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Ordinance No. 2018-07

An Ordinance Authorizing The Construction Of Improvements To The Water System Of The City Of Portland, Arkansas; Authorizing The Issuance Of A Water Improvement Revenue Bond, Series 2019 In The Principal Amount Of Not To Exceed $1,085,000; For The Purpose Of Providing For The Construction Of Extensions And Improvements To The Water Treatment, Storage And Transmission System For The City Of Portland, Arkansas; Providing For The Payment Of Principal And Interest On The Bond; Providing FOr A Debt Service Reserve; Providing For A Short-Lived Asset Replacement Reserve; Authorizing The Issuance Of An Interim Certificate Of Indebtedness Pending Issuance Of The Definitive Bonds; Describing Other Matters Relating Thereto; And Declaring An Emergency.

WHEREAS, the City Council of the City of Portland, Arkansas (herein sometimes referred to as the “Council”) has previously determined that there is an immediate need to provide for the construction of extensions and improvements to the water treatment plant, storage tanks, and water transmission system (the “System”) for the City of Portland (the “City”), and has caused to be filed with the Recorder-Treasurer by a duly qualified engineer, chosen by the Council, plans and specifications and an estimate of the cost of constructing the improvements; and

WHEREAS, the costs of providing for the construction of improvements to the System, more specifically described as refurbishment of the City’s Water Treatment Plant, additions and improvements to the City’s water storage facilities, development of extensions to the City’s water transmission System, and related improvements (together, the “Improvements”), will be the sum of not to exceed $1,936,000 for System Improvements, including engineering, legal costs, and other expenses incidental to the issuance of the bonds hereinafter authorized; and

WHEREAS, the total estimated cost of the construction, including funds obtained as loans or grants from agencies of the United States of America, is approximately $1,936,000; and

WHEREAS, it is necessary to defray the cost of the construction of the Improvements, as above recited, by obtaining loans made, or insured, by the United States of America in accordance with the applicable provisions of the Consolidated Farm and Rural Development Act of 1972, it being determined that the City of Portland is unable to obtain sufficient credit elsewhere to finance the construction of the Improvements, taking into consideration prevailing private and comparative rates and terms currently available; and

WHEREAS, the City is authorized under Act 131 of the Acts of the General Assembly of Arkansas of the year 1933, as amended, (the “Act”) to issue and sell revenue bonds for the purpose of financing in part the cost of constructing the Improvements, including printing, legal and other expenses incident to the issuance of the bond or bonds; and

WHEREAS, the City has entered into a Loan Agreement with the United States of America, whereby the United States of America has committed to purchase up to $1,085,000 in principal amount of the City’s water improvement revenue bond (hereinafter the “Series 2019 Bond”) at the lower of the prevailing Rural Development interest rate at the time of loan approval (2.75%) per annum or the prevailing Rural Development interest rate at the time the bond is issued, and pursuant to the Act the City is authorized

to accept the offer and sell the Series 2019 Bond to the United States of America (the “Federal Government”); and

WHEREAS, to secure funds necessary to finance the construction of Improvements to the System and the engineering, legal and other costs incidental to the issuance of the Bond for these purposes, the Council has determined to issue the Bond hereinafter authorized, to be payable solely from the net revenues of the System of the City.

Now, Therefore, Be It Ordained By The City Council Of The City Of Portland, Arkansas:

Section 1. That the Improvements to the System be constructed in accordance with the plans hereinbefore referred to, and for defraying the costs thereof, to obtain such financial assistance as is available by loans, made or insured by the United States of America, acting by and through the United States Department of Agriculture.

Section 2. (a) That the offer of The Citizens Bank, Monticello, Arkansas (the “Purchaser”) of par for $1,085,000 in principal amount of interim certificate of indebtedness bearing interest at the rate of the Wall Street Journal Prime Rate, less .50% per annum, for a term of one (1) year (the “Interim Certificate of Indebtedness”) is hereby accepted, and the Interim Certificate of Indebtedness is hereby sold to the Purchaser. For purposes of this Ordinance, the Wall Street Journal Prime Rate is the rate of interest equal to the highest rate published in the “Money Rates” section of The Wall Street Journal as the Prime Rate two (2) days prior to the issuance of the Interim Certificate of Indebtedness.

(b) That the offer of the United States of America, of par for $1,085,000 in principal amount of the Series 2019 Bond, bearing interest at the lower of the prevailing Rural Development interest rate at the time of loan approval (2.75%) per annum or the prevailing Rural Development interest rate at the time the Series 2019 Bond is issued, is hereby accepted and the Series 2019 Bond is hereby sold to the United States of America.

Section 3. That the City Council hereby finds and declares that the period of usefulness of the System, after completion of the Improvements, will be more than forty (40) years.

Section 4. That under the authority of the Constitution and laws of the State of Arkansas, including particularly Act 131 of 1933, as amended, (Ark. Code Ann. § 14-234-201, et seq.) and applicable decisions of the Arkansas Supreme Court, including particularly City of Harrison v. Braswell, 209 Ark. 1094, 194 S.W.2d 12 (1946), the City of Portland is hereby authorized to borrow from the United States of America the sum of One Million Eighty-Five Thousand Dollars ($1,085,000) and issue as evidence therefor a “Water Improvement Revenue Bond, Series 2019 “ in the principal amount of not to exceed $1,085,000. The Bond shall bear interest at the lower of the prevailing Rural Development interest rate at the time of loan approval (2.75%) per annum, or the prevailing Rural Development interest rate at the time the Series 2019 Bond is issued, with principal and interest payable in monthly amortized installments of $3,733 for the Series 2019 Bond, commencing in the first (1st) month from the date of the Series 2019 Bond, and monthly thereafter on the same day (provided, however, that if the Series 2019 Bond is dated on the 29th, 30th of 31st day of any month, the monthly payments shall be made on the 28th day of each month), until the face amount of the Series 2019 Bond, plus interest thereon, is fully paid, except that the final payment of the entire indebtedness, if not paid sooner, shall be due and payable forty (40) years from the date of the Series 2019 Bond, subject to prepayment prior to maturity as provided in the face of the Series 2019 Bond. The Interim Certificate of Indebtedness shall be dated as of the date of delivery, otherwise, the Series 2019 Bond shall be dated as of the date of its delivery, and the maturity thereof shall be not more than forty (40) years. The Series 2019 Bond shall be issued in the form of a single typewritten bond, registered as to principal and interest, payable to the registered owner, or assignee, as set forth hereinafter in the permanent bond form, and shall be numbered R-1.

