Board of Directors

MINUTES BOARD OF DIRECTORS MEETING MARCH 1, 2011, AT 7:00 P.M. The regular meeting of the Board of Directors was held on Tuesday, March 1, 2011, at 7:00 p.m., Board Chambers, City Hall, with Mayor Ruth Carney presiding. The invocation was given by Ms. Monette Allen, and Pledge of Allegiance to the Flag was led by Mayor Carney. Mayor Carney called the meeting to order at 7:00 p.m. 1 Roll Call Roll call was as follows: Present: Directors Peggy Maruthur, Elaine Jones, Cynthia Keheley, Pat McCabe, Karen Garcia, Tom Daniel, and Ruth Carney, total 7. 2 Approval of Agenda In regard to Item No. 13 (Request from Mr. Doug Jones Regarding Board Resolution Requesting an Interim Study to Review the Electronic Games of Skill), Director McCabe said he has reviewed the state statute on that thoroughly and asked if there is some statutory authority that allows the City to oversee the subject matter on that item. City Attorney Brian Albright advised that the regulatory authority would be the Arkansas Racing Commission, and the financial authority is the Arkansas Department of Finance and Administration. Director McCabe stated it appears that the Board of Directors is the wrong governmental body to review this, and it seems that the director of the Department of Finance and Administration has the responsibility to ensure that the funds are being audited; and the Racing Commission may have some authority. However, the Board has no authority other than to have called the election back in 2005. Based on that, he made a motion to remove Item No. 13 from the agenda. Mayor Carney asked for a clarification on that and pointed out this request is just for a study. Director McCabe questioned who is to make the study. Mayor Carney asked for a clarification from Mr. Doug Jones. Director McCabe stated that he believes this is inappropriate, and this is for the Board to discuss the agenda and not to receive testimony. Mayor Carney stressed that she is not wanting testimony but is wanting clarification for what Mr. Jones is requesting. Director McCabe pointed out this is a discussion among the Board Members as it relates to this agenda item. Mayor Carney asked for an opinion from City Attorney Brian Albright, who said he will attempt to answer any questions that is asked of him. He stated if Mayor Carney is asking whether or not the City has the authority to conduct such a study, the answer is “no.” Mayor Carney stated she is asking if Mr. Jones has a right to come before the Board and make his request. City Attorney Brian Albright advised that Mr. Jones can make a request if the Board sees fit to accept the request; but whether the Board has the authority to act on the request, he would say it could not. He added the statutory authority is granted to the Arkansas Department of Finance and Administration; therefore, a study would have to be conducted through that agency as well. However, if his request is for the City to ask for such a study, that may be a different matter. Director McCabe pointed out the request should be to the Arkansas General Assembly or directly to the Department of Finance and Administration. He mentioned over the past week, the Board has had meetings on another subject where citizens have asked the Board what part of “no: does the Board not understand as it related to the State Board of Health making comment on the water treatment facility at the southern end. Therefore, in that case, citizens are telling the Board to listen to the state agency. In this case, the Board is making the presumption that the state agency (the Department of Finance and Administration) does not know what it is doing because there are eight auditors who are on-site on a regular basis and thoroughly evaluating the operations of that organization. He stressed that the Board is not the party to receive that request, and it needs to go to the state agency; and for the Board to interject itself into something that is under their purview is inappropriate. He pointed out the wording suggests that the Board feels that it is an aggrieved party, and there has been no evidence that the Board is aggrieved. He mentioned the State receives 18 percent of the net wagering revenue so it is going to be on top of this much more so than any other entity. Director Maruthur pointed out that the Mayor is running the meeting, and the Board approved the agenda. Director McCabe noted that the agenda has not been approved, and that is what is being discussed at this time. Director Maruthur stated there was an agenda meeting, and this was approved to be on the agenda; but he has asked for it to be taken off the agenda. She mentioned that she was in front of a committee at the Capitol Building this morning as a representative from the City and 2 was given a total of 45 seconds to make her comments, and it is not a good feeling. She stated as a body, the Board might not be able to legally do anything; but an individual does have the Freedom of Speech. She said the Board cannot do anything, but it can allow Mr. Jones to speak. Mayor Carney said she did not think at this point the Board should deny a citizen a request that he has made to the Board. She stated the Board can hear the request and deny it after he has made the request. However, he has not made the official request, and the Board would be making a decision on things it does not know. She said the Board has to at least give him the right to present it and then make a decision to approve it or deny it. Director Jones asked for an opinion from City Attorney Brian Albright, who stressed that the Board does not have regulatory authority to weigh in on this. He added the Board sets the agenda tentatively at agenda meetings; and once the Board convenes into a business meeting, the roll is called, and the meeting is called to order; then the Board approves what is on the agenda. He stated a motion has been made to amend the agenda, but a second has not been made. Therefore, the discussion is a little premature. He said unless there is a second on the floor, then discussion really should not take place. He then asked if there was a second to the motion to amend the agenda by removing Item No. 13. At this time, Director Jones seconded the motion to remove Item No. 13. Mayor Carney then called for discussion on the motion to amend the agenda by removing Item No. 13. Upon discussion, Director Daniel asked if anyone else has signed to speak to this item, and Mayor Carney advised that two citizens have signed to speak. Director Daniel commented if this is an item the Board knows it cannot act upon, then he does not understand why the Board would want to let these people speak to it. Mayor Carney stated the Board does not know what Mr. Jones has requested for the Board to do yet. Director Daniel commented if it is something that does not fit within the guidelines of being able to be enacted upon that the Board knows it cannot do, then that will be it. Director Maruthur stressed she supports the right to free speech and would like to hear what his opinion is whether the Board can act on it or not. She said she believes 3 Mr. Jones should be allowed to give his opinion on something, and he signed up and went through the process. City Attorney Brian Albright advised that a motion has been made and seconded to amend the agenda by removing Item No. 13 and called for a vote on the motion; and upon roll call, the following voted “aye”: Directors Jones, Keheley, McCabe, and Daniel, total 4. Voting “no”: Directors Maruthur, Garcia, and Carney, total 3; motion carried to remove Item No. 13 from the agenda. A motion was made by Director McCabe, duly seconded by Director Jones, that the agenda be approved, as amended. Upon discussion, Director Keheley said she understood he would still be able to speak but it would not be an agenda item. City Attorney Brian Albright advised that the Board’s rules provide before moving to the next item on the agenda, a Director can change his/her vote before moving to the next item on the agenda; and if Director Keheley wished to do so, now is the time. Director Keheley commented that she will stay with how she voted. Mayor Carney then called for a vote on the motion to approve the agenda, as amended; and upon roll call, the following voted “aye”: Directors Jones, Keheley, McCabe, Garcia, and Daniel, total 5. Voting “no”: Director Maruthur and Mayor Carney, total 2; motion carried. 