Moving forward: BV council OKs bond issue for city projects
The Berryville City Council will be issuing bonds to finance capital improvements in the city and the rural water project.
The council met at a special meeting on Wednesday, Aug. 30, to approve ordinances allowing the issuance of the sales and use tax bonds and the water and sewer revenue bonds.
The council first voted to approve Ordinance 1019 on its first reading, authorizing the issuance of sales and use tax bonds in order to finance capital improvements and pledging a half-cent sales and use tax to pay the principal and interest on the bonds.
The council then voted to suspend the rules and adopt an emergency clause, passing Ordinance 1019 on its second and third readings by title only.
Berryville voters voted in favor of extending the city’s half-cent sales tax in a special election on Tuesday, July 11, moving the sales tax’s expiration date from Sept. 30, 2020 to Sept. 30, 2030. Mayor Tim McKinney said the city will be using the funding generated by the sales tax for city projects such as the Freeman Avenue extension, the new soccer fields and improvements to the sidewalks around the Public Square.
After approving Ordinance 1019, the council held a public hearing on the water and sewer revenue bonds, which will be used to finance the construction of extensions and
improvements to the water facilities of Berryville as part of the rural water project.
The project will add approximately 41 miles of water line into the future growth area outside of Berryville, and these water lines will serve residents who have previously relied on wells or other independent water sources. The $8.8 million project is being funded in part by a $2.75 million grant from the Arkansas Natural Resources Commission (ANRC) and a $1.68 million loan resolution with the United State Department of Agriculture (USDA). McKinney said the rest of the project will be paid for through other grants.
The city’s bond attorney, Michael Moyers of Friday, Eldridge and Clark, LLP, explained that the water and sewer revenue bonds will be purchased by the USDA through its $1.68 million loan resolution with the city,
“This will be different than most public issues you’ve been involved with,” Moyers said. “On a monthly basis, the city is going to be required to fund up a debt service reserve that will go along with your monthly payments to USDA. You will be required to fund up the debt service reserve until it’s at $71,412.”
The city will also be required to set up a new depreciation fund in the amount of $6,766 each month, he said, while the bond issue is outstanding. The big question, he said, is whether USDA will require the city to get interim financing for the construction period of the rural water project.
“I have asked USDA for a definitive answer and have not heard back from them yet,” Moyers said. “With one this size at $1.6 million, I assume the answer is going to be ‘yes.’ ”
To get interim financing, he said the city will have to go through a local bank or other avenue to borrow the $1.6 million during the construction period.
“This is a mandate from Washington so that the USDA local offices do not incur the construction risks anymore,” Moyers said. “They do not want to loan you the money during the construction period. They want the water improvement to be up and running by the time they have real skin in the game.”
While the USDA will commit to providing permanent financing after construction is completed, he said it will most likely be the city’s responsibility to find its own interim financing during that period.
“Will they do this interim loan when we’ve spent the $1.6 million, or do they want the project up and running before then?” McKinney asked. “This is almost a $9.5 million project, and it could be a three-year construction period.”
“Usually, it’s a two-year period, so, even if the entire project is not up and running, they would probably go ahead and take the interim financing out once that money is gone,” Moyers said. “They want you to spend all of the loan money, that $1.6 million, before they give you any of the grant money. Before you get any of the $7 million worth of grant money, they want you to spend the money that you’re actually going to be paying back.”
“So once we’ve spent that money, we can get the money from them to pay off the local bank?” McKinney asked.
“Right,” Moyers said.
He said he would be communicating with USDA further to determine exactly how the interim financing will have to be structured.
Once the public hearing had concluded, the council voted to pass Ordinance 1020 on its first reading, authorizing the construction of extensions, betterments and improvements to the water facilities of the city and authorizing the issuance if water and sewer revenue bonds in order to finance the cost of construction.
The council then voted to suspend the rules and adopt an emergency clause, approving Ordinance 1020 on its second and third readings by title only.
The council’s next regular meeting is scheduled for 6 p.m. Tuesday, Sept. 5, at City Hall.