Payment of principal and interest shall be by check or draft mailed to the registered owner thereof, without presentation or surrender of the bond (except upon final payment) and such payments shall discharge the obligation of the City to the extent thereof. The Recorder-Treasurer shall keep a payment record and make proper notations thereon of all payments of principal and interest.

Payment of principal and interest shall be in any coin or currency of the United States of America which, on the respective dates of payment, is legal tender for the payment of public and private debts. When the principal of and interest on any bond has been fully paid, the bond shall be canceled and delivered to the Recorder-Treasurer.

The Series 2019 Bond, together with the interest thereon, shall be payable solely from the income and revenue to be derived from the operation of the System of the City, subject to the pledge in favor of all other principal of future bonds, if any, which may be issued on a parity with the Series 2019 Bond, and shall be a valid claim of the holder thereof only against said funds, a sufficient portion of which is hereby pledged and mortgaged for the payment of the Series 2019 Bond, and shall be used for no other purpose, except as hereinafter set out. The Series 2019 Bond shall contain a recital that it is issued pursuant to Act 131 of the General Assembly of Arkansas of the year 1933, as amended.

Pending the preparation and delivery of the permanent and definitive bond hereinabove authorized, the Interim Certificate of Indebtedness, in the aggregate principal amount of the bond, will be issued for the purpose of providing construction funds immediately and in anticipation of the issuance of such permanent and definitive bond. The Interim Certificate of Indebtedness shall be in the principal amount of $1,085,000, shall be dated the day of delivery, shall bear interest at the rate, and be payable all as set forth in the form of the Interim Certificate of Indebtedness set forth in Section 5 hereof. Upon delivery of the permanent and definitive bond, the Interim Certificate of Indebtedness, to the extent then outstanding, with accrued interest, shall be exchanged for, or paid from the proceeds of, the permanent and definitive bond.

Section 5. The Series 2019 Bond and the Interim Certificate of Indebtedness shall be signed by the Mayor and Recorder-Treasurer and sealed with the corporate seal of the City. The Series 2019 Bond and the Interim Certificate of Indebtedness are not general obligations of the City but a special obligation, the principal and interest of which is secured by a first priority pledge of and is payable from revenues derived from the System. The Series 2019 Bond and the Interim Certificate of Indebtedness, and interest thereon, shall not constitute an indebtedness of the City within any statutory or constitutional limitation. The Series 2019 Bond and the Interim Certificate of Indebtedness shall be in substantially the following form:

(FORM OF SERIES 2019 BOND)

UNITED STATES OF AMERICA

STATE OF ARKANSAS

COUNTY OF ASHLEY

CITY OF PORTLAND

SERIES 2019

No. R-1               $1,085,000.00

Dated Date: _______________, 2019

____% WATER IMPROVEMENT REVENUE BOND, SERIES 2019

KNOW ALL MEN BY THESE PRESENTS:

That the City of Portland (hereinafter called the “City”), in the County of Ashley, and State of Arkansas, hereby acknowledges itself to owe, and for value received, promises to pay to the registered owner hereof, but solely from the special fund provided therefor as hereinafter set forth, the principal sum of

ONE MILLION EIGHTY-FIVE THOUSAND DOLLARS

($1,085,000)

(or the total principal amount outstanding as reflected

by the Record of Payment of Advances attached hereto)

plus interest on the unpaid balance of the aggregate principal sum at the rate of (_______%) per annum from the date of each advance. The principal and interest shall be payable in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of debts due the United States of America and shall be payable in the following installments on or before the following dates: commencing one (1) month from the Dated Date of this Bond, equal consecutive monthly amortized payments of principal and interest of $______________, and monthly thereafter on same of each month (provided, however, that if this Bond is dated on the 29th, 30th of 31st day of any month, the monthly payments shall be made on the 28th day of each month), until principal and interest are fully paid, except that the final installment on the entire indebtedness evidenced hereby, if not sooner paid, shall be due and payable forty (40) years from the date of this bond.

Payment of the principal and interest installments due hereon shall be made, except for final payment, without presentation and surrender of this bond, directly to the registered owner at his address shown on the bond registration book of the City, and such payments shall fully discharge the obligations of the City to the extent of the payments so made.

This bond is issued for the purpose of aiding in the construction of improvements to and expansion of the City’s water treatment plant, storage tanks, and water transmission system, and related improvements (the “System”) of the City of Portland, Arkansas, and is issued pursuant to and in full compliance with the Constitution and laws of the State of Arkansas, including particularly Act No. 131 of the regular session of the General Assembly of the State of Arkansas of the year 1933, as amended, and applicable decisions of the Arkansas Supreme Court, including particularly City of Harrison v. Braswell, 209 Ark. 1094, 194 S.W.2d 12 (1946), and pursuant to Ordinance No. ______ of the City, duly adopted and approved on the ____ day of __________, 2019 (the “Authorizing Ordinance”), and proceedings of the City Council duly passed, and does not constitute an indebtedness of the City within any Constitutional or statutory limitations, and the taxing power of the City is not pledged to the payment of principal and interest on the bond. Reference is hereby made to the Authorizing Ordinance for the details of the nature and extent of the security and of the rights and obligations of the City and holders and registered owners of the bond.

