Alexander officials have had to find a different funding path to fulfill their dream of buying a new firetruck. When trying to process the loan, that was approved during a previous special meeting, they learned Arkansas' five-year loan maximum is still in effect.
During a special meeting held June 5 the Alexander City Council, after a tie-breaking vote by Mayor Crystal Herrmann, approved the purchase of a new firetruck through the use of a ten-year loan. According to sources, when attempting to process the loan with Government Capital Corporation, city officials were told Arkansas only allows a maximum of five years on loans. Those who voted "Yes" were relying on a rumor the Arkansas Legislature had recently increased it to ten-years.
Counties and municipalities are limited to a maximum of five-years for loans under Amendment-78 of the Arkansas Constitution. The attempt now is to purchase the firetruck using Amendment-65, which allows the use of a secured revenue bond or lease.
Jim Templeton, from First Security Bank, explained the process to acquire a secured revenue bond or lease. The City of Alexander has all of its accounts with First Security Bank.
"You've got Amendment 78 and you have Amendment 65," Templeton said. "Seventy-Eight financing allows anything for five years or less. If you want to go longer on your financing, you have to go with Amendment 65."
"It's a revenue bond or lease. It can be worded either way," Templeton continued. "And, it just has to have a pledge to secure payment to go out further than five years."
Templeton explained how any funding source can be used as security except taxes. Franchise fees are one option.
"You have a franchise fees [sic] that you get $105,000 a year. You can pledge those," Templeton said. "You don't have to use them because you already have the money that you can pay for (it), the yearly note on the fire truck and the fire department's budget. But to extend it (the loan) out longer than five years, you have to make that pledge. To do that, you just need to make an ordinance, (or) a referendum."
During the special meeting held June 5, McCormick laid out how the firetruck will be financed. Most of the funding for the payments will come from a combination of annual ACT 833 funds and savings from not having to repair old firetrucks. Funding for the ACT 833 program is provided annually by the State to allow fire departments to buy needed equipment.
"Between 2020 and 2022, we spent $252,000.00 on general maintenance of our firetrucks," McCormick said at the June 5 meeting. "Just last year, we spent $135,000, ... on just maintenance and trying to keep our firetrucks moving."
"The city of Alexander Fire Department receives (ACT) 833 money every year and adds up to $26,754.00," McCormick said. "If you subtract that from the $74,000 payment a year, that adds basically $48,680 left for what we owe off of the fire department."
McCormick also planned to take money received from selling the two oldest firetrucks and put that towards the purchase of the new truck. One truck has already been sold.
"Also, we were able to sell one of our fire trucks that we have this past week that brought in $90,000," McCormick said at the regular June 19 meeting. "$81,000 of that is going to go on a down payment to the fire truck, the new fire truck."
"So, basically in the long run, we're still paying $582,000 for the fire truck," he continued. "We're paying, we're financing $501,000 for the fire truck."
When asked by Council Member Harold Timmerman why only $81,000 of the $90,000 is being used on the down payment, McCormick explained the missing $9,000 was the 10-percent fee paid to sell the truck through a dealer.
Templeton said Amendment 65 allows for the funding of capital improvements. Council Member Joy Gray questioned calling a firetruck a capital improvement.
"[C]apital improvement tends to be fixed things and things that are attached to those fixed things, not cars, trucks, things like that," Gray said. "So because I work in the state and I have done capital improvement stuff, for me, a truck is an asset. As opposed to a capital improvement."
"I don't want on the back end, Leg Audit (Arkansas Division of Legislative Audit) coming in and being like, 'This isn't a capital improvement, this is an asset,'" Gray said.
"That's what Amendment 65 is all about," Templeton replied.
Under "2020 Arkansas Code Title 19 - Public Finance Chapter 9 - Public Obligations Subchapter 6 - Revenue Bond Act of 1987 - 19-9-604 Definitions," Part (C); legal purchases under this financing option includes, "Any furnishings, machinery, vehicles, apparatus, or equipment for any public betterment or improvement, which shall include, without limiting the generality of the foregoing, the following: ... (iv) Firefighting facilities and apparatus."
Council members received a quick lesson in the process needed to establish a revenue bond. The explanation mirrored Arkansas Code § 19-9-607 (2020), which in part states;
"(a) No proclamation, order, or ordinance prescribed by § 19-9-606 shall be entered by a governing body until the governing body, the governmental unit, or the delegate of either shall have conducted a public hearing, ... (2) or; In the case of a city or county issuing bonds, within the city or county."
"(b) At least ten (10) days before the date set for the public hearing, notice of the hearing shall be published one (1) time in a newspaper of general circulation: (1) In the locality to be affected."
"(c) The notice shall: (1) Contain a general description of the purpose or purposes for which the bonds are to be issued; (2) Contain the maximum principal amount of the bonds; and (3) State the date, time, and place of the public hearing."
The resolution, approved at the June 19 regular council meeting, only agrees to purchase the fire truck, "(B)y entering into a Lease Purchase Agreement with First Security Bank for $501,000 at an interest rate of 5.95% per annum for a term of ten (10) years." It does not establish the revenue bonds needed to finance the, "Lease Purchase Agreement."
Voting "Yes" to adopt the resolution were Joy Gray, Angela Griffin, Joe Pollard, Mitchell W. Smith, Tony Staton, Gina R Thomas. Voting "No" were Harold Timmerman and Juanita Wilson.
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