MuskogeePhoenix.com, Muskogee, OK

Local News

September 25, 2013

Finance for flood projects on hold

Questions about tax-exempt status for bond force adjustment

Securing a finance package to fund construction of two flood control projects was put on hold after questions arose about the tax-exempt status of the $3.75 million bond proposal.

City councilors were expected to take up the issue Monday. Before that could happen, the city’s agents tasked with securing that package realized obligations approved earlier this year undermined their ability to issue the bond as a qualified tax-exempt obligation.

Interim City Manager Roy Tucker said issuing the bond as a taxable instrument may have a slight impact on any finance package presented for consideration. That impact, Tucker said, likely would include “a slight increase on the interest rates.”

“I certainly don’t think it would be anything substantial — maybe half of a percentage point,” Tucker said. “They came last night with a 2.1 percent proposal, and they had anticipated 2.5 percent. This is definitely not anything that would derail our plans.”

Tucker said municipalities are able to issue bonds up to $10 million annually on a tax-exempt basis, meaning investors would pay no taxes on their returns. A general obligation bond worth up to $16.7 million issued earlier this by the Muskogee Industrial Trust cut in to that $10 million allotment.

That bond was issued to help kick-start several projects approved by voters in May for Muskogee Public Schools as part of a $47.5 million school bond package. Revenue from that bond and a $2 million transportation bond will be used to pay off the note issued by the Muskogee Industrial Trust.

“None of us anticipated the industrial trust obligations would have impacted our ability to issue tax-exempt bonds,” Tucker said. “There are differing opinions on this, with the minority view holding it would not. But the majority — and more conservative — view believes it does, and that is what we are going with.”

Tucker said the city’s financial adviser and bond counsel will shop the finance package this week as one without a tax advantage. They are expected to present those proposals Tuesday during special meetings of the Muskogee Municipal Authority and City Council.

The finance package is being sought to hasten construction of the second of two flood control projects on the city’s east side. Flooding problems began to crop up in that area during the late 1980s and early ’90s with the widening of York Street and the commercial and residential development that followed.

The two stormwater control projects are part of a comprehensive drainage plan designed to catch, collect and regulate stormwater runoff. Once the runoff is collected in the detention basins, stormwater flows out through smaller pipes that reduce the risks of downstream flooding.

Public Works Director Mike Stewart said earlier this year the two projects not only will prevent flooding, they could open up properties for infill development. Work recently began on the first of two detention basins planned to alleviate flooding in east-side neighborhoods.

The $1.22 million Chandler Road detention basin is being built on an 11-acre tract southeast of the York Street and Chandler Road intersection. The second project, which is expected to cost from $2.3 million to $2.7 million, will include the construction of a detention basin on a five-acre tract between Anthony Street and David Lane near Elliot Street.

Both projects are being funded from revenues generated by impervious surface and stormwater fees assessed to address drainage problems and similar issues. Stewart said the second project could be delayed for some time if officials are unable to assemble a finance package.

The fee generates about $396,000 a year. That amount is expected to rise to about $1.1 million annually in January when the graduated fee caps out.

Reach D.E. Smoot at (918) 684-2901 or dsmoot@muskogeephoenix.com.

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