Both principal and interest on this bond are payable solely from a fixed amount of the net revenues from the System as described in the Authorizing Ordinance. This amount has been duly set aside and pledged as a special fund for that purpose and identified as the “Water Revenue Bond Fund, Series 2019” created by Section 11 of the Authorizing Ordinance. The City of Portland has fixed and covenanted and agreed to maintain rates to be charged for the use of and services rendered by the System, which rates shall be sufficient at all times to provide for the payment of the principal of and interest on all the outstanding bonds and this bond as the same become due and payable, to establish and maintain a debt service reserve, to establish a short-lived asset replacement reserve provide for necessary replacement of short-lived asset items and repairs to the System, and to provide for the payment of the reasonable expenses of operation and maintenance of the System, all as set forth in the Authorizing Ordinance.

This bond is issued with the intent that the laws of the State of Arkansas shall govern the construction thereof.

Prepayments of scheduled installments of principal, or any portion thereof, may be made at any time at the option of the City. Refunds and extra payments, as defined in the regulations of the United States Department of Agriculture, according to the source of funds involved, shall, after payment of interest, be applied to the installments last to become due under this Bond and shall not affect the obligation of the City to pay the remaining installments as scheduled herein.

This bond may be assigned, and upon assignment the assignee shall promptly notify the Recorder-Treasurer by registered mail, and the assignee shall surrender this bond to the Recorder-Treasurer for transfer on the registration records. Every assignee shall take this bond subject to all payments and prepayments of principal and interest (as reflected by the Payment Record maintained by the Recorder-Treasurer), prior to such surrender for transfer.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all conditions and things required by the Constitution and laws of the State of Arkansas to exist, happen, and be performed pursuant to and in the issuance of this bond, have existed, have happened, and have been performed in due time, form and manner as required by law, and that sufficient of the income and revenue which is deemed to be derived from the operation of the System has been pledged to and will be set aside into the special fund for the payment of the principal of and interest on this bond; and that the indebtedness represented by this bond and the issue of which it forms a part, do not exceed any Constitutional or statutory limitations.

IN WITNESS WHEREOF, the City of Portland, Arkansas, by its City Council, has caused this bond to be signed by the Mayor and Recorder-Treasurer hereof and sealed with the corporate seal of the City, all as of the _____ day of ___________, 2019.

CITY OF PORTLAND, ARKANSAS

By:       Gary Morgan, Mayor

ATTEST:           

Kathy Coulter, Recorder-Treasurer

STATE OF ARKANSAS

COUNTY OF ASHLEY

I, the undersigned, Kathy Coulter, Recorder-Treasurer within and for the City of Portland, do hereby certify that the within bond has been registered as to principal and interest as indicated in the registration blank below in a book provided for that purpose in my office and in the manner required by law. The principal of and interest on this bond shall be payable only to the registered owner thereof named in the registration blank below or his legal representative, and this bond shall be transferable only by an appropriate notation on the bond registration book of the City.

Date Of Registration         Name Of Registered Owner             

Signature Of City Recorder-Treasurer

_______________________            ________________________            _________________________

Record Of Payment Of Advances

Date Of Advance*            

Amount Of Advance        

Total Principal Outstanding             

Signature Of Recorder-Treasurer

*The date of each advance shall be the interest commencement date from which the principal amount of such advances bears interest.

(FORM OF INTERIM CERTIFICATE OF INDEBTEDNESS)

CITY OF PORTLAND, ARKANSAS

INTERIM CERTIFICATE OF INDEBTEDNESS

NO. 1   $1,085,000.00

FOR VALUE RECEIVED, the City of Portland, Ashley County, Arkansas, hereby acknowledges itself indebted and promises to pay to The Citizens Bank at its office in ___________, Arkansas, the principal sum of One Million Eighty-Five Thousand Dollars ($1,085,000), or so much thereof as has been advanced hereunder as reflected           by the Record of Payment of Advances attached hereto, on _____________, 20____ plus interest thereon from the date hereof at the rate of ____________ percent per annum, payable annually on ____________ of each year beginning ___________ next following the date hereof.

This certificate is issued for the purpose of providing construction funds and in anticipation of the issuance of a permanent and definitive bond for constructing improvements to the water system (the “System”) for the City of Portland, Arkansas, in accordance with Ordinance No. ______ of the City adopted on ______________, 2019. This is a special obligation payable solely from the revenues of the System of the City and from a pledge of the proceeds of the definitive bond, and it does not constitute an indebtedness of the City within any Constitutional or statutory limitations. The City covenants and agrees that on or before the maturity date hereof this certificate, the principal amount hereof, to the extent then outstanding, with accrued interest, shall be exchanged for, or paid from the proceeds of, such permanent and definitive bonds.

IN WITNESS WHEREOF, the City of Portland, Arkansas has caused this Interim Certificate of Indebtedness to be signed by the Mayor and Recorder-Treasurer and sealed with the corporate seal of said City on the ____ day of _____________________ 2019.

City Of Portland, Arkansas

By:       Gary Morgan, Mayor

Attest:

Kathy Coulter, Recorder-Treasurer

(Seal)

Record Of Payment Of Advances

Date Of Advance*            

Amount Of Advance        

Total Principal Outstanding              Signature Of Recorder-Treasurer

*The date of each advance shall be the interest commencement date from which the principal amount of such advances bears interest.

