Bad to worse: City manager lists options for Muskogee's repayment of $29.25M judgment

Muskogee is in a world of hurt over past decisions to kick the can down the road regarding three lawsuits from 2007 over the city's improper condemnation and demolition of derelict properties in 2005 and 2006. Now, the original property damages have ballooned to almost thirty million dollars with interest and legal fees.

City Manager Kendal Francis, the man with an unenviable job at the moment, wrote an open letter to Muskogee residents detailing the options the City has for repayment of the $29.25M judgments. They range from bad to worse based on the limited options the City has available to raise revenue. Read 'em and weep:

City Manager Kendal Francis Details Repayment Options for Court Judgments

September 28, 2026

Dear Citizens of Muskogee,

I recently wrote to you about three court judgments against the City totaling $29.25 million. I promised to explain our options as we worked through them. We now have a clearer picture of those options and the path forward.

The judgments are a legal obligation of the City. The question is no longer whether they must be paid, but how do we pay them and how much of that cost falls on Muskogee property owners each year.

There is no painless option. Each choice has a cost. My goal is to explain the four options in plain language so you can understand what each one could mean for you.

Option 1: Pay the judgments through property taxes over three years

The City could place the full cost of the judgments on its Sinking Fund tax rolls. The Sinking Fund is the legal mechanism cities use to collect property taxes to pay certain debts, including court judgments. Under this option, state law allows the judgments to be spread over only three tax years.

The impact on property owners would be significant. Current projections show an additional property tax cost of about $428 in 2027, $342 in 2028, and $316 in 2029 for every $100,000 of a home's valuation.

Option 2: Issue bonds and repay them over ten years

An obscure and rarely used state statute called the Municipal Funding Bonds Act of 1905 allows cities to issue Funding Bonds to pay unusually large judgments. These bonds do not require a public vote. They are reviewed through District Court and approved by a District Judge.

In simple terms, the City would use the bonds to pay the judgments now and then repay the bonds over a longer period. This would reduce the amount property owners would have to pay in any single year.

Although the law allows repayment for as long as 25 years, our calculations show that extending the debt much beyond ten years provides less benefit because of the additional interest cost. If property taxes alone were used to make full payment on a ten-year bond, the projected increase would be about $126 per year for every $100,000 of a home's valuation.

The final amount borrowed would be more than $29.25 million because the bonds would also need to cover the cost of issuing them, the interest that continues to compound until the judgments are paid, and funds for the first bond payment. The final interest rate will also affect the total amount borrowed and the annual payment.

Option 3: Issue ten-year bonds and ask voters to approve a 1/2-cent sales tax

The City would issue the same ten-year funding bonds described above, but voters would be asked to approve a temporary 1/2-cent sales tax to help make the annual bond payments.

Our financial advisors have told us the bond could be structured with annual debt payments of about $4.3 million. For comparison, a 1/2-cent sales tax generated approximately $4.34 million for the city in fiscal year 2026.

The bond would still be legally backed by property taxes. However, each year, the City would first apply the available sales tax revenue toward that year's bond payment. If the sales tax generated enough to make the full payment, the City would submit $0 for this obligation in its property-tax Estimate of Needs. If sales tax collections fell short, property taxes would be used only for the remaining amount. If voters did not approve the sales tax, the bonds would instead be repaid entirely through property taxes as described in Option 2.

A 1/2-cent tax would raise Muskogee's combined sales tax rate from 9.999% to 10.499%. For context, the Oklahoma Tax Commission’s July–September 2026 schedule shows that the highest combined sales tax rate in the state is 11.5%. Cities at that rate include Stillwater, Guthrie, Elgin, Sand Springs, Hobart, Snyder, Mountain View, Tipton, Davidson, Gotebo, Hollis, and Boley.

The sales tax would last no more than ten years. It could end sooner if sales tax collections remained strong or other revenues became available that allowed the bonds to be paid off early. Because sales tax collections can change, we cannot promise that the additional property tax levy would always be zero.

Option 4: Issue ten-year bonds and ask voters to approve a 1-cent sales tax

The City could issue the same ten-year bond described in Option 3 but ask voters to approve a temporary 1-cent sales tax instead of a 1/2-cent tax. Based on recent collections, a 1-cent sales tax would generate roughly $8.6 million per year. Muskogee’s combined sales tax rate would increase from 9.999% to 10.999%.

Because that revenue would be well above the projected annual debt payment, a 1-cent tax could allow the city to pay off the bond in about five years if collections remain strong. I would still recommend issuing a ten-year bond so that, if voters did not approve the sales tax, the property-tax repayment would remain spread over ten years rather than creating a much larger annual burden.

We would seek bond terms that allow the City to pay the bond off after approximately five years without a significant prepayment penalty. Those more flexible terms could result in a slightly higher interest rate. The advantage of this option is the potential to retire the debt faster and reduce total interest costs. The tradeoff is that shoppers would pay a higher sales tax rate while the tax is in effect.

Why timing matters

The judgments currently carry an 8.75% post-judgment interest rate. On $29.25 million, that means we are accruing more than $7,000 in additional interest every day the judgements remain unpaid.

In an effort to reduce interest accrual, I have authorized the City’s bond counsel to begin initial discussions with banks about short-term financing. That could allow the city to pay the judgments while the ten-year bond is being prepared, a process expected to take approximately four months.

The proposed sales tax election would be held on February 9, 2027. If voters approve the tax, it will take effect July 1, 2027, and the city would begin receiving collections in September. The bond proceeds would include money for the first payment to help cover the period before sales tax collections begin.

Where do we go from here?

We cannot undo the events that led to these judgments, and we cannot avoid the City’s responsibility to pay them. What we can do is decide how to meet that obligation while protecting our citizens from a sudden and significant financial burden as much as possible.

You did not have a say in how these cases were settled or how the judgments were decided. But you can have a say in how they are repaid. My recommendation gives you, the citizens of Muskogee, a direct voice in that decision.

If the City relies only on property taxes, the tax itself would only be paid by property owners within the city limits. However, the financial impact would not stop with them. Higher property taxes ultimately affect all of us. Businesses facing higher property tax bills may have to increase the prices of goods and services to help cover those added costs. Landlords facing higher taxes may need to increase rents.

Sales tax spreads responsibility much more broadly. Everyone who makes a taxable purchase in Muskogee, including visitors, commuters, and people who live outside the city limits, would help pay these judgments.

For these reasons, my recommendation is a combination of Options 3 and 4: issue ten-year funding bonds to pay the judgments and ask voters to approve a temporary sales tax of at least 1/2 cent dedicated to the bond payments. A 1/2-cent tax is expected to generate roughly enough to cover the annual debt service based on recent collections, which could substantially reduce or potentially eliminate the additional property-tax levy. A 1-cent tax would provide the opportunity to pay the bonds off much sooner and reduce the amount of interest paid. The City Council will ultimately decide whether to place a 1/2-cent or 1-cent proposal before voters, but I believe the combination of a ten-year bond and a dedicated sales tax gives us the best opportunity to meet our obligation while limiting the impact on property owners and allowing voters to have a direct voice in how the debt is repaid.

This is a serious decision for our community. As we move forward, we will continue to share the facts with you as clearly and transparently as possible.

Sincerely,

Kendal Francis
City Manager