3 Approval of Minutes of February 15, 2011 Board Meeting A motion was made by Director Garcia, duly seconded by Director Jones, that the minutes of the February 15, 2011 Board Meeting be approved; and upon voice vote, the motion unanimously carried. 4 Recognition of Guests At this time, City Manager Lance Hudnell recognized Interim Police Chief Mike McCormick and read a Proclamation in appreciation of Captain Mike McCormick for his work as Interim Police Chief from July 1, 2010, through February 28, 2011. Board of Directors Meeting 4 March 1, 2011 at 7:00 P.M.  City Manager Lance Hudnell introduced Police Chief David Flory, who began work with the City on February 28, 2011. He then recognized the citizens committee and the Civil Service Commission members who assisted with the selection of Chief Flory: Mr. Steve Trusty; Mr. Sam Stathakis; Mr. Harriel White; Mr. Steve Oliver; Mr. Nate Newman; Mr. Jerry Thompson; Mr. Paul Bosson; and Ms. Stevie Spargo. Police Chief David Flory expressed appreciation for being able to serve the City and the citizens as Police Chief. He congratulated Captain McCormick for his job as Interim Police Chief, which has made his job easier. He said that he will make himself available to all the citizens and business owners and intends to meet with all the business owners who want to meet with him and as many residents as he can. City Manager Lance Hudnell recognized Ms. Carole Katchen, chairperson of the Arts Advisory Committee, who gave an update on the activities for the month of March. Ms. Katchen thanked the Mayor and the Board for passing a resolution creating Arts Month. She said the purpose is to make people be more aware of the art community in Hot Springs and invited all of the arts organizations in the City and surrounding area to participate in Arts Month. She mentioned there was a full page in The Sentinel-Record listing all of the activities; and there are more than 200 this month, with more than 70 of them being free. She explained this is not just drawing, painting, and sculpture but includes all of the theaters, jazz, blues, Celtic music, ballroom dance, magic, and many activities for children. She encouraged everyone to participate and support the arts in Hot Springs because it makes a tremendous difference to the community. She thanked the Board for its assistance. Director Maruthur expressed appreciation for what they have done for the community and pointed out it does cover all of the visual and performing arts. Director Garcia announced that March is Women’s History Month, and this year the theme is “Our History is Our Strength,” and pays tribute to the women in the community who help make the community a better place. She said that she had planned to recognize Ms. Eva Evans tonight; but due to the passing of her brother, she was unable to attend; and prayers and thoughts are with her and her family. She mentioned Ms. Evans was the first woman from Hot Springs to serve as the state president for Arkansas Business and Professional Women, and she helped blaze the way in helping women in the profession. She then recognized Ms. Sherri Mertz, who is the Woman of the Year for the Greater Hot Springs Chamber of Commerce, and Board of Directors Meeting 5 March 1, 2011 at 7:00 P.M. helped with the youth at Hot Springs High School. She then presented a Proclamation to Ms. Mertz proclaiming the Month of March 2011, as Women’s History Month. Mayor Carney introduced the three children who are homeschooled and read a Proclamation proclaiming March 1, 2011, as Hot Springs Area Homeschoolers Day. Mayor Carney introduced Mr. James Smith, who is with the Workforce Alliance for Growth in the Economy (W.A.G.E.). Mr. Smith stated that he represents the Arkansas Department of Career Education, Adult Education Division, and is the deputy director of that branch of the Arkansas Department of Career Education. He stated that at the National Park Community College, Becky Linsky is the director of the education program. He spoke of the importance of reading, writing and math. He said that the Workforce Alliance for Growth in the Economy is a program that was started in Arkansas, and the U. S. Department of Adult Vocational Education actually uses this format for its workplace programs that they have nationwide. He added it started with the Governor’s Commission on Adult Literacy in 1992, and basically NPCC does a literacy task analysis of the industry and finds out what the gap is between reading, writing and mathematics and the written materials that a company uses. He commented there is a problem in that because most of the materials that are written by business and industry are written by technicians, legal individuals, or by people who are well-educated; and they think because they have a high school diploma that they are functioning at the 12th grade. He pointed out if someone has not been back to school in a period of 5 to 20 years, they lose it if they do not use it. He advised there are people in the adult education programs who are in their 20's, 40's, 60's, and 80's returning to bring up their math, reading, and language skills. He mentioned there was a new release of a study by a university system nationwide that said currently 27 percent of the jobs that will come out will require a vocational certificate or possibly up to an Associate’s Degree, and that 27 percent of the people will make more than the majority of the people who come out of school with a Bachelor’s Degree. He noted that is the trades, such as a mechanic, electrician, plumber, sheetrock worker, builder; and these have all become technical. He added adult education helps part of the society that first missed out on their high school education because they dropped out of school. He reported that this second chance is paid for by the citizens of the State of Arkansas, and there is no charge for it. He said 77 percent of the people who come to adult education and stay with it will show a gain. He reported that in the last ten years, Arkansas has issued 70,019 GED’s in the State; and the economic impact is approximately $5,000 to $6,000 above a person who does not have a high school diploma and the earning capacity for every working year of their life that they worked or Board of Directors Meeting 6 March 1, 2011 at 7:00 P.M. more. He said that is almost a $1/2 billion economic impact to the State because of a program like adult education. He commented in the last 14 years, this program