[End of Form of Interim Certificate]

Section 6. So long as the Series 2019 Bond is held or payment of principal and interest thereon is insured, by the United States of America, the City shall, at the option of the United States of America, prepay all or any part of any installment of interest or of principal and interest by making payments in advance of the due date of the future installment. Nothing herein shall be construed to prohibit or restrict the City, at its option, from making prepayments as in this ordinance provided. Monthly payments for the purpose of prepayment pursuant to this subsection shall be commenced, terminated and resumed from time to time as directed by the United States of America by notice to the Mayor.

The amount of each monthly payment on the Series 2019 Bond shall be applied first to the payment of accrued interest to the date of payment on the unpaid principal balance due on the Series 2019 Bond, and the balance shall constitute a prepayment of principal. No such prepayment of principal shall, however, affect the obligation of the City to pay and prepay regular installments in the dollar amounts scheduled in the Series 2019 Bond and as provided herein and such installments shall be paid and repaid until all principal of and interest on the Series 2019 Bond has been fully paid.

The Mayor and Recorder-Treasurer shall, when and so often as requested by the United States of America, execute and deliver, on behalf of the City, an appropriate agreement containing the substance of this subsection.

Section 7. That the rates for water service established by the City Council established by its adoption of Ordinance No. 2018-04 on October 15, 2018, are hereby reaffirmed and the City further covenants to collect such rates and apply the proceeds thereof for the benefit of the owners of the Series 2019 Bond.

Section 8. In the event that the City or any department, agency or instrumentality thereof shall avail itself of the facilities and services afforded by the System, the reasonable value of the services or facilities so afforded shall be charged against the City or such department, agency or instrumentality and shall be paid for as the charges therefor accrue. The revenues so received shall be deemed to be revenues derived from the operation of the System and shall be used and accounted for in the same manner as any other revenues derived from the operation of the System; however, nothing herein shall be construed as requiring the City or any department, agency or instrumentality thereof to avail itself of the facilities or services afforded by the System.

Section 9. The Treasurer of the City shall be custodian of the gross revenues derived from the operation of the System and shall give bond for the faithful discharge of his duties as such custodian. The amount of the bond shall at all times be at least equal to the total funds in his custody at any one time. From and after the delivery of the Series 2019 Bond issued under the provisions of this Ordinance, the System shall be continuously operated as a revenue-producing undertaking. All moneys received by the Treasurer shall be deposited by her in such depository or depositories for the City as may be lawfully designated from time to time by the City Council; subject, however, to the giving of security as now or hereafter may be required by law, and provided that each depository must hold membership in the Federal Deposit Insurance Corporation. All deposits shall be in the name of the City and shall be so designed as to indicate the particular fund to which the revenues belong. Any deposit in excess of the amount insured by the Federal Deposit Insurance Corporation shall be secured by bonds or other direct or fully guaranteed obligations of the United States of America unless invested as herein authorized.

Section 10. Water Revenue Fund. All revenues derived from the operation of the System shall be paid into a special fund which is hereby created and designated “Water Revenue Fund” (the “Revenue Fund”). Revenues in the Revenue Fund are hereby pledged and shall be applied to the payment of the principal of and interest on the Series 2019 Bond, to the establishment and maintenance of a debt service reserve fund for the Series 2019 Bond, to the providing of a short-lived asset replacement reserve fund and to the payment of the expenses of operation and maintenance of the System, in the manner hereinafter set forth.

Section 11. Water Revenue Bond Fund. (a) There is hereby created and designated the “Series 2019 Water Revenue Bond Fund” (“Bond Fund”), into which the Treasurer shall deposit from the Revenue Fund the sums in the amounts and at the times hereinafter stated in subsections (b) and (c) for the purpose of providing funds for the payment of the principal and interest on the Series 2019 Bond as they mature, to establish a debt service reserve for the Series 2019 Bond, and to establish short-lived asset replacement reserve for the Series 2019 Bond.

(b)        There shall be paid into Bond Fund on the first business day of each month until the outstanding Series 2019 Bond with interest thereon have been paid in full or provision made for such payment, for the Series 2019 Bond, a sum equal to the installment of principal and interest due on the next monthly installment date for the outstanding Series 2019 Bond, plus an additional sum equal to 10% of the monthly installment payment. If the interest rate on the Series 2019 Bond is 2.75%, the additional sum referenced in the previous sentence will be $374.00. When the debt service reserve shall have been accumulated, and so long as it shall remain, in the amount to the lesser of (i) $44,796, or (ii0 the maximum annual debt service requirements on the Series 2019 Bond (the “required level”), the additional payment need not be made.

(c)        In addition to the establishment of the debt service reserve, there shall be established a “short lived asset replacement reserve” by deposit thereto monthly the sum of $387, the annual sum of $4,633 (the “Series 2019 Replacement Reserve Requirement”) until such time as the sum of $69,500 is on deposit in the asset replacement reserve to pay, for so long as the Series 2019 Bonds are outstanding, for repairs and/or replacement of major system assets identified in the Preliminary Engineering Report that was developed for the Improvements.

(d)        If the revenues of the System are insufficient to make the required payment on or before the first business day of the following month into the Series 2019 Bond Fund, then the amount of any such deficiency in the payment made shall be added to the amount otherwise required to be paid into the Series 2019 Bond Fund on the first business day of the next month.

(e)        If, for any reason, the City Treasurer shall fail at any time to make any of the required payments into the Series 2019 Bond Fund, or if for any reason the Series 2019 Bond Fund shall be insufficient at any time to make the required payments for principal and interest, as due, any sums then held in the debt service reserve established in connection with the Series 2019 Bond shall be used to the extent necessary in the payment of the principal of and interest on the Series 2019 Bond, but such reserve shall be reimbursed from the Revenue Fund by the increased monthly payments specified in (b) above. The debt service reserve shall be used solely as herein provided.

