story by Michael Tilley
mtilley@thecitywire.com
An historical change in who handles the bulk of city of Fort Smith bond issuances was approved Tuesday (Aug. 4) by the Fort Smith Board of Directors, with Little Rock-based Stephens Inc. now sharing underwriting duties with Raymond James.
Stephens for decades has carried all the underwriting duties or was responsible for “running the book” on bond sales. City Director and Vice Mayor Kevin Settle has lobbied to bring what he says is more competition to the process. Settle proposed a plan that moves the split from 80/20 on bond sales in Stephens’ favor to a 505/50 split between Stephens and Raymond James.
At stake could be millions in revenue for bond traders as Fort Smith works to meet a $480 million order prescribed in an agreement with the U.S. Department of Justice and U.S. Environmental Protection Agency. The estimated $480 million includes $375 million capital costs and $104 million in additional operations and maintenance expenses. While the proposed settlement between the city and the DOJ is complex, the primary purpose of action is to increase capacity to eliminate wet weather overflows and fix defects to eliminate dry weather overflows. The agreement gives the city 12 years to invest the needed funds and do the work to bring the sewer system into compliance.
Ron Pyle, a managing director out of Little Rock for Raymond James, said he has “great respect for Stephens,” and is not interested in replacing them but is asking to be an equal partner so the city can “benefit from the services” of two strong companies. Terry Gallamore, who runs the Fort Smith office for Raymond James, pitched what the office and its employees do for the area. The company has 18 employees in Fort Smith office handling more than 3,200 retail accounts.
Raymond James brought in a top exec to help sell the new split. John Carson, president of Raymond James Financial Inc. who is based in St. Petersburg, Fla., and Memphis, attended the board meeting. Carson, a master’s graduate of the Harvard Business School, said it’s in the city’s best interest to have true competition, and a “de facto bar of 20%” discourages that.
Dennis Hunt, executive vice president with Stephens who works in the company’s Fayetteville office, said Raymond James is a good company but he and Stephens have several decades of history with the city funding water and sewer system improvements.
“We may not be the best in St. Petersburg, Florida, and we may not be the best in Memphis Tennessee … but we are the best in Arkansas,” Hunt told the Board, adding that his work on the previous bonding of city water and sewer systems “gives me a unique historical perspective.”
Hunt also reminded the Board that Stephens has a presence in the city and has supported and continues to support numerous non-profits. He noted that Arkansas Oklahoma Gas Corp. and Stephens Productions, both based in Fort Smith, are Stephens’ subsidiaries.
“We are here when there is not a bond issue, and I think that’s important,” Hunt said.
There was a brief Board discussion between Pyle and Hunt about a bond issue in 2011 during which it appeared Raymond James was unwilling to support full sale of the bonds in the same manner as had Stephens. Pyle said it was “a disagreement over about 985 bonds” and he met later with former City Administrator Ray Gosack to explain that Raymond James would have bought more but was blocked because of the disagreement with Stephens.
“I gave him my word that it will never happen again,” Pyle said of his conversation with Gosack.
City Director André Good said he is “leery of changing anything right now” as the city enters the consent order to fix the sewer system. City Director George Catsavis also said he was not comfortable with changing how the bond underwriting is handled. In responding to a question from City Director Keith Lau, Acting City Administrator Jeff Dingman said “from my perspective it certainly is a comfort factor in proceeding” with Stephens at 80%. Jennifer Walker, deputy finance director for Fort Smith, also supported keeping Stephens at 80%.
“Now doesn’t seem like, to me, the right time to change,” Walker told the Board. “We already have a lot of change we are dealing with.”
But City Director Settle shot back, saying he sees no problem with the city having a “fair and equitable” split. He said having the two strong companies could help in the city’s “uncharted territory” of abiding by the consent decree, adding that the Board and staff will “need every resource we can” to keep citizen costs as low as possible.
He also noted that the city of Rogers in Northwest Arkansas uses a 50/50 between Stephens and Raymond James.
“Change is hard … but sometimes it is necessary to get better,” Settle said.
Eventually, Settle would move for approval of the 50/50 split, and City Director Tracy Pennartz seconded. The motion passed 4-3, with Catsavis voting for the motion even though he earlier said he was not comfortable with changing Stephens’ lead underwriting role. Directors Good, Don Hutchings and Lau voted against the 50/50 split.
“I think that this is a very volatile time for the city in terms of the consent decree and in terms of its financing,” Hunt said after the vote. “However, we will continue to work with the city as we always have.”
The Board also voted 7-0 to confirm Jeff Dingman as acting city administrator.