has issued 4,751 GED’s out of this City; and the economic impact is approximately $26 million. He pointed out they may not all live here and may not all be working here; but if that is only half of that market, it is $13 million worth of purchasing power they will have over the person who does not have a high school diploma. He mentioned in Arkansas every year, there are 10,000 students who drop out of high school; and only 7,500 GED’s were issued. He stated last year in Arkansas, 4,276 students (16 to 18 years of age) went through adult education; 19 to 24 years of age, there was over 8,300; 25 to 44 years of age, there was 13,194; 45 to 59 years of age, there was about 5,000; and over 60 years of age, there was almost 1,200. He said the number one reason people go after a GED is for self-satisfaction and to fill a void. He noted people 87 years of age have come back to earn a GED. He stressed the importance of National Park Community College and the adult education program. He pointed out if there is a business problem where there is a high turnover in employees, employee dissatisfaction, and a high waste in their program, there is some product that is not being completed correctly; and in his experience, it is education-based. He said that he may be reached at 760-4335. Mayor Carney stated if anyone is interested in the program or if there is a business that would like to have someone trained, they will train the people free. At this time, Mayor Carney introduced Mr. Doug Jones as her guest. Mr. Doug Jones distributed a packet of information to the Board and said he is concerned about the cost of a new jail being built, about the shortfall of money required by the City for the Higdon Ferry Road project, and about the expense of a new water treatment plant. He said that he wonders why Hot Springs is in the shape it is in with all that the City has going for it and believes one of the reasons is due to waste. He stated some of the contributing factors have been mismanagement of funds in the City and a global downturn in the economic structure and some entitlement programs. He stated he also believes that a contributing factor to the City’s and County’s financial problems can be attributed to the promise of a big payoff that has never shown up. He said possibly the City has allowed itself some financial fiscal liberty because the City has been promised an infusion of the money that has never come to fruition; but when it did, the City would then be able to balance things out. He added that he was referring to Board of Directors Meeting 7 March 1, 2011 at 7:00 P.M. the direct tax from the electronic games of skill at Oaklawn Jockey Club. He pointed out on September 6, 2005, the Board told the citizens of Hot Springs and painted a pretty picture of a city that would not experience the hardship that others would because of the huge infusion of tax dollars. He then read an excerpt from minutes of the September 6, 2005 Board Meeting where the following statement was made by Mr. Cella’s chief operations officer: “If this measure passes, there will be a direct tax on wagering at Oaklawn Park. The two companies they engaged (one from Boston and one from Chicago) said that the total new tax revenues to the County will be approximately $700,000; the total new tax to the City will be $2 million to $2.5 million.” He added he received a phone call last week from Mr. Don Thomason, with The Sentinel-Record, and he mentioned that it was a 1.5 percent tax from the net wagering; and he is correct that it is a 1.5 percent tax. However, the implication was made that it would be between $2 million and $2.5 million. He said he listened to the audio tape of the meeting held on September 6, 2005, and looked at some newspaper articles. One article was written by Mark Gregory, who quoted City Manager Kent Myers on September 7, 2005: “The City would receive direct revenues of 1.5 percent of the net wagering revenues from the electronic games. The projections show the City would probably generate from $1.5 million to $2.5 million per year from that percentage.” He then mentioned a letter from former Mayor Mike Bush that he sent to all City employees stating the following: “Hot Springs/Oaklawn Community Benefits Plan offers, for the first time, the opportunity for our City to collect direct tax revenues from the gaming income at Oaklawn Park. In fact, the City will receive an estimated $2.3 million in new annual revenues.” He noted in a speech given by Oaklawn Park’s general manager at a Rotary Club meeting on October 12, it states the following: “Adding this service will add 1,000 jobs and the wages earned we figure that will give the community $30 million. The increase of visitors will bring about $80 million; the total direct tax to the City will be about $2.5 million.” Mr. Jones noted that all of these comments indicate that the direct tax revenues and the games of skill would equal about $1.5 to $2.5 million and questioned where the City is five years later. He pointed out that in a spreadsheet entitled, “City of Hot Springs Revenue from Direct Tax on Games of Skill,” the EGS (Electronic Games of Skill) direct tax has failed to break the $1 million mark in the four years of full operation. Regarding what the County has received, he stated the EGS direct tax has failed to break the halfway mark for one year’s projection, and they have been in operation for four full years. He said he knows the argument can be made that it takes five years to build these benchmarks, but no one mentioned at the time when this program was being presented that it would eventually at some time produce $1.5 million to $2.5 million a year. At the current rate of growth, he noted it will be after 2021 before the direct tax on electronic games of skill breaks the $2 million mark. He Board of Directors Meeting 8 March 1, 2011 at 7:00 P.M. mentioned while it takes time to build these benchmarks, he feels like the City has felt the effects of gambling almost immediately. In the last couple of years, there has been an urgency to have a new jail; and last year, Hot Springs was ranked No. 1 in America for violent crimes in cities of this size. He pointed out that home invasion and private property theft are rising daily and questioned if this could be the result of gambling. He stressed that is the reason why the study is needed. During the 2005 benefits plan campaign, it was stated that the additional gaming would bring in out-of-state tourism. In the six months’ study that he recently did, he found that the evidence was contrary to that fact. He pointed out on Oaklawn’s website, they publish a winner’s list of the electronic games; and during part of the peak season from July 1, 2010, through December 31, 2010, he discovered the winners came from nearby communities, which would indicate so did the losers. He stated that of the 197 winners who came through that six-month period of time, 8 were out-of-state; 55 were from Hot Springs; and 66 were from a 40-mile radius of the Oaklawn Race Track. Therefore, by using the same logic, then of the 55 winners, it can be concluded that there were 2,750 losers as well. He noted the significant thing is that gambling money becomes taxable, and some is converted into payroll tax; and some is converted into supplies to go back into the venue. However, most of it goes out of state through purse winnings from the horses or through the corporate structure. He said