(f)         When the moneys held in the Bond Fund, including the debt service reserve, shall be and remain sufficient to pay the principal of and interest on the Series 2019 Bond then outstanding, the City Treasurer shall not be obligated to make any further payments into the Series 2019 Bond Fund.

(g)        All moneys in the Series 2019 Bond Fund shall be used solely for the purpose of paying the principal of and interest on the Series 2019 Bond, except as herein specifically provided. If a surplus shall exist in the Series 2019 Bond Fund over and above the amount necessary to insure the payment, when due, of principal and interest, and to maintain the debt service reserve in the required amount, such surplus shall be transferred to the Revenue Fund.

(h)        It shall be the duty of the City Treasurer to withdraw from the Series 2019 Bond Fund on or before the due date of any installment of interest or of principal and interest and to pay to the registered owner, or assigns, an amount equal to the amount of such installment, and no withdrawal of funds from the Series 2019 Bond Fund shall be made for any other purpose except as otherwise authorized in this Ordinance. Deposits in the Series 2019 Bond Fund shall be at the sole risk of the City and shall not operate as a payment of the Series 2019 Bond or interest until so applied.

(i)         The Series 2019 Bond shall be specifically secured by a pledge of all the revenue required to be placed into the Series 2019 Bond Fund. This pledge in favor of the Series 2019 Bond is hereby irrevocably made according to the terms of this Ordinance, and the City and its officers and employees shall execute, perform and carry out the terms thereof in strict conformity with the provisions of this Ordinance.

(j)         Provision has been made for the payment of the principal of and accrued interest on the Interim Certificate of Indebtedness from the proceeds of the permanent bond and the City shall not be required to make any payments into the Bond Fund until delivery of the permanent bond unless necessary to prevent a default on the Interim Certificate of Indebtedness but the City covenants to make payments into the Bond Fund at the times and in the amounts, if any, necessary to prevent a default in payment of principal of or interest on the Interim Certificate of Indebtedness.

Section 12. Water Operation and Maintenance Fund. After making the payments required pursuant to Section 10 and Section 11 hereof, there shall be paid by the Treasurer from the Revenue Fund into the “Water Operation and Maintenance Fund” (“Operation and Maintenance Fund”), which is hereby created on the first business day of each month, an amount sufficient to pay the reasonable and necessary monthly expenses of operation, repair, maintenance and the insuring of the System for such month and from which disbursements shall be made only for those purposes. Fixed annual charges, such as insurance premiums and the cost of major repair and maintenance expenses may be computed and set up on an annual basis and one-twelfth (1/12) of the amount hereof may be paid into the Operation and Maintenance Fund each month.

If, in any month, for any reason there shall be a failure to transfer and pay the required amount into the Operation and Maintenance Fund, the amount of any deficiency shall be added to the amount otherwise required to be transferred and paid into the Operation and Maintenance Fund in the next succeeding month. If in any fiscal year a surplus shall be accumulated in the operation and Maintenance Fund over and above the estimated amount necessary to defray the reasonable and necessary cost of operation, repair, maintenance and insuring of the System during the remainder of the then current fiscal year, such surplus shall be transferred and deposited in the Revenue Fund.

Section 13. Any surplus in the Revenue Fund, after making full provision for the other funds hereinabove provided for, may be used, at the option of the City, for the redemption of the Series 2019 Bond prior to maturity in accordance with the redemption provisions herein, for betterments and improvements to the System, or for any other lawful municipal purpose.

Section 14. Payments from the respective funds shall be made by check or voucher, signed by the Recorder-Treasurer and the Mayor, and drawn on the depository. Each such check or voucher shall briefly specify the purpose of the expenditure.

Section 15. The Series 2019 Bond, or portions thereof, paid either at or before maturity shall be canceled and shall not be reissued.

Section 16. The System shall be operated on a calendar year basis, beginning January 1 and ending December 31 of each year.

Section 17. The principal and interest installments shall be prepayable prior to maturity as provided in the bond form in Section 5 hereof.

Section 18. As long as the Series 2019 Bond is outstanding, the City shall not issue or attempt to issue any bond having or claimed to be entitled to a priority of lien on the revenues of the System over the lien securing the Series 2019 Bond, including any and all future extensions, betterments and improvements to the System.

Nothing herein shall be construed in any manner to prevent the issuance by the City of additional revenue bonds to finance the cost of constructing extensions, betterments and improvements to the System; however, any such additional bonds shall not be issued on a parity with the Series 2019 Bond unless and until (a) there shall have been procured and filed in the office of the Recorder-Treasurer a statement by a certified public accountant not in the regular employ of the City reciting the opinion that the net revenues (net revenues being gross revenues of the System, less operation and maintenance expenses) of the System for the fiscal year preceding the year in which such parity bonds are to be issued are not less than 120% of the average annual debt service requirements (principal, interest and Paying Agent’s fees) on all outstanding bonds to which the revenues of the System are pledged, and the bonds then proposed to be issued, and (b) so long as the Federal Government is the owner of the Series 2019 Bond, consent for issuance of any such bonds is obtained from the Federal Government.

The additional bonds, the issuance of which is restricted and conditioned by this Section 18, shall not be deemed to mean bonds the security and source of payment of which are subordinate and subject to the priority of the Series 2019 Bond.

Section 19. It is covenanted and agreed by the City with the holder or holders of the Series 2019 Bond that it will faithfully and punctually perform all duties with reference to the System required by the Constitution and laws of the State of Arkansas and by this Ordinance, including, without limitation, the making and collecting of reasonable and sufficient rates lawfully established for services rendered by the System, segregating the revenues of the System and applying them to the respective funds herein created.

Section 20. Reserved.

