
in 1979. He said this was a self-insurance program in that, when the company
sets the premiums they project twelve months into the future, based on past
experience, what's happening in the State, medical costs and trends in the
medical environment. He said if the City has a good year and premiums.'are more'
May 2, 1989
157.1 than enough to pay the claims, at the end of the year, the City gets a rebate.
He said last year the rates were set too low to the tune of around $27,000, and
Blue Cross takes the loss. Martin pointed out that a retrospective program
works both ways, noting that the company raised its premiums after it suffered
a loss. Vorsanger remarked that newspaper stories recently reported the company
had a state-wide loss of $17 million. Jackson said the city had the advantage
of self insurance and said the insurance carrier had no possibility of
underwriting gain. He said the City didn't have the disadvantages of self-
insurance, noting the City paid about $376,000 in premiums this year. He said,
if we had been self-insured, we would have paid out $396,000 plus an
administrative fee. He added that his company began providing the City's life
insurance package just last year.
157.2
Martin suggested the staff should understand some Directors would like them to
consider the same life insurance coverage for all employees. Vorsanger asked
the City Manager if he could study fringe benefits for all employees and look
at the idea of self-insurance.
157.3 Cornwall told the Board that his company provided the City's life insurance for
several years up until last year, and never gave a rate increase to the City
during the time. He said "for some reason they changed carriers."
157.4 Upon roll call, the motion passed, 7-0.
157.5 Mayor Martin, seconded by Vorsanger, moved to approve -the disability program with
the budget adjustments as recommended.
157.6 Linebaugh answered questions from Directors regarding details in the bid
specifications. Green said he thought it was almost impossible to write
specifications that are totally competitive and generic. He said he also felt
the Board was being rushed because of the time deadline, but didn't see any real
problem with going ahead for an additional year, while giving us a chance to
study the insurance in more detail. He also suggested the City try to review
its whole specification process, bring it up to date and try to make it as
generic and competitive as we can.
157.7 Upon roll call, the motion passed, 4-3, Directors Spivey, Vorsanger and Kelley
voting in the minority.
MUNICIPAL JUDGE SALARY
157.8 The Mayor introduced a request from Municipal Judge Charles Williams for a cost -
of -living increase and salary adjustment for 1989; tabled at the March 21
meeting. He explained that on March 24 the Judge amended his request to include
consideration of a salary adjustment in addition to his request for a cost -of -
living increase. Martin said the Judge earned $34,500 during 1988. He reported
that the 1989 budget contained $36,425 for his salary. He added that the Board
approved a 5% cost -of -living increase to the City's Pay Matrix for 1989 but said
that did not apply to the Judge because he is an elected official.
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May 2, 1989
Martin said any action would be -subject to approval by the Washington County
Quorum Court which is responsible for 50% of the Judge's salary.
City Manager Pennington recommended the amount budgeted - $36,425 - be considered
for a salary adjustment, which he said was a 5% increase.
Speaking in reference to questions which had been asked previously by the Board,
Pennington reported that in Arkansas; the cities of Little Rock, North Little
Rock, Texarkana, Fort Smith; Conway, Springdale and Rogers all provide their
Municipal Judge with one retirement plan as mandated by State law. He said
Fayetteville is the only city which' supplements the State plan. with an ICMA
pension plan.
1S!
158.1
158.2
158.3
The Mayor asked Williams what amount of salary he was -requesting. Williams said 158.4
it was his understanding that if he participates in the ICMA pension program,
it will no longer be possible for him to participate in the State pension plan,
and that he will have to choose one or another. He said years ago when the ICMA
plan was offered to department -heads, it was offered to him at the tame time.
He said, due to the fact that there was some uncertainty about exactly what a
municipal judge might receive under the State plan; he decided it would be
beneficial'to participate in the ICMA plan.
Williams said, from information he had received, he didn't believe he was the 158.5
highest paid part-time municipal judge in the State. He said he thought some
of the cities surveyed by the staff were inappropriate and added that he never
requested some of those be surveyed. Williams distributed some information to
the Directors, stating some information he had differed from information provided
by the- staff regarding the status of municipal judges in North Little Rock,,
Texarkana, Rogers, Jacksonville and Eldorado.