if the statistics are true, then that means that 2,750 Hot Springs citizens have less to spend on gasoline, dining out, shopping, groceries and entertainment. Therefore, reducing the repetitive tax dollars to the City and the County. He mentioned at the September 6, 2005 Board Meeting, Hot Springs was told if it would allow the enhanced gaming, Hot Springs would gain between $1.5 million and $2.5 million in direct tax; and by the end of 2010, the City should have realized $8 million in tax money. Subtracting what Hot Springs has actually received from 2007 to 2010, it has received $960,164.26, which is a difference of $7,039,895.80. He pointed out at the last Board Meeting, a resolution was passed revising the 2011 budget by appropriating funds for certain prior year expenditures and that figure equals $7,256,281.96, which is only a difference of $216,446.16. He said it appears that the City understood it would receive $2 million, as well as the public. He stressed the revenue promised did not come through as expected, or city officials have been wasteful or mismanaged million; and millions of tax dollars or the proponents of the benefits plan deliberately crafted verbiage and inflated figures to misinform the general public in order to persuade voters to vote for the expansion of gambling. He added they benefitted the private business and not the citizens of Hot Springs. He explained there are reasons for requesting this study (1) to learn the demographic and social economic level of the EGS players; (2) review the Arkansas Welfare debit card transactions focusing on withdrawals to include transactions in both Oaklawn and Board of Directors Meeting 9 March 1, 2011 at 7:00 P.M. Southland Park, as well as those transactions within a ten-mile radius of the venues; (3) review the economic development that has resulted directly or indirectly of the passage of Act 1151, such as job creations, tourism, agri-business, and new construction, the Oaklawn Foundation for the future of Hot Springs [scholarships and center on the aging]; and (4) do a comprehensive review of the approval process of the new games of skill in the state. He commented that he or one of his associates has been at every Racing Commission meeting with the exception of a few for the last three years. On numerous occasions, he has asked the Commission to describe the skills required to play the new game that was presented to them for approval; and every time, it has been stated GOI has assured the commissioners that the game met the requirements established by Act 1151. He noted by their own admission, none of them knew what was going on, and they knew very little about the casino operations. In a quote by one of the commissioners three years ago, he says “we are learning as we go.” He said he has watched these men in action and is impressed by the fact that they are so critical when it comes to horses. They watch the movement of the horses, how the jockeys ride, how the horses run, and they measure the distance between the front hooves and the rear hooves of other horses to make sure that violations do not take place. He added they are sharp men and are concerned about the integrity of horse racing; but after five years of gaming, they are still following the recommendations of a New Jersey-based company with ties to gambling. As a regulatory commission, the same integrity in which they study the medications’ effect on the performance of a horse ought to be used to determine the skill that is required to play the games like roulette and others. He noted that he is begging the Board to request the State to do an interim study. He advised that he is fully aware of Oaklawn’s responsibility in the way they have been producing tax revenues through the City, State and County over the years just like every other business. He mentioned he was not aware of a single company or any other business whose state tax has been reduced twice in 12 years by 4.5 percent just to stay competitive in the market place. He pointed out that Oaklawn’s state tax was dropped in 1988 from 5.5 percent to 2 percent and then again in 2001 to 1 percent. He also commented that during this current legislative session, Oaklawn and Southland Park are the only two facilities in Arkansas that are considered to be excepted from the smoking ban. He said that he has been told and in the process of trying to verify that owners of winning horses do not pay local taxes here where they are required to do that in other municipalities. He advised the intent of this study is not to close down Oaklawn; and with the exception of half a dozen churches, he recognizes they are probably one of the oldest entities in Hot Springs and have a rich history in the City. He said the intent of the study is to see if Oaklawn is living up to the promises made during the campaign of 2005. He stated he believes this study to be of such Board of Directors Meeting 10 March 1, 2011 at 7:00 P.M. great importance that some have already tried to derail the City’s request to the State to make this study. As a matter of public record, he asked each of the Directors the following question: “Have you been contacted by Steve Arrison, a member of his staff, or a member of the Advertising and Promotion Commission, and asked to vote “no” on this resolution?” The Mayor and each of the Directors answered that they had not been contacted. He advised that this service will not cost the City any money, and the service will be performed by David Ferguson and the Bureau of Legislative Services. He stressed the whole intent is to find out “Is Hot Springs getting what it was told it would get during the campaign for the benefits program of 2005?” He said he is asking for this resolution from the City to the State to demonstrate the seriousness of this Board to find out if Hot Springs is benefitting from the plan that was presented in 2005. No action was taken by the Board. 5 Board of Directors Announcements Director Keheley said after consulting with the City Attorney, she would like to request that the Board call for a special meeting of the Board of Directors to discuss the water supply issues as soon as possible. She commented it is clear from the two recent meetings on the water issues, that the Arkansas Department of Health will not approve any water at the supply intake on lower Lake Hamilton below the existing facility. She expressed appreciation to City Manager Lance Hudnell for his memo and believes from the information the Board received, it was the City staff’s intent to seek a reliable source and supply of treated water at the lowest possible cost to ratepayers. She commented that staff continued to pursue the recommended program developed by Jacobs Engineering, and it was approved in the 2008 contract in spite of continued and strong opposition from the Arkansas Department of Health. She noted that as of January 31, 2011, $2,803, 271.44 has been expended including $95,219.48 on travel; and almost half of the travel expense was for airfare. She said the original project budget allocated $25,987 for regulatory agency coordination; but the City has spent $383,463 so far, which is 1,344 percent more over budget and partially just over a dispute. She commented that even though the City staff still feels that modern water treatment technology will overcome the long-standing regulations of the State Department of Health in protecting the new and existing water