Section 21. The City will keep proper records, books and accounts relating to the operation of the System, which shall be kept separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the operation of the System. Such books shall be available for inspection by the holder of the bond, or the agent or the representative of any bondholder, at reasonable times and under reasonable circumstances.

The City agrees to submit an annual financial report at the end of each fiscal year. The annual report will be certified by the appropriate organization official, and will consist of financial information and a rate schedule. Financial statements must be prepared on the accrual basis of accounting in accordance with generally accepted accounting principles (GAAP), and must include at a minimum a balance sheet and income and expense statement. The annual report will include separate reporting for each water facility, and itemize cash accounts by type (debt service, short-lived assets, etc.) under each facility. All records, books and supporting material are to be retained for three years after the issuance of the annual report. The type of financial information that must be submitted is specified below:

(a)        Audits. An annual audit under the Single Audit Act is required if the City expends $750,000 or more in federal financial assistance per fiscal year. The total federal funds expended from all sources shall be used to determine federal financial assistance expended. Expenditures from funds provided pursuant to the Interim Certificate are considered federal expenditures. All audits are to be performed in accordance with 2 CFR Part 200, as adopted by the United States Department of Agriculture (“USDA”) through 2 CFR Part 400. It is not intended that audits required by this Section be separate and apart from audits performed in accordance with State and local laws. To the extent feasible, the audit should be performed in conjunction with those audits. The audit must be prepared by an independent licensed Certified Public Accountant, or a State or Federal auditor if allowed by State law, and must be submitted within 9 months of the City’s fiscal year end. If an audit is required pursuant to this Section, the City must enter into a written agreement with the auditor and submit a copy to USDA prior to the advertisement of bids. The audit agreement may include terms and conditions that the borrower and auditor deem appropriate; however, the agreement should include the type of audit or financial statements to be completed, the time frame in which the audit or financial statements will be completed, what type of reports will be generated from the services provided, and how irregularities will be reported.

(b)        Financial Statements. If the City expends less than $750,000 in federal financial assistance per fiscal year, and less than $1,000,000 of the Series 2019 Bonds remain outstanding, the City may submit financial statements in lieu of an audit which include at a minimum a balance sheet and an income and expense statement. The City may use Form RD 442-2, “Statement of Budget, Income and Equity,” and 442-3, “Balance Sheet,” or similar format to provide the financial information. These financial statements must be signed by the appropriate City official and submitted within 60 days of the City’s fiscal year end.

Section 22. The City covenants and agrees that it will maintain the System in good condition and operate it in an efficient manner and at reasonable cost. While any Series 2019 Bond is outstanding, the City agrees that it will insure, and at all times keep insured, in the amount of the actual value thereof, in a responsible insurance company or companies authorized and qualified under the laws of the State of Arkansas to assume the risk thereof, all aboveground structures of the System (except reservoirs, standpipes and elevated tanks) against loss or damage thereto from fire, lightning, tornado, winds, riot, strike, civil commotion, malicious damage, explosion, and against loss or damage from any other causes customarily insured against by private companies engaged in a similar type of business. In the event of loss, the proceeds of such insurance shall be applied solely toward the reconstruction, replacement or repair of the system, and in such event the City will, with reasonable promptness, cause to be commenced and completed the reconstruction, replacement and repair work. If such proceeds are more than sufficient for such purposes, the balance remaining shall be deposited to the credit of the Revenue Fund, and if such proceeds shall be insufficient for such proposes, the deficiency shall be supplied, first, from moneys in the Series 2019 Replacement Reserve Fund, second from moneys in the Operation and Maintenance Fund, and third, from available moneys in the Revenue Fund. Nothing herein shall be construed as requiring the City to expend any funds for reconstruction, replacement or repair of the System or for operation and maintenance of the System or for premiums on its insurance which are derived from sources other than insurance proceeds or revenues derived from sources other than insurance proceeds or revenues derived from the operation of the System, but nothing herein shall be construed as preventing the City from doing so.

It is further covenanted and agreed by the City with the holder or holders of the bond that the City will maintain public liability insurance covering the City’s ownership and operation of a motor vehicle or vehicles in connection with the System, with maximum liability limits of not less than $25,000 for personal injury or death of a single person, $50,000 for personal injury or death of more than one person in a single accident or occurrence and $15,000 for property damage arising from a single accident or occurrence.

Section 23. So long as the Series 2019 Bond is outstanding, the City covenants and agrees that it will continuously operate the System as a revenue-producing undertaking and that it will not sell, lease, mortgage, pledge, or otherwise encumber the System (including any and all betterments and improvements thereto) or any substantial portion thereof, or any revenues therefrom, except as herein provided; provided, however, that nothing herein shall be construed to prohibit the City from making such disposition of properties of the System and such replacements and substitutions for properties of the System as shall be necessary or incidental to the efficient operation of the System as a revenue-producing undertaking.

Section 24. There shall be a statutory mortgage lien upon the System, which shall exist in favor of the holders and registered owners of the Series 2019 Bond, and the System shall remain subject to such statutory mortgage lien until payment in full of the interest on and principal of the Series 2019 Bond.

Section 25. (a) If there be any default in the payment of the principal of or interest on any Series 2019 Bond, or if the City defaults in any Series 2019 Bond Fund requirement or in the performance of any of the other covenants contained and set forth in this Ordinance, the holders or registered owners of a majority in principal amount of the Series 2019 Bond then outstanding, may, by proper suit, compel the performance of the duties of the officials of the City as set forth in Act 131 of 1933, as amended, and in this Ordinance. And, in the case of a default in the payment of the principal of and interest on the outstanding Series 2019 Bond, or if the City fails to comply with any other obligation which it herein assumes, the holders or registered owners may apply in a proper action to a court of competent jurisdiction for the appointment of a receiver to administer the System on behalf of the City and the bondholders or registered owners with power to charge and collect (or by mandatory injunction or otherwise to cause to be charged and collected) rates sufficient to provide for the payment of the expenses of operation and maintenance and to pay the Series 2019 Bond and interest outstanding and to apply the revenues in conformity with the provisions of Act 131 of 1933, as amended, and with this Ordinance. When all defaults in principal and interest payments have been cured, the custody and operation of the System shall revert to the City.

