CHICAGO — The St. Louis Metro transit agency and Menasha, Wis., will face voters tomorrow with ballot measures aimed at aiding their fiscal health.
Metro is seeking a sales tax increase, while the Wisconsin city is asking for approval to sell its electric utility assets in a sale-leaseback transaction so it can repay investors who hold its $23 million of defaulted steam-plant notes.
The referendum reads: “Shall the city of Menasha sell its electric utility assets to WPPI Energy at the price and upon the terms approved by the Public Service Commission of Wisconsin?”
Under terms of the proposed deal, the WPPI would purchase the utility’s distribution assets for $18.2 million. The city would then lease the assets back in a 20-year deal.
Any money the city receives would go to help settle bondholder claims on the $23 million of defaulted bond anticipation notes and pending arbitration claims and regulatory fines. Menasha defaulted last September on notes that carried its appropriation pledge.
The notes were issued after the city in 2004 decided to convert a portion of its electric generation plant to produce industrial steam. The project was plagued with cost overruns and regulatory fines. The converted plant also failed to generate sufficient revenue to allow the city to issue long-term debt to retire the notes. The plant was closed last October.
The notes have strained city finances, led to its loss of an investment-grade general obligation rating, and hurt its near-term ability to access the tax-exempt market. The debt also is the subject of pending litigation.
A group of bondholders filed a federal complaint after the default alleging that Menasha and its utilities division “misrepresented” the coal-fired steam plant’s business prospects and the true costs of converting it to steam operations.
The next hurdle, if voters approve, is the resolution of all pending claims involving the plant and bondholder approval. Menasha officials are hoping voters will be swayed to endorse the sale as the most economical alternative. On its Web site, the city estimates an average $4 per month impact on electric rates paid by consumers if the deal is approved. If not, and the city is forced to repay bondholders, it could result in a dramatic rise in property taxes to repay the defaulted debt.
Meanwhile, also in Wisconsin, 18 school districts are seeking approval for bonds for construction projects and maintenance costs. The largest is from Jefferson School District, which is seeking approval to borrow $35 million to renovate and expand its high school. The Waunakee School District is seeking approval for $33 million in borrowing for projects.
In Missouri, St. Louis-area voters will be asked to approve a half-cent sales tax increase for Metro. The St. Louis County Council approved the ballot measure earlier this year amid warnings from the agency that without increased revenue, it would have to deeply cut service. Metro earlier this year cut service by 30% because of a budget deficit, but later reversed about half the cuts when federal stimulus funds were made available.
Voters rejected a half-cent increase last November. Metro currently receives about $50 million annually from a quarter-cent sales tax in St. Louis and St. Louis County. If approved, the increased tax rate is expected to generate an additional $90 million annually, half of which would fund operations with the other half funding expansion projects.
Fitch Ratings gives a BBB-plus with a negative outlook to the agency, formally known as the Bi-State Development Agency of the Missouri-Illinois Metropolitan District. Moody’s Investors Service rates Metro A2 with a negative outlook. Standard & Poor’s rates it A.
Opponents of the increase want to see the agency reformed before it receives additional tax dollars. They cite the mismanagement of the Cross County Metrolink expansion project, which resulted in sharp cost overruns and a failed lawsuit against the developers.
“St. Louis County voters should reject Proposition A, a 100 % increase in revenue for the Metro transit agency — an organization that adamantly refuses to be accountable to the public and has an unmatched record of squandering hundreds of millions of tax dollars,” said Metro critic Tom Sullivan, who is also critical of the past awarding of bond business to firms with ties to the agency’s leaders.