supply sources, she would like to recommend that the City Attorney and City Manager prepare a resolution to stop the “bleeding” and that the Board consider the termination of the contract with Jacobs Engineering at the earliest, practical date in accordance with the termination provisions of the contract; also, she suggested that the City recommend to the City Board of Directors Meeting 11 March 1, 2011 at 7:00 P.M. Manager to obtain the services by employment or by contract of a capable project manager to oversee all of the major capital water and wastewater projects. She encouraged the City Manager to establish a reporting system on all capital improvement projects to ensure that the Board and all the citizens of Hot Springs are fully aware of the progress and costs of the projects. She commented the Board should encourage the City Manager to begin a selection process for an engineering firm with its principal offices in Arkansas to provide the professional services for an expanded water supply, assess the Lakeside facility and the three city-owned lakes for expansion or replacement of treatment facilities, and to mitigate against any uncertainties or releases from Lake Ouachita. A special meeting was called for Thursday, March 3, 2011, at 6 p.m., to discuss water supply issues only. Director Maruthur expressed appreciation for those attending the meeting tonight. CONSENT AGENDA The Consent Agenda consisted of the following: 6 Public Safety Committee Report (February 15, 2011). 7 Proposed Resolution No. R-11-28 Approving Certain Bid Awards (a) Paving - Regional Wastewater Treatment Plant (Reject and Rebid). 8 Proposed Resolution No. R–11-29 Authorizing the Mayor to File a Grant Application with the Economic Development Administration (EDA) for Airport Infrastructure Development. 9 Proposed Resolution No. R-11-30 Amending Resolution No. 7347 by Revising the Amount to the Contract with Delta Airport Consultants Board of Directors Meeting 12 March 1, 2011 at 7:00 P.M.  for Rehabilitatio n and Expansion of West Apron/Aircraf t Ramp and Relocation of Taxiways A and G (Phase I). 10 Proposed Resolution No. R-11-31 Extending a Lease Agreement with Cheri Echols, Commission Agent, d.b.a. Greyhound Lines, Inc., for Office Space and Bus Stop Area at the Transportation Depot. 11 Proposed Resolution No. R-11-32 Authorizing the Mayor to Execute a Fifth Tolling Agreement Between the United States Environmental Protection Agency for Claims Under the Clean Water Act. A motion was made by Director Jones, duly seconded by Director Daniel, that the Consent Agenda be approved; and upon roll call, the following voted “aye”: Directors Maruthur, Jones, Keheley, McCabe, Garcia, Daniel, and Carney, total 7; motion unanimously carried. NEW BUSINESS 12 Proposed Resolution No. R-11-33 A resolution entitled, “A RESOLUTION ACKNOWLEDGING REPORT OF ANNUAL UTILITY RATE REVIEW BY ECONOMISTS.COM,,” was taken from the agenda and read by title only. A motion was made by Director Daniel, duly seconded by Director Keheley, that the resolution be adopted as read. Board of Directors Meeting 13 March 1, 2011 at 7:00 P.M.  Upon discussion, Mr. Steve Mallett, Deputy City Manager for Public Works and Utilities, explained that this is to accept the report of the annual review of water and wastewater rates as presented by Mr. Dan Jackson of Economists.com. In addition to establishing the rates for water and wastewater utilities systems, Ordinance No. 5735 and Ordinance No. 5736 also require that the City review the rates on an annual basis. He stated on October 19, 2010, the Board approved a contract with Economists.com for an annual service to provide services related to the analysis of various rates and fees charged by the City. He added Economists.com is a firm that has performed the analysis and recommendations related to the current rate structure based on certain sets of criteria including financial information, current and future debt, and operation and maintenance costs. This report provides the review of these and other factors that were used in developing the rates to determine if the rates as proposed remain sound. He then introduced Mr. Dan Jackson, with Economists.com, to provide a summary of the full report that the Board received last Tuesday. Mr. Dan Jackson, managing director and chief executive of Economists.com., which has been the City’s rate consultant since 2003, stated the most recent study was completed in 2009. He said his presentation is intended to cover the following topics: (1) background information on the City’s water and wastewater rates; what the City is paying; and how it compares to some of its neighbors; (2) discuss the City’s long-term rate plan, what was put into place, and what it can anticipate in the future; and (3) advise whether or not the plan remains valid at this time or whether any adjustment needs to be made. He mentioned when any kind of financial study is done, it is not a guarantee but is a prediction based on a series of reasonable assumptions. He commented the study was done in 2009, and the rate plan remains very sound; and they are not going to recommend any changes to it. However, it is also very sound policy to review rate structures on a one to two-year basis because that might result in ensuring that there will be enough revenue to cover all of the expenses, and it could also give the City the opportunity to scale back some rate adjustments if circumstances warrant. He mentioned the first question people ask when talking about water and sewer rates is: “Why do they have to go up?” He explained that one reason is due to the fact that the City tries to run its water and sewer operation like a business. Like any business, he stated it is subject to things such as inflation; the cost of everything goes up by three to four percent a year, and water business is no different. He pointed out as the provision of water and sewer service costs increase, there is no choice but to pass Board of Directors Meeting 14 March 1, 2011 at 7:00 P.M. those costs through to the ratepayers. Also, increases in other costs beyond the City’s control in providing water and sewer service include chemicals, electricity, gasoline, insurance, and workers’ compensation. He said all of those costs are going up at rates higher than inflation; and as those costs go up, the City has no choice but to recover those costs from the ratepayers. He stressed the City is not in the business to make money but is in the business to recover its costs from the ratepayers to provide that service. Another factor to consider is that environmental regulations are much more stringent today than they were five or ten years ago. When agencies, such as the Environmental Protection Agency, say the City has to have wastewater affluent that reaches a certain standard or its water lines have to have a certain design specifications to them, that is important because it protects the environment. However, it also comes at a cost; and EPA does not pay for it but makes the City pay for it. He pointed out that the increase in environmental regulations is one of the reasons why the cost of water service is increasing. As the City’s system ages, it has to replace assets; and as those assets have to be replaced, those costs have to be borne by the ratepayers as well. Regarding the current rate structure, he said in 2009, as a result of the Economists.com study, the City implemented a rate structure