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HomeMy WebLinkAbout1993-04-12 MinutesMINUTES OF A MEETING OF THE CITY COUNCIL A special meeting of the Fayetteville City Council was held on Monday, April 12, 1993, at 6:30 p.m. in Room 326 of the City Administration Building, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Mayor Fred Hanna; Aldermen Heather Daniel, Stephen Miller, Kit Williams, Conrad Odom, Woody Bassett, Fred Vorsanger, Len Edens, and Joan Chapman; City Attorney Jerry Rose; City Clerk Sherry Thomas; Administrative Services Director Ben Mayes; Planning Management Director Alett Little; Public Works Director Kevin Crosson; members of staff, press, and audience. CALL TO ORDER i Mayor Hanna called the special meeting to order with eight aldermen present. SALES. TAX. LAWSUIT SETTLEMENT OFFER Mayor Hanna stated he had received a letter from John Lisle on Friday afternoon. Lisle had heard the results of the Tuesday night Council meeting. Lisle made some encouraging comments in his letter. On Saturday, April 3, he and City Attorney Jerry Rose met and then Rose and Alderman Bassett met with John Lisle on Saturday evening and got a lot closer to reaching something we could all live with. Alderman Bassett stated John Lisle did send this letter, and he got a copy of it Friday and talked with Jerry Rose about it. He and Rose met on Saturday with Chris and John Lisle for about 2 1/2 hours and discussed several things. As a result of that meeting and the comments that were made, we feel this case can be settled. The proposal he is fixing to outline is one that he has every reasonable expectation will be acceptable to Lisle. Alderman Bassett stated with the last settlement offer, there were three sticking points that kept Lisle from accepting. The first was the apology. Lisle has decided to waive that request. The second point is the refund issue. They talked about this Saturday evening and Lisle compromised on his initial length of time for refunding the sales tax. The proposal is to offer to refund sales tax collected from June 20, 1991, the date the lawsuit was filed, through April 1, 1993, the last date the sales tax was collected. Lisle had previously wanted the refund period to start from December 1, 1988. Alderman Bassett stated he did not feel Lisle would accept a pro -rata return, rather he wants a dollar for dollar refund. Alderman Bassett stated he is proposing a 4 month claim period. The City could handle the refund process in house. However, strict rules need to bespelled out and some type of form prepared for J. V / taxpayers to use. In addition, the taxpayers need to know exactly what will constitute acceptable proof. Alderman Bassett stated if there was a balance after the attorney fees, the refunds, and the administrative costs, the taxpayers need to know the remaining funds could be spent for capital improvement projects previously voted on. He has received several calls from people advocating applying the balance to the incinerator debt. Whether this could legally be done or even if it should be done, he does not know. The third obstacle to settling was the attorney fee. Alderman Bassett proposed the City offer to let them be determined by the court. There is a new judge, Lawrence Dawson, from Pine Bluff that has been assigned the case. He has been on the bench a number of years and has a good reputation. Alderman Bassett stated he would propose that both sides agree to not appeal the court's decision on the attorney fees. Lisle would have the opportunity to make whatever arguments he wants to before the judge regarding his fee. There is no way any attorney or citizen can predict what the court may award. Alderman Bassett stated there are risks involved in making this settlement offer. The City has between $3.8 and $4 million in sales tax proceeds that have been collected but not spent. This money is being held by Arvest but would be returned to the City. The City will have to have money to defease the bond issue. With the current market, it would cost about $1.5 million, but hopefully the market conditions will get better and not cost so much. The next expense is the attorney fee, and there is no way to know what they may be. In addition, there is no way to know how many people will claim a refund. However, he does not feel there will be a large deluge of people seeking refunds. Alderman Bassett stated it is possible that the attorney fee, the cost to defease the bonds, and the refund claims could exceed the $3.8 to $4 million. However, he feels this would be highly unlikely, and the risk is minimal at best. Alderman Bassett feels the risk of not settling is greater than the risk of settling. If the case is not settled and the money is not freed up, the City could go into actual default of the bonds because there is a payment due on May 15. This default would irreparably damage the City's credit rate and ability to issue any future bonds. If the case is not settled, there will be continued litigation which will lead to even more attorney fees. The right of appeal exists on any point. He feels the citizens do not want any additional litigation. In addition, Alderman Bassett stated he felt it would be better for the City to get the sales tax lawsuit settled and over with before going into the April 27 election. Alderman Bassett stated he recommends this offer be made by City Attorney Jerry Rose to John Lisle. He is confident that it would be accepted. April 12, 1993 City Attorney Rose stated he concurs with Alderman Bassett. The offer he made does not have lot of room for negotiation. It is basically a take it or leave it situation. If the Council does not approve of the settlement offer, the settlement will be litigated. Rose stated this is a client decision, and he wants to make sure the Council can make an informed decision by being aware of all of the information regarding the case. Rose stated between June 20, 1991 and April 1, 1993, there was $12 million of tax collected. The City has about $4 million in unspent tax dollars. City Attorney Rose went over the City's chances of winning the case if the Council decides not to settle. One issue to be decided deals with the