(b)        It is understood and intended that no one or more holders or registered owners of the Series 2019 Bond hereby secured shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Ordinance, or to enforce any right hereunder except in the manner herein provided, that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the benefit of all holders or registered owners of the outstanding Series 2019 Bond, and that any individual rights of action or other right given to one or more of such holders or registered owners by law are restricted by this Ordinance to the rights and remedies herein provided.

(c)        No remedy conferred upon or reserved to the holders or registered owners of the Series 2019 Bond is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or available under the law.

(d)        No delay or omission of any holders or registered owners of the Series 2019 Bond to exercise any right or power accrued upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by this Ordinance to the holders and registered owners of the Series 2019 Bond, respectively, may be exercised from time to time and as often as may be deemed expedient.

(e)        The holders or registered owners of not less than a majority in principal amount of Series 2019 Bond then outstanding may waive any default which shall have been remedied before the entry of final judgment or decree in any suit, action or proceeding instituted under the provisions of this Ordinance or before the completion of the enforcement of any other remedy, but no such waiver shall extend to or affect any other existing or any subsequent default or defaults or impair any rights of remedies consequent thereon.

Section 26. That when the Series 2019 Bond herein authorized and the Interim Certificate of Indebtedness) has been executed by the Mayor and Recorder-Treasurer and the seal of the City impressed, as herein provided, they shall be delivered to the purchaser upon payment of the purchase price. The proceeds from the sale of the Series 2019 Bond shall be disbursed as follows:

(a) In the case of the Interim Certificate of Indebtedness, the amount necessary to provide for the payment of interest that will become due and payable during the construction period shall be deposited in the Bond Fund, and each advance from the proceeds thereof shall be deposited in a special account of the City designated “Water Construction Fund” (the “Construction Fund”) in a bank that is a member of the Federal Deposit Insurance Corporation.       

(b) In the case of the Series 2019 Bond, the amount necessary, if any, to pay in full the outstanding principal and accrued interest to date of payment of the Interim Certificate of Indebtedness shall be used for that purpose. To the extent that construction of the Improvements has not been completed, the amount necessary to provide for the payment of interest that will become due and payable during the remaining construction period shall be deposited in the Series 2019 Bond Fund, and the balance of the proceeds shall be deposited in the Construction Fund.

Money in the Construction Fund in excess of the amount insured by the Federal Deposit Insurance Corporation shall be continuously secured by bonds or other direct or fully guaranteed obligations of the United States of America, except that any moneys invested as hereafter authorized need not be so secured.

The moneys in the Construction Fund shall be disbursed solely in payment of the cost of the construction, paying necessary expenses incidental thereto, and paying expenses of issuing the Series 2019 Bond. Disbursements shall be on the basis of checks or requisitions which shall contain at least the following information: the person, firm or corporation to whom payment is being made; the amount of the payment; and the purpose by general classification of the payment. Each check or requisition must be signed by the individual occupying the managing office of the System, In the case of all items of expense over which the consulting engineers shall exercise supervision (which shall include all expenses except engineering fees, legal fees and expenses pertaining to the issuance of the Series 2019 Bond) each check or requisition shall be accompanied by a certificate signed by the consulting engineers (or by a representative thereof designated by the consulting engineers), certifying approval thereof. In the case of requisitions, the depository shall issue its check upon the Construction Fund payable to the person, firm or corporation designated in the requisition. The depository of the Construction Fund shall be required to keep records as to all payments made on the basis of requisitions, and the managing officer of the System shall keep records of all payments made on the basis of checks.

When the construction of the improvements to the System shall have been completed, this fact shall be evidenced by the filing with the depository in which the Construction Fund is deposited of a Certificate signed by the managing officer of the System, and the consulting engineer, which certificate shall state the date of such completion and shall state that all obligations which are payable from the Construction Fund have been discharged. Upon receipt of the above certificate the depository with which the Construction Fund is deposited shall pay or transfer any remaining balance pursuant to the written direction or check signed by the managing officer of the System and one other person designated by the City Council with any such remaining balance to be transferred into the Series 2019 Bond Fund and applied immediately to the prepayment of bond, in multiples of $1,000 in principal amount. The City shall require the depository to execute an appropriate Deposit Agreement embodying the substance of the provisions of this Section 26.

Section 27. (a) Moneys held for the credit of the Construction Fund shall, as nearly as may be practicable, be continuously invested and reinvested in direct obligations of, or obligations the principal of and interest on which are fully guaranteed by, the United States Government, which mature, or which shall be subject to redemption by the holder or registered owner at the option of the holder or registered owner, not later than the date or dates when the moneys will be needed for project disbursements.

(b)        Moneys held for the credit of the debt service reserve in the Series 2019 Bond Fund shall be continuously invested and reinvested in direct obligations of, or obligations the principal of and interest on which are fully guaranteed by, the United States of America, which shall mature, or which shall be subject to redemption by the holder or registered owner thereof, at the option of such holder or registered owner, not later than ten (10) years after the date of investment.

(c)        Moneys held for the credit of any other fund may, at the option of the City, be invested and reinvested by the City in direct obligations of, or obligations the principal of and interest on which are fully guaranteed by, the United States Government, which shall mature, or which shall be subject to redemption by the holder or registered owner thereof at the option of such holder or registered owner, not later than the date or dates when the moneys held for the credit of the particular fund will be required for the purpose intended.