that is known as a conservation rate structure or an inverted block rate. For the City’s water providers, it charges a minimum monthly charge of $4.22 for the first thousand gallons of water service that they use. Above that, ratepayers pay more per thousand gallons the more water they use. If they use between 1,000 and 5,000 gallons, they pay $2.13. Between 5,000 gallons and 10,000 gallons, that rate goes up to $2.38. Between 10,000 gallons and 20,000 gallons, it goes up to $2.63. Above 20,000 gallons, it goes up to $2.88. He commented rates are higher for outside city limit customers in accordance with the higher costs, and that is typically what most cities do. He said this rate structure encourages conservation, and it means the amount of water that people need to use to live on is the water they pay the least amount for. Customers on a fixed income or retirees living alone and only using a couple of thousands gallons of water a month inside the home are paying the least amount for that. When they get above 10,000 gallons of water, they are starting to use water for discretionary purposes, such as lawn watering, car washing, etc. He noted that water is still available, but they pay more for it. He stated it is meant as a an encouragement to conserve water and has been very successful. He reported on the wastewater side, customers pay a debt service charge of $15 and a volume charge of $3.51. He said the water rates compare extremely favorably to most other cities in the State and displayed a chart comparing monthly water charges at 10,000 gallons, which is a standard amount of water used by the typical residential family, noting Hot Springs is less than many other cities in the State, including Springdale, Ft. Smith, Texarkana, Benton, Fayetteville, and Jacksonville. Board of Directors Meeting 15 March 1, 2011 at 7:00 P.M. However, Hot Springs is nominally higher than Little Rock and North Little Rock, which are substantially larger communities that share their water costs. On the wastewater side, Hot Springs is a little higher than many of the cities but is within $4 or $5 of most cities in the State. He pointed out the user of 10,000 gallons of water and sewer service pays about $55 a month before taxes, which is 40 percent below the national average. He added Hot Springs’ water is very cheap when compared to other parts of the United States, such as Arizona, Utah, and parts of Texas. He advised that the rate plan called for annual water and wastewater rate adjustments to meet the increasing costs of water service, and one of the primary components of the study was to determine whether or not the rate adjustments that were recommended are still valid or need to be revised. On the water side, they compared to what they projected in the study to what has actually occurred. On the water side, account growth has turned out to be a little less than what they projected. He said they had hoped by 2010, the recession would start to go away and that the economy would recover; however, that has not happened. He mentioned the City has seen the lowest account growth the last two years than it has seen in the last decade. However, the consumption is up and revenues have exceeded their forecast. He advised that the key assumption in the 2009 study was that the City would begin to implement its meter change-out program, and that would increase its usage; and that has turned out to be the case. He explained the City had some very old meters in the ground, and they have been under-registering, which means that people have been receiving water that has not been being charged to them. By changing out these meters and getting new meters in place, the City is getting more accurate recordings of what people are actually using; and as a result, the consumption has increased. On the wastewater side, they have noticed something very unusual in that the consumption and revenues have been about three to five percent less than forecast, but some accounts have been lost in the City. He explained that is worse than the worst-case scenario they projected in the study, and the City has actually lost about 400 accounts within the city limits in the last couple of years. Revenues are a little less than forecast but not very significant. He said the City’s accounts are about 297 less than forecast, but the City actually sold about 58 million gallons more than what was projected; and revenues were about $240,000 greater than forecast. On the wastewater side, the City has almost 500 accounts less than what was forecast, and the billing units were a little less; and revenues were about $600,000 less than what was forecast. On a combined amount, water and sewer side, the City was within about one percent of the actual forecast back in 2009. Regarding what it will cost to provide service in 2011, Mr. Jackson stated that the City’s budget is for the water utility to cost about $10,648,000; and the wastewater utility to be about $12,799,000. Revenues under the current rate plan are forecast to cover those costs. Board of Directors Meeting 16 March 1, 2011 at 7:00 P.M. He added water revenues are projected to be a little more than the costs and the wastewater revenues just a little less. He stressed that it is always important when doing financial planning to ensure to recover about two to three percent more than costs as a contingency because there is always going to be unexpected costs. He said the last thing the City would want to happen is to have an unexpected cost and not have the revenues to cover it because then tax revenues would have to be used to support the water and sewer operation. He advised that the revenues under the current plan are forecast to be adequate to fund water and wastewater expenses in 2011. He added the City just implemented a rate adjustment in January 2011, and they believe that rate adjustment is true, correct, proper, and sufficient to cover all of the costs. He said the study in 2009 recommended a five-year rate plan, and the rate plan called for a series of limited water and wastewater adjustments in each year over the next five years. In regard to the water rate plan, he stated it is forecast to remain the same in 2012. In 2013, they are forecasting a nominal increase, the same as in January 2014; and after that, the ordinance calls for annual three percent water and wastewater rate adjustments. On the wastewater side, the plan calls for another rate adjustment to go into effect in January 2012, with another adjustment in 2013, and then one in 2014, and then beyond 2014, for there to be annual three percent increases. He commented most residential ratepayers in the City use between 5,000 and 10,000 gallons of water and sewer service a month. Under this rate plan, their monthly bill, if they are a 5,000 gallon user, would go from $40.17 in January 2011 to $41.26 in January 2012. If they are a 10,0000 gallon user, their bill would go up by $1.71 from $67.51 to $69.22. The vast majority of ratepayers under this rate plan will see an annual adjustment of between $1 and $2 a month for each of the next four years. The rate adjustments are similar in 2013, 2014 and 2015. He advised that $1 to $2 a month is what this rate plan would entail for a 5,000 to 10,000 gallon user. They estimate that between 60 and 70 percent of water and sewer bills are between 5,000 and 10,000 gallons. If they are a sprinkler user and use a little more (15,000 gallons), their