bond money being mixed with tax dollars. He stated this should be favorable to the City because the law is in agreement with the City. Regarding the question about there being a $4 million limit to the City's liability, Rose stated he feels there is a good chance the City would win on this. However, if the City wins, it may really lose. The $33 million Arvest is holding could be frozen which would put the City in default on the bonds. Rose outlined the advantages of settling the suit: (1) The refund would be limited to $12 million in collected taxes from June 20, 1991, rather than the $21 million collected from December 1, 1988. (2) The threat to the bond money would be gone. The money would be released by Arvest. What to do with the bond proceeds is a separate issue the Council will have to deal with at a later date. (3) Settling would eliminate any possible litigation. (4) The City's credit and bond rating would be protected. Defeasance is possible on the bonds, and that would put the issue to rest. Rose stated he feels it is in the best interest of the City to settle. He personally likes to fight a case in court and let the judge decide. But, there are times, like this one, when the right thing to do is settle rather than fight. Rose stated there are factors to consider other than the legal ones, and those are up to the Council. Mayor Hanna stated there is no way to win because the City has already lost. The City might prevail in two or three of the issues, but it would only drag the case out and cost more. Arvest estimated the case is costing $4,000 per day. By settling the case now and paying off the bonds, the City will save more in the long run by not having to pay interest on the bonds. Alderman Williams stated the people he has talked with are outraged about the attorney fees. He is reluctant to stand mute on this issue and let Lisle present his case. Alderman Williams stated he felt this was the sticking point in settling, and he feels Jerry Rose should be able to present the City's side on this issue. He feels there are a lot of good things in this proposal. He feels it 1V7 it Apri1.12, 1993 will not be the little people who get refunds on the sales tax, instead it will be thefactories, the,building contractors, etc: This will make the sales tax .even more regressive. He is concerned about more litigation and additional attorney fees. The biggest problem Alderman Bassett and City Attorney Rose see is the default. Alderman Williams stated he was ready to defease the bonds at a minimum cost, but he is not ready to concede attorney fees. Alderman Chapman stated she felt some sense of relief that the City was this close to settling the case. She agrees on the default issue. She is fairly certain the City's credit rating would suffer in the event of default. She was not as optimistic as most and felt the City could lose the case on appeal as it did. She is also concerned about the outcome of the future issues to be settled. However, she does not think the attorney fees are the heart of the issue. She thinks one of the things that has to be considered is that the Arkansas Supreme Court declared this as an illegal exaction. That is critical with John Lisle and his clients, and they want a refund. She does not feel the refund will go to only the richest people in town as Alderman Williams stated. She does hope the City is very close to settlement even though we do have to take the bitter with the sweet. • Alderman Daniel stated she felt the City was between a rock and a hard place. She was pleased with only having to be responsible for refunding 1 1/2 rather than 2 1/2 years of tax collections. She stated she supports the proposal. Alderman Edens .asked if the new judge, Judge Dawson, will need - additional time review the case before the April 16 hearing date.. City Attorney Rose stated the hearing scheduled for April -16 will probably be dropped if the Council approves this settlement offer and it is accepted by Lisle. The April 16 hearing, however; is only on the temporary freeze of the funds held by Arvest. Alderman Bassett stated he and Rose met with the Lisles and basically negotiated as far as they could go. On the other hand, he and Rose negotiated only as far as they felt they could go as well. Alderman Bassett stated he has a lot of reluctance to stand mute on attorney fees. He also likes to litigate. But, there comes a time when you have to look at the whole pictureandsettle without litigation. The April 16 hearing will probably be the first of many if this case is not settled. Alderman Edens asked if the case is settled, will the money be available to make the May 15 interest payment due on the bonds in order to avoid default. Rose stated the timetable he envisions is if the Council approves the settlement offer, he hopes by Friday to take the judge an agreed order. The judge would enter the order subject to the April 12, 1993 approval of the class. He would give them approximately 2 weeks to review. If he gets no objections, the judge will enter the order. Arvest would be free to make the $1.1 million payment with the money in the Bond Reserve Fund. If the City does not settle, there is a danger the money will be frozen. There would then be an actual default. Alderman Edens stated if the Council agrees to settle, would there be a larger window of time in which to defease the bonds. Rose stated there probably would be. Capital Guaranty is the one who has the right to call the bonds. They have done this because they saw the security for the bonds, the sales tax revenue, be removed. If they have the security, which is the $33 million in bond proceeds, there is no logical reason that they would not give the City more time in which to watch the market for a more advantageous time to defease. However, there is no guarantee that they would. Alderman Edens stated he felt this was the cheapest way out to get this albatross off the back of this City. He feels the Council should take its losses and get on with running the City. He feels this is a workable offer, and he has faith in the judge that he will award a reasonable attorney fee. Alderman Bassett stated he does not know what John Lisle