(d)        Obligations so purchased as an investment of moneys in any such fund shall be deemed at all times to be a part of such fund, and the interest accruing thereon and any part of such fund, and the interest accruing thereon and any profit realized from such investment shall be credited to such fund, and any loss resulting from such investment shall be charged to such fund.

(e)        Moneys so invested in United States Government obligations, as above defined, need not be secured by the depository bank.

Section 28. Covenant Against Arbitrage. The City covenants that it will not take any action or suffer or permit any action to be taken or condition to exist which causes or may cause the interest payable on the Series 2019 Bond to be subject to federal income taxation. Without limiting the generality of the foregoing, the City covenants that the proceeds of the sale of the Series 2019 Bond will not be used directly or indirectly in such manner as to cause the Series 2019 Bond to be treated as an “arbitrage bond” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the “Code”).

Section 29. Arbitrage Rebate. Pursuant to the provisions of Internal Revenue Code Section 148(f)(2) and Treasury Regulations Section 1.148-8, the Series 2019 Bond, when issued, will be exempted from the arbitrage rebate requirements. The City expects that it will not, nor will any of its subordinate entities, issue, in the aggregate, during calendar year 2019 more than $5,000,000.00 in face amount of tax exempt obligations, other than private activity bonds. The City elects to have the provisions of Code Section 148(f)(2) apply to the Series 2019 Bond.

Section 30. In the event the office of Mayor, Recorder-Treasurer, City Treasurer or City Council shall be abolished, or any two or more of such offices shall be merged or consolidated, or in the event the duties of a particular office shall be transferred to another office or officer, or in the event of a vacancy in any such office by reason of death, resignation, removal from office or otherwise, or in the event any such officer shall become incapable of performing the duties of his office by reason of sickness, absence from the City or otherwise, all powers conferred and all obligations and duties imposed upon such office or officer shall be performed by the office or officer succeeding to the principal functions thereof, or by the office or officer upon whom such powers, obligations and duties shall be imposed by law. In this regard, if the City should ever fail to maintain the office of Treasurer, the duties of the Treasurer hereunder shall be performed by the Recorder-Treasurer.

Section 31. The provisions of this Ordinance shall constitute a binding contract between the City and the holders or registered owners of the outstanding Series 2019 Bond issued hereunder, and the City will at all times strictly adhere to the terms and provisions hereof and fully discharge all of its obligations hereunder. Subject to the terms and conditions contained in this Section and other otherwise, the holders or registered owners of not less than seventy-five percent (75%) in aggregate principal amount of the bond then outstanding shall have the right, from time to time, anything contained in this Ordinance to the contrary notwithstanding, to consent to and approve the adoption by the City of such ordinance supplemental hereto as shall be necessary or desirable for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Ordinance or in any supplemental ordinance; provided, however, that nothing herein contained shall permit or be construed as permitting (a) an extension of the maturity of the principal of or interest on any bond issued hereunder, or (b) a reduction in the principal amount of any bond or the rate of interest thereon, or (c) the creation of a lien upon or a pledge of revenues other than as expressly authorized by the appropriate provisions of this Ordinance as now adopted, or (d) the creation of a privilege or priority of any bond or bonds over any other bond or bonds, or (e) a reduction in the aggregate principal amount of the bond required for consent to such supplemental ordinance.

Section 32. This Ordinance shall not create any right of any kind, and no right of any kind shall arise hereunder pursuant to it, until the Series 2019 Bond authorized by this Ordinance shall be issued and delivered.

Section 33. The provisions of this Ordinance are hereby declared to be separable, and if any provision shall for any reason be held illegal or invalid, it shall not affect the validity of the remainder of the Ordinance.

Section 34. References in this Ordinance to “holder” or ‘bondholder” shall, when appropriate, be deemed to include the registered owner of the Series 2019 Bond.

Section 35. All ordinances and resolutions and parts hereof in conflict herewith are hereby repealed to the extent of such conflict.

Section 36. Upon passage of this Ordinance, the Mayor and the Recorder-Treasurer are hereby directed to execute and publish this ordinance one time in a newspaper of general circulation within the corporate limits of the City.

Section 37. The Series 2019 Bond is hereby designated a “qualified tax exempt obligations” for purposes of the Internal Revenue Code of 1986 Section 265(b)(3). The City does not reasonably expect to issue more than $10,000,000 of governmental or qualified 501(c)(3) obligations during calendar year 2019.

Section 38. It is hereby ascertained and declared that the existing water system used by the persons served or to be served by the System is inadequate to serve the needs of the City and the persons served or to be served by the System, thus endangering the life, health and safety of such persons and their property, and that the only practical manner in which these inadequacies can be eliminated by the construction of improvements to the System to be financed by the Series 2019 Bond. It is, therefore, declared that an emergency exists, and this Ordinance being necessary for the immediate reservation of the public peace, health and safety, shall take effect and be in force from and after its passage.

PASSED: December 3, 2018.

APPROVED:

             By/s/Gary Morgan                                                                   

             Gary Morgan, Mayor

ATTEST:

/s/Kathy Coulter                            

Kathy Coulter, Recorder-Treasurer

(SEAL)

CERTIFICATE

The undersigned, Recorder-Treasurer of the City of Portland, Arkansas, hereby certifies that the foregoing pages are a true and perfect copy of Ordinance No.2018-07 approved at a special session of the City Council of the City of Portland, Arkansas, held at the regular meeting place of the City Council at 1:00 o’clock p.m., on the 3rd day of December, 2018 and that the Ordinance is of record in Ordinance Record Book now in my possession.

GIVEN under my hand and seal on this 3rd day of December, 2018.

             /s/Kathy Coulter                                                                  

Kathy Coulter, Recorder-Treasurer

(SEAL)

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