bill will go up a little more $45.35; and that is water only. Their bill would go up by $4.54 in 2012; it would go up by $4.99 in 2013; and then $1.65 and $1.70 each year after that. If they are a commercial business, the average commercial business uses about 30,000 gallons in a month so that means their bill would go up $6 to $7 a month. The average commercial business at 30,000 gallons pays about $175 a month for water and sewer service. That bill would go up by $7.50 in 2012; $7.00 in 2013; $5.00 in 2014; and $5.00 in 2015. He advised this does not include taxes and also does not include sanitation but is just basic water and sewer service. He explained the idea of a long-term plan like this is to get the revenues needed while to the best extent possible minimizing the impact on the ratepayers, and that is why the idea was to phase the rates in over a period of several Board of Directors Meeting 17 March 1, 2011 at 7:00 P.M. years. They project the rate plan itself is going to be sufficient not only this year but based on the information they have today, they believe it will be sufficient in 2012 and 2013. However, in 2014, there will be the annual three percent increases, and the water rates may need to be revisited. He showed a chart depicting that the revenues are okay for the next three years; but by 2015, the City probably needs to revisit that rate plan because there is some long-term capital spending that will have to be done. He pointed out once the economy recovers and growth starts to occur again, then the City might not see the need to revise the rate plan. Regarding the sewer plan, he said it looks like it is going to be good through 2018. The revenue is going up; and at this point, it looks like there will be sufficient revenue to cover all costs through 2018. He stated the most appropriate thing that cities like Hot Springs can do is look at the cost over a long-term perspective to try to make those financial decisions that will result in the most minimal impact to the ratepayers as possible, and that is what the City has done by adopting this rate plan. He advised the average water and sewer rate across the United States is going up by five to six percent every year; and in some areas of the country, it is going up by even more than that. This rate plan will result in rate adjustments that will be at or less than the national average. He stated they project that five years from now, the City’s rates will still be 30 to 40 percent below the national average; and he believes the City is doing the best it can to try to minimize the financial burden of the water and sewer rates on the ratepayers. He advised that they strongly recommend that the City continue to revisit and reevaluate this rate plan on an annual basis because if the economy recovers or some of the costs come in less than expected, then the City might have the ability to ratchet back some of these rate adjustments. He pointed out this is a good rate plan and has accomplished all of its objectives, and they strongly recommend that the City stay the course. Director Garcia said he stated in 2014 that the three percent increase may not cover the cost. She asked if he had an estimate of what percent would be needed to cover the cost; and Mr. Jackson advised if nothing changes, the City will need about a six percent water rate adjustment in 2014. At the present time, it is scheduled to be three percent. Director Garcia mentioned that the City has had some water losses and water leaks and asked if that data was used in any of this analysis. Mr. Jackson advised that it was. He added one of the primary assumptions of the study was that as the meter change-out program went into place, the City would increase its water consumption and would reduce its loss in unaccounted-for water. He pointed out there has been a lot of loss and unaccounted-for water in recent years; and the primary reason for that is usually due to under-registering meters because if the water system is losing 20 percent of its water and it is leaking out of the pipes, the streets will Board of Directors Meeting 18 March 1, 2011 at 7:00 P.M. probably be under water. However, if the City is losing that amount of water and does not see it, chances are it is due to under-registering meters. He explained that means the water is not really lost, but it is not being accounted for. He advised what was projected in the study was that the City would substantially increase its billing units as a result of the meter change-out program. He pointed out that the new meters are paying off because it is increasing the billing units, and it is ensuring that people are paying for what they are using. Director Maruthur said one of the concerns of the ratepayers is the fact that the City is imposing the fees and rates on them for their benefit; however, they did not have a say in it. She mentioned that in his opening statement, he said that the City is run like a business; but it is not. She pointed out the bottom line in a business is to make a profit, but the City wants to deliver a quality service while being good stewards of the taxpayers’ money. She pointed out the first time he gave a presentation and provided his methodology, it was basically “forever.” She added when there was a meeting at the Civic Center, it was 10-15 year projection. Then the City had to come back and redo everything. She said she wanted to make sure that is on the record because if there has to be a substantial increase, she wants to see it brought to the voters and wants to see why because it is not right to just impose fees and rates without input from the ratepayers because they are the stakeholders in the City and are the ones paying for this. Director Keheley asked if the conservation tiered rate continues, and Mr. Jackson replied that is the plan. Director McCabe commented that he talked about the need to increase rates to cover costs and questioned when he does his analysis if he reviews the appropriateness of the cost on 10,000 or 100,000 gallons produced as compared to other communities. Mr. Jackson replied that typically he does not. He explained that he is a financial analyst and is not an operator and has never run a water system. However, he can tell how much it costs to operate it. He advised that typically what they do in their studies is seek input from operators of the system as to what costs are required to run the system. He advised from what he has seen of the City’s system over the last eight years, it is a very efficiently run system; and he believes the fact that the rates being 40 percent below the state average is partly due to geography and being blessed by living in an area that has greater supplies of water than other parts of the country. However, he believes it is also due to the efficiency in operation. He said he believes if the City did an extensive operations review, it would come out favorably to a Board of Directors Meeting 19 March 1, 2011 at 7:00 P.M. lot of its competitors. Director McCabe commented with the new meters, which are registering more water, the costs per gallon will go down; and Mr. Jackson replied that the City might see more of that in the future. Mayor Carney then called for a vote on the motion to adopt; and upon roll call, the following voted “aye”: Directors Maruthur, Jones, Keheley, McCabe, Garcia, Daniel, and Carney, total 7; motion unanimously carried. Whereupon the resolution was declared adopted. 