will ask for. It will probably be an amount a lot of people will not be happy about. However, asking and getting are two different deals. Alderman Vorsanger stated he agreed with Alderman Bassett. He asked if the administrative fee for the refund program would be coming from the $4 million. Bassett stated it would as well as the legal fees. Alderman Vorsanger stated he feels the refund amount will not be major. The City only has to refund 1% of the tax that was paid. Vorsanger asked what role the judge would have to play when he was approached with the settlement agreement. City Attorney Rose stated the judge could choose not to accept he settlement, but he is not likely to do that as long as all parties agree and the class has been given time to comment. Alderman Vorsanger stated he is willing to leave the attorney fees in the judge's hands. He assumes the judge is reasonable and will look at these in a reasonable way. He stated he appreciated Woody Bassett, Jerry Rose, and Mayor Hanna working to try and settle this, and he is in favor of the proposal. Alderman Odom commended Bassett, Rose, and Mayor Hanna, and stated he was surprised that the City was this close to a settlement on this case. Regarding the attorney fees, no one wants to pay a April 12, 1993 er;, large fee. He feels the judge will be fair on this. John Lisle took this case and won_ Alderman Odom stated .he would like for Jerry Rose to have the opportunity to argue the fee, but if this is a non-negotiable portion of the settlement, he feels the City should know when to fold.. . Alderman Odom stated he felt the risk in settling could be more than the $4 million the City has in collected but unspent sales tax. This Council was put here to make tough decisions, and this is definitely one of them. He has received several calls, and the. citizens want this case settled. • Alderman Miller asked if the change in dates of the refund period was a result of negotiation. Alderman Bassett stated that was the case. Alderman Miller asked if there was a balance remaining, was giving the money to the Quorum Court still part of the settlement. Alderman Bassett stated that was not part of the settlement proposal. Alderman Miller stated he hopes this City never gets into another bond issue, and he hopes the lessons learned with this issue are remembered for a long time. He stated he is definitely for a pay- as-you-go government. He feels the City can handle the refund program in house, but he hopes no one comes forward with a -claim. He trusts the matter of the attorney fees to the judge, and he hopes the judge has the wisdom to see that this is the taxpayers' money when he awards the fee. Alderman Miller stated he was in favor of the settlement proposal. Mayor Hanna stated this settlement is for the sales tax issue and has nothing to do with the bond issue. The sales tax was declared illegal and could not to used to pay off the bonds. Because of this, the City is in technical default. The Council will vote on how to settle this case because the Supreme Court told us to settle. Mayor Hanna stated the bond issue will have to be addressed by the Council at a later time. There will be three options when deciding on what to do with the bonds: (1) call them and pay the bondholders which would be a technical default; (2) defease the issue and preserve the City's credit rating; or (3) default on the bonds which will happen on May 15 if the sales tax case is not settled. This could end up like the incinerator issue. Mayor Hanna stated the City will not be telling the judge we agree with John Lisle about the attorney fees. The Council will only be agreeing to let Lisle make his proposal to the judge on his fees without being able to plead our side. .We will be telling the judge we may not agree, but we have agreed not to present our own figures April 12, 1993 and leave this decision in your hands and trust you to look after the interest of the taxpayers. Alderman Bassett stated on Jerry Rose's behalf and his own, the proposal on the attorney fees was at John Lisle's insistence. This is one point in the negotiations where Lisle would not yield. However, he also agreed not to appeal the judge's decision. City Attorney Rose stated Lisle would have preferred to City to agree upon an amount for the attorney fees. Instead, the City agreed to neither advocate or oppose any fee. Alderman Chapman stated one of the hardest things to predict is what a judge will do about attorney fees. That decisions is really based on the background and experience of the judge. Some judge's will listen to the arguments and decide on the fees, but others rely solely on their background. Alderman Chapman stated she felt the Council is making the best of the situation. Alderman vorsanger, seconded by Odom, made a motion to approve the settlement proposal as offered by Alderman Bassett. Upon roll call, the motion passed by a vote of 7 to 1, with Williams voting no. Mayor Hanna stated Jerry Rose will get this in proposal form and present it to John Lisle. Alderman Bassett commended City Attorney Jerry Rose stating he has done a fabulous job throughout this whole lawsuit. His work is not over. Alderman Bassett also thanked his sister, a former state securities commissioner, for her expert advice and help. Alderman Bassett stated he feels this is a good City Council who work well together on every issue, not just this one, and he feels everyone deserved a pat on the back. Mayor Hanna stated from Friday night until Sunday night, he talked with Jerry Rose numerous times, and Rose has been working hard looking out for the interest of this City. Phyllis Capital offer. approve. Rice, Northwest Arkansas Times reporter, asked if both Guaranty and Arvest have to agree with the settlement Rose stated only Arvest did, but he is sure they will Rice asked if the City Attorney's motion to compel discovery would be dropped if the settlement offer is accepted. Rose stated it would. 113 April 12, 1993 •Rice asked if there were more claims and expenses than.{the $4 million, what plans did the City have. Rose stated that would have, to be worked out at a later time. ADJOURNMENT The meeting adjourned at 8:36 p.m. 5