Reporting ori his caseload, Williams said his criminal cases had increased from 158.6
7,700 in 1981 to 18,000. He said civil cases had grown from 274 to 820. He said
these figures did not include small claims cases, noting these are heard by
referees who are paid from filing fees generated from the cases.
Williams requested.a minimum salary of $48,000. He said he was still earning
at a 1981 "dollar buying level."
In answer to a question from Martin, Williams confirmed that the range permitted
by State law is still $30-50,000. Martin said his personal feeling, based on
the information he had seen, was that the judge was doing a good job, and doing
a lot more work. He said something in excess of a cost -of -living increase might
be justified. Martin moved that a salary of $40,000 be approved, commenting that
'this would split the difference between the top and bottom of the range permitted
by law. The motion was seconded by Green.
Vorsanger said the City Attorney had previously advised the Board they may
discuss this issue in executive session if they wished. Vorsanger said he felt
uncomfortable discussing a person's salary in public. He said, however, that
if the Judge didn't care, he didn't care either. Williams said he didn't have
any problem with it at all. He said he didn't feel bad at all asking for $48,000
or even $50,000. Williams noted that Texarkana, with a population of 21,000,
158.7
158.8
158.9
May 2, 1989
159.1 was paying its part-time judge $42,500, that Jacksonville, with a population of
27,000, was paying its judge $42,000, and Eldorado, with a population of 26,000,
was paying $40,000. Williams said Judge Humphreys in Little Rock reported his
case load to be about 11,000 per year, and said he was being paid $66,000.
Williams said he was handling close to 20,000 cases per year. He said he didn't
feel bad discussing this in public, commenting that he was an elected official.
He said he felt the job deserved a salary level higher than $40,000.
159.2 Green said he totally agreed with the Judge, and that he would prefer to
compensate him at whatever the limit of the law would allow. He said, however,
that he was not sure the City could afford it.
159.3 Vorsanger pointed out that 50% of the salary would be paid by Washington County.
He noted that, according to material provided in the agenda, in 1988 the City
received income of $104,013 from the court, after revenues and expenses. He said
he wasn't sure $40,000 was high enough. Vorsanger said he wanted a better
measurement than comparing other salaries, suggesting the number of cases he
handles was material, regardless of the number of hours he devotes to them, as
well as the amount of revenue he brings in. Vorsanger moved to amend the motion
to approve a salary of $45,000. There was no second to the motion.
159.4 Leland Hamilton, resident of Fayetteville, said he thought the Judge had been
a positive influence on his life and some of his family. He said he had done
an absolutely outstanding job in the community, and had been very patient. He
asked the Board to please consider the value he is to the community.
159.5
Upon roll call, the motion passed, 7-0.
OTHER BUSINESS
BID WAIVER/CITY ATTORNEY RETAINER
159.6 The City Manager distributed a proposed ordinance waiving the requirements of
competitive bidding to retain legal counsel to represent the City in litigation.
He reported City Attorney James McCord had resigned, and said a number of cases
were pending which he thought McCord should continue to work on. He said his
recommendation, which is outlined in the ordinance, would place McCord on a
retainer for the pending cases, at a rate of $75 per hour plus expenses, until
the cases are closed out.
159.7 There being no objections, the City Prosecutor read the ordinance for the first
time. Director Lancaster, seconded by Marinoni, moved to suspend the rules and
place the ordinance on second reading. Upon roll call, the motion passed, 7-0.
The ordinance was read for the second time. Director Marinoni, seconded by
Martin, moved to further suspend the rules and place the ordinance on its third
reading. Upon roll call, the motion passed, 7-0. The ordinance was read for
the third time.
159.8 In answer to a question from Vorsanger, Pennington said services would be
requested on a case-by-case basis, noting that the City has almost thirty
1
May 2, 1989
different outstanding cases, estimating this to be roughly six to seven months
of work.