13 Request from Mr. Doug Jones Regarding Board Resolution Requesting an Interim Study to Review the Electronic Games of Skill (Considered under Recognition of Guests) 14 Proposed Resolution No. R-11-34 A resolution entitled, “A RESOLUTION AUTHORIZING REVISIONS TO THE 2010 AND 2011 BUDGETS,” was taken from the agenda and read by title only. A motion was made by Director Daniel, duly seconded by Director Jones, that the resolution be adopted as read. Upon discussion, Finance Director Dorethea Yates stated these are the budget adjustments for the year 2010. She explained each year in January and February of the succeeding year, the Finance Department begins closing out the year and has been working on the year 2010. She said invariably there are some adjustments that need to be made to the budget, and she appears before the Board every year asking for approval of these budget adjustments. She advised there are some adjustments for bad debt expense, and there are a number of adjustments in stormwater, sanitation, and wastewater system. She stated after these bad debt expenses have been calculated for the year, the bad debt is still below two percent for all of the utilities. She noted there are also some adjustments for depreciation and another adjustment for the Employee Wellness Fund. She said that she is asking to close out the major capital projects fund at the end of 2010 and move that into the General Fund. She advised there is $117,000 that is for Park grants that the City has already committed on, and she is asking to make those adjustments in the 2011 Budget to reflect that. She added these grants and dollars have already been approved, and this is just a “housekeeping” matter by the Board. She mentioned authorization for this is in the Financial Management Policies of the City. Board of Directors Meeting 20 March 1, 2011 at 7:00 P.M.  Director Garcia pointed out this is zero impact. Mayor Carney then called for a vote on the motion to adopt; and upon roll call, the following voted “aye”: Directors Maruthur, Jones, Keheley, McCabe, Garcia, Daniel, and Carney, total 7; motion unanimously carried. Whereupon the resolution was declared adopted. 15 Proposed Ordinance No. O-11-4 An ordinance entitled, “AN ORDINANCE AMENDING SECTION 1 OF ORDINANCE NO. 5797 (REZONING 6.02 ACRES IN THE 1800 BLOCK OF HIGDON FERRY ROAD FROM R-1, RURAL RESIDENTIAL, TO C-4, REGIONAL COMMERCIAL OPEN DISPLAY DISTRICT) BY CORRECTING LEGAL DESCRIPTION THEREIN,” was taken from the agenda for consideration. A motion was made by Director Daniel, duly seconded by Director Garcia, that the rules be suspended and the ordinance be read for the first time by title only; and upon voice vote, the motion unanimously carried. The ordinance was then read for the first time by title only; and upon the question “Shall the ordinance be adopted as read?” and upon motion of Director Jones, duly seconded by Director Keheley, that the ordinance be adopted as read. Upon discussion, Ms. Kathy Sellman, Planning and Development Director, advised this is a corrected ordinance; and it contains a line that was missing from the original ordinance that the Board adopted on November 23, 2010. She added the error left out a portion of the legal description. Mayor Carney then called for a vote on the motion to adopt; and upon roll call, the following voted “aye”: Directors Maruthur, Jones, Keheley, McCabe, Garcia, Daniel, and Carney, total 7; motion unanimously carried. Whereupon the ordinance was declared adopted. OTHER BUSINESS 16 Board of Directors Items for Discussion Board of Directors Meeting 21 March 1, 2011 at 7:00 P.M.  Director Garcia said she is working on a resolution to strengthen the administrative policies regarding contracts and contract invoice payments and would like it completed to be on the agenda setting meeting next week. She expressed appreciation to Interim Police Chief Mike McCormick, Captain Rick Norris, and Mr. Denny McPhate, Public Works Operation Director, for addressing Cal Foreman’s and other citizens’ issues in the Pakis Street area. She said there have seen significant improvements due to their addressing some issues at that location. She reported the Garland County Single-Parent Scholarship Fund Committee is hosting a style show for scholarships next Monday at 12 noon at the Forest Lakes Club House, and all proceeds benefit scholarships for single parents to help them move out of poverty and become self-sufficient through furthering their education. Also, tomorrow the traffic light at Twin Points and Higdon Ferry is scheduled to be turned on. 17 City Manager’s Report City Manager Lance Hudnell gave the following report: 1. There will be a reception honoring Police Chief David Flory on March 3 at the Greater Hot Springs Chamber of Commerce from 4:30 p.m. to 6:00 p.m.; and he expressed appreciation to the Chamber for hosting that since the City cannot expend funds on that type of function. 2. There are packets of applications that have been distributed; and in accordance with the Board’s procedure, at the next agenda meeting, there will be an executive session to discuss those and then determine the nominees for placement on the March 15 Board Meeting for an actual vote. 3. In accordance with Ordinance No. 4532, he is intending tomorrow to declare an emergency regarding a contract with Mid-Ark Roofing in the amount of $26,143. He noted the City has insurance on this building; and during the February 24 storm, the chlorine building at the Regional Wastewater Treatment Plant incurred a significant amount of roof damage. This was reported to the Arkansas Municipal League as the City’s insurance provider. They have assessed it and are recommending a bid award to Mid-Ark Roofing in the amount of $26,143. The City’s share of that will be $5,000; and the rest of it will be covered by insurance. He stressed that it is imperative to get that roof repaired immediately since it is over the chlorine building. He will issue a Certificate; and this will be on the next agenda because in accordance with the City’s Board of Directors Meeting 22 March 1, 2011 at 7:00 P.M. procedures, he can authorize expenditure. However, the Board has to, after the fact, approve it. 4. There has been a lot of discussion with regard to the Water Treatment Plant, and he then read a memo that he prepared addressed to the Board, in which he said that he took full responsibility for not providing all of the documentation regarding deliberations on a new water treatment facility to the Board in a more timely and effective manner. 5. Regarding an engineering study on the EDA grant, Airport Director George Downie distributed that tonight; and the City is still working on that project; but there was a resolution on the agenda to proceed forward. However, it may not happen. 6. There will be a short presentation immediately following the meeting regarding media relations presentation by Public Information Officer Terry Payne. 18 ADJOURNMENT There being no further business to come before the Board, a motion was made by Director Maruthur, duly seconded by Director Jones, that the meeting be adjourned; and upon voice vote, the motion unanimously carried. The meeting adjourned at 8:40 p.m., to meet again on Tuesday, March 15, 2011, at 7:00 p.m. ATTEST: _____________________ APPROVED:__________________ Lance Spicer, City Clerk Ruth Carney, Mayor Board of Directors Meeting 23 March 1, 2011 at 7:00 P.M.