160
160,
Vorsanger commented that the City Attorney position was one of the most important .160.
in city government. He requested that, if and when the time comes that there
are viable candidates, Board members should have the opportunity to interview
all candidates before one is employed. Pennington responded that the appointment
of the City Attorney was within the authority of the City Manager. He said he
would form a "blue ribbon" panel of attorneys and other legal counsel within and
outside the community which will act as an appraisal board to narrow down the
applicants to finalists. He said:there,would be no problem with Board members
talking to finalists, but said he had an obligation to his code of ethics to
establish very firmly that this is the responsibility of the Manager. He said
it would be"a full-time salaried job, and there would not be a figure involved
for additional litigation.
Lancaster said he couldn't find it spelled out, under the City Manager form of 160'
government, how you hire a City Attorney. He said he recalled that when former
City Attorney David Malone was hired, he was hired by the Board. He said under
the old organizational chart, the City Attorney was shown as separate from the
rest of the department heads and answered directly to the Board. He said he
noticed in the last organizational chart he had seen, the City Attorney is shown
as reporting to the Assistant City Manager. Pennington said the City Attorney
reports directly td the City Manager, and that this was essentially the same in
all the City Manager forms of government in Arkansas:::-,
Spivey agreed with Vorsanger about the importance of the position, and said he .160,
agreed -the position should have a fixed salary, but said he thought the salary.
being proposed would not attract the person we need in the position. Pennington
said he thought the salary would be fairly competitive with other municipal
attorneys, stating the salary he proposed was from the lower to the upper $50,000
range.
Vorsanger said he respected the procedure but requested that, before the
appointment is made, the Board have an opportunity to talk to the candidates.
Upon roll call, the ordinance passed, 7-0.
ORDINANCE NO. 3425 APPEARS ON PAGE 7/ OF ORDINANCE AND'RESOLUTION BOOK XX ✓
160
CHARM HOMES, INC. VS. CITY OF FAYETTEVILLE
The Mayor introduced an informational item requesting a Board decision concerning 160
a settlement offer in the matter of Charm Homes, Inc. vs the City of
Fayetteville.
The Mayor explained that Wade Bishop's home building organization began
construction of a home in the Yorktown Square Subdivision and the building
violated the setback requirements because Bishop had been given incorrect survey
information. Martin said his appeal to the Board of Adjustment was denied.
Martin said Bishop has sued the City for relief and is now willing to settle for
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May 2, 1989
161.1 permission to leave the home as it is constructed, by contributing $500 to the
City's park fund. The Mayor said he understood all the immediate neighbors have
agreed to and support the variance to the setback requirements.
161.2 Martin, seconded by Marinoni, moved to accept the settlement. Upon roll call,
the motion passed, 7-0.
BANKS SETTLEMENT
161.3 The City Manager noted the Board had a memorandum from the City Attorney
discussing a settlement offer in the matter of the Banks property. He reported
the Board previously authorized a $250,000 settlement and rejected the owner's
counteroffer of $260,000. Pennington said he and the City Attorney and the
University have discussed the matter and the feeling seems to be we probably
should proceed with the $260,000 settlement. He reported the case was set for
trial on May 9. He said the City Attorney and he recommended the $260,000 offer
be accepted, because it could cost the City $5,000 in legal expenses for the
trial.
161.4 Vorsanger, seconded by Martin, moved to offer $260,000 for the property.
161.5 Green said he was tired of giving money to everybody who asks for it. He said
it appeared the appraisal was well thought out originally, and said this was
where he wanted to take a stand.
161.6 Vorsanger reminded the Board the property was instrumental for the Arts Center.
He said after the City offered $250,000 the owner responded by saying he wanted
to keep air conditioning equipment and other things which were part of the
building, valued at $10-15,000. Vorsanger said the Arts Center Director didn't
agree to giving the equipment away, because it was needed in the building.
Vorsanger said he thought by authorizing the $260,000 we would just be paying
for the air conditioning.
161.7 Marinoni agreed with Green, pointing out that in other cases, the City paid
appraisal price plus 10%. He said he was ready to draw the line.
161.8
161.9
Upon roll call, the motion passed, 5-2, Marinoni and Green voting in the
minority.
MUNICIPAL JUDGE'S SALARY
The Mayor said he wished the staff, hereafter, would try to work out an
arrangement with the Municipal Judge regarding his salary, and bring the Board
a recommendation which is mutually acceptable.
ADJOURNMENT
The meeting was adjourned at 12:38 a.m.
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